Stocks edged higher this morning as the market attempted to buck the recent downward trend. The week started on a low note yesterday, with 9 of the 11 S&P sectors suffering losses for the day. Real Estate and Materials were the only sectors to finish green, which is not surprising considering how real estate has outperformed so far this year.
The Real Estate Select Sector SPDR Fund (XLRE) is up more than 26% so far for 2021, while the S&P 500 has only gained around 18% in the same period. One way that investors can harness the potential of real estate investing is through REITs.
Because real estate is an asset class that’s not directly tied to traditional markets, REITs can bolster your portfolio when markets take a plunge. REITs are also not required to pay federal taxes so long as they distribute at least 90% of their profits as dividends which makes an investment in a quality REIT a relatively steady source of income.
“REITs offer a unique risk/reward profile that doesn’t always perfectly correlate with stocks or bonds,” says Michael Yoder, a CFP in Walnut Creek, Calif. “This can make them an important portfolio diversifier.”
Not all REITs are created equally, though, and finding the right REIT can be challenging. In today’s stock pick, we’ll look at a leading REIT in a particularly attractive category.
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Summit Hotel Properties, Inc (INN) is a leading publicly traded REIT focused on owning premium-branded, select-service hotels in the upscale and upper-midscale segments of the lodging industry. As hotel demand continues to recover broadly, Summit’s revenue per available room has increased to near pre-pandemic levels, resulting in $71 million of additional annualized revenue.
In the recent market slump, INN is outperforming compared to its REIT peers. The stock is up nearly 8% for the past month compared to the S&P Real Estate Sector Fund (XLRE), which is down 5.16% over the same period. The trust is also outperforming the broader market over the past year. Summit shares have increased 81.82%. In comparison, the S&P 500 has only moved 23.4%.
One factor contributing to the ongoing strength of INN’s share price is the level of attention trust management gives to diversification. INN’s portfolio currently boasts 73 properties, 61 of which are wholly owned. The REIT owns properties in 23 U.S. states spread across all regions, and no single region in the portfolio comprises more than 8% of the portfolio. This safeguards the trust, to some degree, against unpredictable threats that can arise.
Not only does the stock have decent momentum, but it’s also seeing bullish activity on the earnings estimate revisions front ahead of its November 3rd, Q3 earnings call. Over the past month, current quarter estimates have risen from 11 cents per share to 14 cents per share. Current year figures are also looking quite promising. The consensus estimate has risen from 20 cents per share 30 days ago to 24 cents per share today, increasing 20%.
The Wall Street analyst rating is bullish for INN with 4 Buy ratings, 1 Hold rating, 1 Sell rating. A median 12-month price target of $12 represents a 20% increase from the current price.
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