Real estate investment trusts (REITs) are well-known for paying huge dividends. Although investors love when REITs increase their dividends, another significant event occurs when a REIT announces share buybacks.
Various studies have shown outperformance in price appreciation from company buybacks because when a company buys back outstanding shares it can increase both earnings per share (EPS) and dividends, as profits are spread out among fewer outstanding shares.
One advantage of buybacks for investors in taxable accounts is not having to pay capital gains on appreciation until the stock is sold, whereas a dividend increase would be subject to taxes in that year.
It’s important that a company buys back shares when they’re inexpensive and not after a run up in price. With the decimation of prices among REITs in 2022, now is a perfect time for REITs to initiate buyback programs, and in recent months some have announced new programs or added to pre-existing ones.
Take a look at four REITs that have recently announced buybacks with shares now at discounted levels:
Medical Properties Trust Inc. MPW is a Birmingham, Alabama-based healthcare REIT that owns and operates 434 general acute care and other properties across the U.S. and in nine other countries, with locations in Europe and Australia. Sixty-two percent of its properties are in the United States.
On Oct. 10, the board of directors announced the repurchase of up to $500 million in company stock over the next year, which will come from cash on hand, operating cash flow, loan repayments, dispositions and/or joint venture transactions.
Medical Properties Trust has had a bad year, having lost over 51% of its value over the past 52 weeks. So the repurchases should be coming on very inexpensive shares.
NewLake Capital Partners Inc. NLCP is a New Canaan, Connecticut-based industrial REIT that specializes in acquiring commercial properties to triple-net lease to cannabis companies as well as providing capital to them when necessary. NewLake Capital Partners was founded in 2019 and had its initial public offering (IPO) in August 2021. Its tenants include the largest companies in the cannabis industry, such as Curaleaf Holdings Inc, Truelieve Cannabis Corp and Cresco Labs, which plans to acquire Columbia Care Inc.
On Nov. 7, NewLake Capital Partners announced a $10 million buyback plan through Dec. 31, 2023. Because the company has a small market cap of $363 million, this buyback plan could be quite significant. NewLake Capital Partners is down 39.37% over the past 52 weeks.
Xenia Hotels & Resorts Inc. XHR is a hotel REIT that focuses on luxury and upscale hotels and resorts. Xenia Hotels & Resorts owns 32 hotels in 14 states with an emphasis on the top 25 lodging markets and other key leisure areas of the U.S.
Xenia Hotels & Resorts still has approximately $173 million remaining from a previous repurchase program, but on Nov. 18, the board of directors announced the repurchase of up to an additional $100 million in outstanding company shares.
Xenia Hotels & Resorts is down 17.69% over the past 52 weeks.
Braemar Hotels & Resorts BHR is a Dallas-based REIT that, like Xenia Hotels & Resorts, invests in luxury hotels and resorts across the U.S. and in Puerto Rico. Braemar Hotels & Resorts direct hotel investments include 16 properties with a total of 4,181 rooms.
On Dec. 8, Braemar Hotels & Resorts announced a stock repurchase program of up to $25 million. The board of directors simultaneously declared an increase in the quarterly dividend from $0.01 to $0.05 per share, so despite being down about 10% over the past 52 weeks, Braemar Hotels & Resorts seems to be expressing great optimism about its financial future.
Buybacks alone do not constitute a reason to purchase a stock but are one of many factors investors should consider when deciding which stocks to buy.
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