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By Fahad Saleem, Yahoo Finance
REIT stocks have continued to suffer this year amid dampening hopes of interest rate cuts. However, analysts believe there are several growth catalysts for REITs ahead. Chilton Capital Management said in a report in May that REITs are nearing the beginning of a “multiyear bull market” driven by economic growth and stabilization and a possible decline in interest rates. Chilton Capital said even if rates stabilize at elevated levels, public REITs are positioned well to benefit since the firm's research has shown that higher rates provide a level playing field for public and private REITs and, in the long term, give public REITs an advantage due to lower blended capital costs.
REIT stocks have always attracted investors due to their high dividend yields. Based on average analyst price estimates, this article will look at the top three REIT stocks with over 5% dividend yield and more than 20% upside potential.
VICI Properties
Average Analyst Price Target: $35.03
Upside Potential: 26.74%
Casino and entertainment REIT VICI Properties Inc (NYSE:VICI) is one of the notable high-yield dividend REIT stocks with upside potential. Last month, Jefferies updated their model for the company to reflect rent increases at Caesars Palace on the Las Vegas Strip and in view of the incremental rent incomes at The Venetian. Jefferies analysts led by David Katz now expect revenue of $3.98 billion for the company in fiscal 2025. They kept their $43 price target on VICI stock, about 55% higher than the stock price on July 9.
On average, Wall Street's price target for VICI Properties is $35.03, showing a 26% upside.
Almost the entire portfolio of VICI consists of triple net leases — where tenants pay expenses, insurance and maintenance — protecting it from volatility and operational complexities. However, as the company is dependent on the casino and gaming market, any weakness in the Vegas gaming strip could pose risks to the business in the short term.
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Apple Hospitality REIT
Average Analyst Price Target: $17.25
Upside Potential: 23.48%
Apple Hospitality REIT Inc (NYSE:APLE) is one of the biggest hotel REITs, with investments in upscale hotels including Marriott, Hyatt and Hilton. The stock has a dividend yield of about 6.87%, while the average analyst price estimate is $17.25, about 23% higher than the stock price as of July 10. Apple Hospitality is benefiting from the robust travel demand and tourism trends. At the Nareit REITweek conference in New York City last month, Apple Hospitality's management said leisure travel is still strong and the company's recently acquired assets are performing better than expectations. During the first quarter, the company acquired AC Hotel by Marriott Washington DC Convention Center for $116.8 million. Last month, the company bought Embassy Suites by Hilton Madison Downtown for about $79.5 million.
During the first quarter, Apple Hospitality's FFO was $0.34, meeting estimates, while revenue increased 5.8% year over year to $329.51 million, surpassing Street forecasts by $2.16 million.
Kilroy Realty
Average Analyst Price Target: $39.69
Upside Potential: 23.76%
Despite headwinds in the office REIT industry, Kilroy Realty Corp (NYSE:KRC) has long-term upside potential based on average analyst price estimates. The stock has a dividend yield of over 6% as of July 9. In May, the company posted upbeat first-quarter results. FFO in the period came in at $1.11, surpassing estimates by $0.04. Revenue in the quarter fell 4.8% year over year to $278.6 million, still beating estimates by $2.75 million. For the full year, the company expects FFO in the range of $4.15 to $4.30 per share, compared with the consensus estimate of $4.21. Based on the midpoint of this guidance, the stock is trading at a forward price/FFO of 7.58, much lower than the industry median of 12.54.
During the first quarter, the company signed 400,000 square feet of leases, the highest volume since 2017. However, the occupancy rate fell to 84.2%. The company is significantly spending on new projects as its total development spending in 2024 is expected to fall between the $200 million to $300 million range, with under-construction properties expected to come online by the end of 2025. However, the company has roughly 680,000 square feet of leases expiring in 2024, with another 713,000 square feet expiring in 2025. This could be a short-term headwind for the stock.
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