The stock market is a volatile place, and while wealth is often built there, it can also be lost. With valuations across the market climbing to record highs, and some experts suggesting a market crash could be on the horizon, many investors are looking for opportunities elsewhere.
Real estate investments are a hot commodity at the moment. Real estate as an asset class has been a go-to option for many investors throughout history and has stood the test of time. In 1960, the first real estate investment trust (REIT), was born. These are publicly traded companies that use funds gathered from investors to purchase real estate (or provide or purchase real estate loans), with the proceeds being shared equally among investors.
These funds have grown in popularity in recent years as a low interest-rate environment spurs real estate investments. By investing in these funds, you’ll be able to own your piece of real estate without having to put up the large investment required to purchase property.
What to Look For in the Best REITs
Here are a few key metrics you’ll want to look for when investing in the real estate sector through REITs:
1. Dividend Yield
REITs can be easily compared to dividend stocks. Essentially, when rental income is generated by the company, that income is spread out through its investors by way of dividends. With the goal of investing in property being to generate income, it’s important that any fund you invest in be known for impressive dividend payments.
Sure, all of the funds in this category invest in real estate, but it’s important that the fund diversifies these investments. For example, if the fund only owns apartment buildings in New York, and the New York rental market crashes, the fund will have a hard time maintaining positive occupancy rates and payments to its investors.
3. Balance Sheet
These funds are in charge of acquiring, repairing, renting, and managing the real estate they invest in. This can be an expensive process, and those expenses need to be managed properly.
Moreover, it’s important to ensure the fund or funds you invest in generate enough free cash flow to cover costs and generate a return for investors. That makes it important to research the balance sheet of any fund you’re interested in investing in.
4. Occupancy Rates
Occupancy rates aren’t important for some real estate funds, like those that operate networks of communications towers. But for REITs that operate strip malls, hotels, and apartment buildings, occupancy rates are key.
If there are not enough people renting the properties owned by the fund, there won’t be enough revenue generated to return value to investors.
5. Funds From Operations (FFO)
Funds from operations, or FFO, is an important metric that shows investors how much money the fund is generating through its operations, such as renting out its commercial buildings or leasing access to its technology infrastructure.
Like with any security, REIT funds can be overvalued, undervalued, or trading at a fair market value. You’ll want to make sure you don’t overpay when buying shares. To do so, simply compare valuation metrics like price-to-earnings (P/E) ratios between the fund you’re interested in buying and the market averages.
The lower the valuation of a REIT when you buy in comparison to the overall market, the higher your potential profitability will be.
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The Top 10 REIT Stocks to Buy
Considering the factors above, some of the most compelling REITs on the market today include:
1. American Tower (NYSE: AMT)
American Tower is a REIT that’s focused on investing in communications infrastructure rather than office buildings, storefronts, or apartment buildings. In fact, the company is one of the largest in its sector, operating more than 180,000 cell towers, with more than 40,000 in the United States and more than 75,000 operated internationally, primarily in Europe, South America, Central America, and Africa.
The communications infrastructure play is an interesting one at the moment as mobile data access rises around the world. According to Statista, global mobile data use is climbing at a compound annual growth rate of 46%.
As this growth continues, utilization of American Tower’s massive network of communications towers is only likely to expand.
To make things more interesting, the company announced in November 2020 the acquisition of InSite Wireless Group, which not only expands its reach in the U.S., but will lead to an expansion into Canada, opening the door to an entirely new market.
While the company paid about $3.5 billion for the acquisition, it’s expected to immediately lead to an increase in funds from operations, an important metric used to measure the success of REITs. The fund has had a compelling track record of growth in FFO, which has increased by at least 15% annually over the past 10 years, even in the face of the COVID-19 pandemic.
Not to mention, investors are enjoying growing dividend payouts. Since at least 2013, the company has increased its dividends every quarter.
With a compelling history of growth in revenue, coupled with strong growth in the fund’s bottom line, there’s no reason to expect tides to shift for AMT any time soon. Add in the company’s aggressive plans to continue the expansion of its infrastructure network, and you have an investment that’s hard to ignore.
2. Crown Castle International (NYSE: CCI)
With the communications infrastructure market being massive and growing, it should come as no surprise that there’s more than one REIT focused on the sector on the list of the top 10.
