The bear market has not only been a beast for most stocks but also created some beauties in the form of beaten-down equities that bear some renewed buying attention.
I'm primarily an income investor interested in supplementing retirement cash flow, so the three I'm focusing on here are all real estate investment trusts (REITs): Terreno Realty (NYSE: TRNO), Alexandria Real Estate Equities(NYSE: ARE), and Life Storage(NYSE: LSI).
The chart below shows each stock's share price has fallen sharply and remains below even that of the battered S&P 500. But each also shares long-term buy-and-hold characteristics, including strong competitive positions, durable demands, expanding portfolios, and the ability to raise the rent to grow cash flow in the face of inflation.
They also have nice records of shareholder returns. Check out the difference in the chart below once the dividends are factored in. Over the past five years, holding through market volatility and letting dividends do the heavy lifting -- my plan here -- has turned into rather impressive long-term returns
Take a look:
ARE Total Return Level data by YCharts.
A strong second quarter for ARE
As you can see, Alexandria is a laggard, but this life sciences office REIT had been tracking with the greater market up until its recent swoon, and its current yield of about 3.1% is well above the 1.7% from the S&P 500.
Plus, the company posted strong Q2 results on July 25, spurring a share price jump of about 4.5% over the next couple of days. Earnings highlights included a 33.9% increase in rental rates on a cash basis, the highest quarterly increase in its history. Leasing activity was the third-highest that Alexandria has recorded. Revenue was 26% higher year over year, and funds from operations (FFO) for the first half of 2022 were 8% higher than the same period last year.
The company has 7.8 million square feet of new space either under construction or about to begin. Of that, 78% is already leased in a portfolio with a tenant list that includes many of the industry's largest biopharma companies. That revenue growth should be joined by dividend growth the company expects to continue.
Alexandria raised its dividends by 6% over the past four quarters, and its Q2 FFO payout ratio of 56% "allows us to continue to share growth in cash flows from operating activities with our stockholders while also retaining a significant portion for reinvestment," the company said in its Q2 earnings announcement.
A big business in small warehouses
Terreno Realty is an industrial REIT specializing in small warehouses, with about 250 buildings and 42 improved land parcels leased by about 570 customers in six major coastal markets. The strategy is to capitalize on the demand for logistics space in infill locations near seaports, airports, and major highways in markets with shrinking supply for such niche spaces.
Terreno has been growing its portfolio rapidly, adding 10 properties in the second quarter in locations that include just off I-405 in Redmond, Washington, adjacent to a New Jersey Turnpike exit in Newark, and next to Los Angeles International Airport.
The company has raised its dividend for 10 straight years and is now yielding about 2.3%, with a payout ratio of about 73% based on cash flow. Analysts rate the stock a moderate buy and give it a consensus price target of about $74, which would be a nice recovery from its current $60 or so a share.
Lots of life left in Life Storage
Life Storage is one of the major players in the self-storage business, with more than 1,100 facilities in 36 states, including locations it owns and operates and a growing third-party management platform. The latter should help the company continue to be a strong competitor in this industry, with its relatively low cost of entry.
Another strength is that such businesses with month-to-month leases can quickly raise rents to counter inflation. Demand for self-storage grew during the pandemic, and inflation and recession could sustain the popularity of that option for when stuff exceeds space for millions of Americans.
In the first quarter, Life Storage grew FFO by a third over the year-ago period and added 18 stores to its owned portfolio and another 25 to its management platform. In July, the company raised its quarterly dividend by 8% from the previous quarter to $1.08 per share, an increase of 46% from the year-ago quarter.
That dividend announcement included optimistic words from CEO Joe Saffire: "Our team and platforms are well positioned to continue generating strong cash flow to invest in our technology initiatives, operating platforms, properties, and people while also returning capital to shareholders consistent with our rapidly growing core FFO per share. We look forward to continuing to deliver attractive total shareholder returns."
And I think I can look forward, with reasonable optimism, to watching this piece of my portfolio grow share price and total return in the months and years ahead, too.
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Marc Rapport has positions in Alexandria Real Estate Equities, Life Storage Inc, and Terreno Realty. The Motley Fool has positions in and recommends Terreno Realty. The Motley Fool recommends Alexandria Real Estate Equities and Life Storage Inc. The Motley Fool has a disclosure policy.