These 3 real estate stocks focus on growth, not dividends

Real estate stocks sometimes get a “for income investors only” rap. Real estate investment trusts (REITs) are the most popular way to invest in real estate, and they typically combine low growth with high dividends.

REITs are required to pay out 90% of their net income as dividends. While this usually means they have a high dividend, it also means they can only grow by going into debt or selling more shares and diluting existing shareholders. But REITs aren’t the only real estate stocks.

Zillow Group (ZG -4.92%) (Z -5.29%), CBRE Group (CBRE -1.18%)and Howard Hughes Corp. (HHC -1.47%) are not REITs but still benefit from the same headwinds – and could benefit a little more by focusing on growth and not dividends.

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1. Zillow

Zillow has had a tough year. Its stock is down about 65% in the past 12 months. The online real estate platform has spent several years on a journey that was doomed from the start and is trying to turn around both its business and investor confidence.

The website is still going strong. As of the first quarter of 2022, it had 211 million average monthly unique users and over 135 million households in its database. Additionally, 4.1 million homebuyers used the website to buy a home in 2021.

Zillow definitely has the popularity and network effect that works. The question for investors is: how does she monetize this popularity?

Zillow’s answer is the “super app”. The company wants homebuyers to use its app for just about every step of the rental and buying process. Tenants or buyers should be able to use it to get screened for a mortgage or lease, find a home, get a mortgage, schedule a viewing, and then make rent or loan payments.

Zillow says that as of now, he earns around $4,100 per transaction started in his app. That amount could reach $17,000 or more per transaction if the company can get users to go through the app for every part of the process.

If Zillow is able to leverage its incredible number of daily app users (currently 63% of the total number of people using real estate market apps) to start making more money, the stock could be on the up. way back to where it was before the rollover failed. one year ago.

2. CBRE

CBRE is the world’s largest commercial real estate brokerage firm. It has seen incredible growth over the past year. Worldwide revenue increased by 59% and worldwide rental revenue increased by 49%. It was also able to turn that growth into even higher operating profit – operating margins fell from 19.7% in Q1 2021 to 20.9% in Q1 2022.

CBRE also has a real estate investment management division, and it has also taken its toll over the past year. Turnover increased by 34% and operating profit by 165%. Total assets under management (AUM) increased from $124.5 billion to $146.8 billion.

However, AUM’s increase in its investment division does not necessarily increase CBRE’s costs. A rising market and more dry powder to invest meant more than doubling its operating profit.

Finally, CBRE actively restores shareholder value. That doesn’t mean it pays out money in the form of dividends – it doesn’t even have a dividend. CBRE buys back shares. As of May 3, it had repurchased $237 million worth of shares. He bought back $370 million in 2021, so he’s on track to beat that figure soon in 2022.

That’s a lot of good news, but buying back shares is only profitable for a company if the shares are indeed undervalued. Of course, this is when it makes sense for individual investors to buy as well.

CBRE stock is down more than 25% since the start of the year due to fears in the commercial real estate market. This decline puts its current price-to-earnings ratio at 13.6 and price-to-sales ratio at 0.94. His five-year averages are 20.10 and 0.97, respectively.

3.Howard Hughes Corp.

Howard Hughes is a Planned Community Enterprise (MPC). When it was spun off from its parent company several years ago, it opted out of registering as a REIT so it could focus on growing. Instead of borrowing money to develop or buy real estate, she buys acres of land and sells plots to other developers to fund her own development.

Inside each MPC are homes, multi-family residences, retail businesses, hospitals, and even fire departments and schools. Howard Hughes plans every part of the MPC in advance and uses that plan to attract developers. As the community grows and proves itself, land sales become more profitable.

Currently, the company has eight communities in six states. Its communities occupy 118,000 acres in total and contain 264 properties. Each of its communities has a long tradition of appreciation of land prices and rents. Since Howard Hughes bought the land years ago, he’s been able to take advantage of inflation without having to make more fixed hardware purchases. He can select and choose when to sell or develop the additional plots of land he owns. When prices for materials and labor fall, it can expand, and when land prices rise, it can sell.

Over the past 10 years, net operating income (NOI) has grown 17% annually to $250 million today. Management estimates that stabilized net income from its existing properties will be approximately $356 million. If the company is able to hit that flat revenue figure, continue to grow with more properties, and finally get a Wall Street multiple expansion, the stock would be up for the next five years.

Investing for income and growth

Real estate investing is not just about income. These companies will share in the benefits of strong secular trends affecting real estate, while allowing you to diversify the growth part of your portfolio.

That said, don’t be afraid to look into real estate for secure income REITs as well. Your wallet will thank you.

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