Crown Castle International is yet another of the world’s leaders in communications infrastructure. With a market cap of more than $89 billion, the company owns and operates more than 40,000 communications towers, 70,000 small cell nodes, and 80,000 miles of fiber optics with a core focus on providing infrastructure in the continental United States, Hawaii, and Puerto Rico.
What’s more, the company’s customers are some of the largest communications companies in the world, including Verizon, AT&T, and T-Mobile.
Moreover, the company is playing a critical rollout of next-generation 5G technology.
In fact, the company’s innovation in the 5G space led to it winning a recent contract with yet another big name, DISH Network. As a result of this relatively new agreement, DISH Network will take advantage of access to up to 20,000 of the company’s communications towers, as well as fiber transport and preconstruction services.
This is yet another company that has a long history of generating positive FFO growth and paying high dividends. While the company hasn’t updated dividends quarterly, it has consistently increased dividend payments on an annual basis since 2014.
As another leader in the communications infrastructure space with a proven history of increasing revenues and dividends — and expectations of continued expansion and innovation in the 5G space — CCI is an investment that’s worth your attention.
3. Prologis (NYSE: PLD)
Prologis is an industrial REIT with a focus on logistics and warehouse buildings. With a market cap of more than $94 billion, it’s one of the largest companies in the world. Moreover, the fund has proven to be surprisingly resilient, even in the face of the COVID-19 pandemic.
As of mid-2021, the company owned and operated more than 984 million square feet of logistics and warehouse buildings across 19 countries, giving investors access to both domestic and international growth in the commercial real estate space.
To get an understanding of the sheer scale of the company, all you have to do is look at the massive amount of product that flies through its fulfillment centers — $2.2 trillion every year, to be exact. To put that into perspective, that works out to about 2.5% of the global gross domestic product.
While some have been concerned about the pandemic’s long-lasting effects on the business, as we get to the end of the crisis and the company continues to show resiliency through the process, this concern is becoming a thing of the past.
Moreover, with a rapidly expanding e-commerce market, the company’s warehouse space is experiencing higher and higher demand.
Prologis becomes even more attractive when viewed as an income play. Not only does the fund pay an impressive yield, its dividend payments have increased annually since 2013.
All told, if you’re into REITs and you haven’t given PLD a look, you’re likely missing out.
4. Equinix (NASDAQ: EQIX)
Equinix is a massive REIT with a different focus. Rather than focusing on commercial warehouses, cell towers, and apartment complexes, the fund’s core focus is the development and rental of data center properties. In fact, it’s the largest data center REIT on the market today, and one of the largest REITs of any kind with a market capitalization of nearly $75 billion.
The fund purchases large commercial real estate properties and sets them up as industry-leading data centers. From there, the company reaches out to customers to lease the properties, generating revenue and profitability for its investors.
And many of its customers are household names. For example, Amazon.com, Facebook, AT&T, Apple, and Nokia are all in lease agreements with Equinix. Essentially, the fund has built a network of data centers that are responsible for providing the technology needed to make e-commerce, social media, and any other form of website possible.
As you could imagine, the company has become a COVID-19 winner because of these activities. As the virus kept consumers in their homes, the online sales industry picked up dramatically, leading to more bandwidth demand and resulting in the need for larger, more advanced data centers. Already a leader in the space, Equinix became a key beneficiary.
Many argue that this demand isn’t going anywhere any time soon. This means Equinix will remain a strong play looking forward.
Like others on this list, the fund also has a strong history of growth in both revenue and dividends. Since 2014, the fund has consistently increased dividends every year with the exception of 2016, when regular dividends were increased but overall dividend yield declined due to a one-time dividend payment of $10.50 per share declared in late 2015.
All told, the demand for data centers will likely continue to rise as a continued shift to Internet-based services, job opportunities, and experiences results in the need for more space and technology. EQIX is likely to stay in the lead in terms of both, making it a strong choice among REIT investors.
5. Physicians Realty Trust (NYSE: DOC)
As its name suggests, Physicians Realty Trust is a fund centered around providing working space for those in the health care market. The fund purchases large office buildings and turns them into medical centers rented to practitioners in a range of medical fields.
With a market cap of around $4 billion, this isn’t the biggest fund on the list, but it’s one that shouldn’t be ignored. The DOC fund currently owns more than 265 medical complexes across 31 states, with 96% of its properties leased.
Interestingly, the fund has invested in a wide range of off-hospital assets, which has worked to its advantage. Most patients would rather visit the doctor at a standalone office or medical center than go to the hospital, leading to higher demand for off-hospital medical real estate.
Another attractive aspect of the business model is the fact that the fund is known for producing longer-term contracts than other health care REITs, generating further stability in the investment. Only just over 20% of its leases will expire through 2024, with a large percentage of these leases expected to be renewed.
The fund has experienced significant growth too, with revenues growing by 32% annually over the past five years, although there was a hiccup during the height of the COVID-19 crisis.
While the fund’s yield of nearly 5% is overwhelmingly attractive, dividend growth stopped in 2017, with the regular quarterly dividend being $0.23 per share since. With income being a core focus of most real estate investors, this may be a turn-off, but it will likely all work out in the end.
Since 2018, Physicians Realty Trust has been on a buying spree, increasing its holdings and creating a pipeline that’s expected to generate significant growth in FFO ahead. As this acquisition spree continues, investors are gaining access to a larger book of real estate, offering up tremendous potential for future income.
At the end of the day, the fund is growing quickly, focusing on what seems to be the golden niche in terms of health care related real estate investing, and even with flat dividend growth it pays a compelling yield. That’s an investment opportunity that will turn a head or two.
6. AmeriCold Realty Trust (NYSE: COLD)
Think of all the products on store shelves that must be kept cold. Just about everything sold on the outside edges of your local grocery store, from produce to milk to premade lasagna, all must be kept cold.
That’s where AmeriCold Realty Trust comes in.
The REIT owns a vast network of cold storage facilities consisting of nearly 200 cold storage warehouses, making it possible for the mass storage of some of your favorite grocery items. That works out to about 1.1 billion cubic feet of space across the U.S.
Thousands of brands trust the company’s storage solutions, some of them being massive names like Unilever, Kraft, Safeway, and Kroger. Not to mention, thanks to its recent acquisition of the fourth largest cold storage company in the world, Agro Merchants Group, AmeriCold Realty Trust recently brought a couple thousand more customers to its book and greatly expanded funds from operations.
Moving forward, the fund is expected to complete several more accretive acquisitions, further expanding its book of income opportunities for its investors.
While acquisitions have been a core focus, investors haven’t had to jeopardize their income. Since 2018, the fund has consistently increased dividends on an annual basis. Moreover, with a strong balance sheet and growing revenues, there’s no reason to expect this trend to slow down any time soon.
The bottom line is that cold storage is an important part of the supply chain in the U.S and around the world. AmeriCold has been working to consolidate the fragmented market, ultimately becoming the country’s leader in cold-storage warehouses. As it continues to do so, the income opportunities for investors are only growing, making COLD one for the watch list.
7. Innovative Industrial Properties (NYSE: IIPR)
Innovative Industrial Properties is a bit of a taboo investment for some because the REIT is focused on the provision of space to the emerging but controversial cannabis sector. Regardless of the cannabis debate, the sector is emerging, and the regulatory tides are shifting, creating opportunities for investors.
Innovative Industrial Properties purchases cannabis cultivation and processing facilities, then leases these facilities out under long-term contracts. As of the fund’s most recent filing, it owned more than 65 properties representing more than 5 million square feet across 16 states. The fund enjoys a high lease rate, with more than 99% of its real estate under a long-term lease.
What’s most impressive is the growth in funds from operations the REIT has seen as of late. In fact, in the past year, it’s up more than 70%. That’s an incredible increase, warranting the recent growth seen in the fund’s share price.
Moreover, this could quickly grow into a much larger opportunity. At the moment, the fund only serves the medical cannabis community. After all, the vast majority of U.S. states have made it legal to possess the drug only for medical purposes. But there’s a growing movement to legalize cannabis for recreational use nationwide. Should this take place, the opportunities for the trust would be nearly endless.
All told, IIRP already represents a great investment based on growth in revenue and dividends, which have consistently been increased annually since inception. However, the real value here may be in the long-term opportunities the REIT is likely to address as the global view toward cannabis continues to change, making this a fund that’s hard to ignore.
8. Digital Realty Trust (NYSE: DLR)
Like Equinix, Digital Realty Trust is a data center REIT focused on the acquisition and rental of data center space for some of the world’s leading players in tech.
With more than 280 facilities, it’s the world’s largest data center real estate management company in the world by number of facilities owned. The company’s footprint spans more than 20 countries on six continents, with many of the markets it serves in emerging economies, only adding to its growth potential.
Like other data centers, Digital Realty Trust became a beneficiary of increased demand as a result of the change in the way consumers shop and entertain themselves due to COVID-19. And that growth in demand is only expected to continue.
Furthermore, the REIT has consistently increased both revenue and dividends over the course of the past 15 years, proving to be resilient as the coronavirus swept the world.
All told, Digital Realty Trust is a long-standing leader in the data center industry, and as technological innovation continues to change how consumers do just about everything, the demand for the company’s services is only likely to continue, leading to further growth in revenue, dividends, and value.
9. CubeSmart (NYSE: CUBE)
One of the biggest niches in the real estate market is self storage. According to Mordor Intelligence, the sector will be worth more than $64 billion annually by the year 2026 and will continue to grow at a breakneck pace.
That’s where CubeSmart comes in. The fund owns more than 1,200 properties around the world, 500 stores, and more than 37 million square feet of rentable space. Aside from owning storage units, the fund also manages an additional 750 stores and nearly 50 million square feet of space for third parties.
Due to the high margins in the storage industry, self storage REITs have long been a go-to option for investors. When you invest in CubeSmart, you’ll be investing in one of the largest and fastest growing funds in the industry.
Moreover, this is another fund with a long-standing history of growth in both revenue from operations and dividend payments. In fact, while the growth in properties has been impressive, the fund hasn’t skipped a beat in terms of annual dividend increases since 2013.
With a history of dominance in the thriving storage industry, consistent increases in annual dividends, and a track record of accretive acquisitions, CUBE is a REIT that shouldn’t be ignored.
10. STORE Capital (NYSE: STOR)
Finally, STORE Capital is a net-lease REIT that focuses its efforts on the provision of shopping centers and other retail space to business owners. Net-lease funds like STOR lease properties and collect rent. However, they are not responsible for insurance, taxes, and maintenance costs, all of which are handed down to the tenant.
The fund invests in individual pieces of real estate that house restaurant chains, health centers, early childhood education centers, auto service centers, and more, and it’s constantly growing. In fact, in the average quarter, the REIT acquires about 70 new properties and attracts nearly 15 new tenants.
To date, the fund has amassed a book of more than 2,600 properties across 49 states that house more than 500 different tenants. Repeat customers account for about 30% of new rentals, meaning that finding tenants is as simple as letting a restaurant chain or furniture store owner the fund is already leasing to know that there’s a new piece of property available.
Not to mention, the average remaining lease term for the company is 14 years, adding significant stability to the investment.
As a result of its strong investments and compelling management skills, the fund has been able to produce growth in revenue and dividends since its inception in 2015, and experts don’t expect that to change any time soon, making STOR yet another strong pick for the watch list.
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Real estate investing is exciting. The fact is that space is limited, and as the red-hot housing market suggests, inventories are low. By investing in a REIT, you’ll gain access to the growth in the real estate industry without having to make the large initial investment or navigate the complex process of a property purchase.
Of course, not all REITs are created equal. As is the case with investments in any type of equity, it’s important to do your research and make sure you completely understand exactly what you’re buying before risking your first dollar.
Nonetheless, with adequate research, making strong picks in the space can lead to significant long-term growth.
Disclaimer. The author currently has no positions in any asset mentioned herein nor any intention to hold any positions within the next 72 hours. The views expressed are those of the author of the article and not necessarily those of other members of the Money Crashers team or Money Crashers as a whole. This article was written by Joshua Rodriguez, who shared his honest opinion of the REITs mentioned. However, this article should not be viewed as a solicitation to purchase shares in any security and should only be used for entertainment and informational purposes. Investors should consult a financial advisor or do their own due diligence before making any investment decision.