Buy Shares for Blue Group Distribution Las Vegas
Real estate investment trusts (REITs) offer investors a way to insulate their portfolios against rampant inflation.
REITs own properties and the value of their real estate appreciates with inflation. In addition, leases offered by real estate investment trusts are typically structured to allow for frequent rent hikes. Many of the best REITs for the rest of 2022 will likely be those that have rent increases tied to the consumer price index (CPI), allowing their income to keep pace with sizzling inflation.
Even better, since REITs are required by law to distribute the majority of their earnings to investors, these rent increases are often passed along directly to investors in the form of higher dividends.
Despite the real estate sector's inflation-resistant characteristics, REITs have so far followed the trajectory of the broader stock market this year and are down more than 24% after being one of the top-performing S&P 500 sectors last year.
However, this decline in sector valuations may offer a great time for income-oriented investors to load up on rich REIT dividends. At present, the S&P 500 Real Estate sector yields 2.5%; well above the 1.6% yield currently available from the S&P 500 Index. Plus, there are numerous high-quality REITs delivering better than 2.5% yields – as well as those flaunting fast-growing dividends.
With that in mind, here are 12 of the best REITs for the rest of 2022. These names stand out because of generous yields, steadily growing dividends, exceptional resilience in the face of inflation, or, in most cases, a combination of these attributes.
Data is as of June 14. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Stocks listed in reverse order of yield.
Rexford Industrial Realty
- Market value: $9.9 billion
- Dividend yield: 2.2%
Rexford Industrial Realty (REXR, $57.93) is a fast-growing industrial warehouse REIT. REXR could be one of the best REITS for the remainder of 2022 amid continued supply-chain challenges. Rexford controls over 60% of the REIT-owned industrial real estate near the Ports of Los Angeles and Long Beach. The company operates strictly in Southern California, an enormous $31.6 billion industrial market that is estimated to be as large as the next five largest U.S. industrial markets combined.
According to Hoya Capital, demand for industrial real estate is insatiable due to supply-chain disruptions and e-commerce growth. Despite record levels of new construction, industrial warehouse space remains in short supply and demand is high, as evidenced by 48 consecutive quarters of positive net warehouse space absorption.
As a result, rents are rising fast and Rexford enjoys exceptional pricing power thanks to its Southern California foothold. The REIT has averaged annual growth of 14% for FFO (funds from operations, a REIT earnings metric) per share and 18% in dividends over the past five years.
The REIT's March quarter performance was exceptional; core FFO per share rose 29.7% year-over-year and portfolio occupancy was 99.3%. At present, Rexford's portfolio consists of 312 properties comprising 38.1 million square feet of leasable space. The company acquired 17 new properties and 1.5 million square feet of leasable space during the March quarter.
Rexford also increased its 2022 guidance, looking for 13% core FFO per share gains this year at the midpoint of guidance, up from its previous outlook for 9% growth. And earlier this year, the REIT rewarded investors with a rich 31% dividend hike.
REXR shares are rated Buy or Strong Buy by all eight covering Wall Street analysts. BofA Global Research strategists made REXR one of their top 10 picks for 2022 and Investors' Business Daily recently added Rexford to its list of top-ranked growth stocks that are showing relative price strength and solid fundamentals.
Sun Communities
- Market value: $18.8 billion
- Dividend yield: 2.3%
Sun Communities (SUI, $151.04) is the nation's largest owner/operator of manufactured housing (MH) communities, recreational vehicle (RV) resorts and marinas. The REIT owns 646 properties across 39 U.S. states, Canada and the U.K. Its portfolio consists of 283 housing communities, 192 RV parks, 130 marinas, and 41 RV holiday sites in the U.K.
The REIT's organic growth is powered by rent increases and occupancy gains. Over 80% of its MH communities have rent rates tied to CPI. Average occupancy for its MH communities was 96.7% during the March quarter, but nearly three-quarters of its sites showed 98%+ occupancy, creating additional upside potential tied to the remaining locations.
Internal growth is amplified by property acquisitions, which have exceeded $11.1 billion over the past decade and grown the portfolio nearly fivefold. The REIT also maintains an active development pipeline targeting three to five new development projects per year.
A shortage of affordable housing and retiring Americans purchasing vacation properties provide tailwinds for SUI's growth – making it one of the best REITs for the rest of 2022 and beyond. Residents that rent sites from Sun Communities rarely leave. The average tenure at the REIT's MH communities is 14 years and annual home move-outs are less than 1%. RV resort residents typically stay nine years and the average tenure for marina guests is eight years.
Sun Communities' core FFO per share has grown every year since 2012, averaging annual gains of 9.1%. Plus, the REIT maintains an investment-grade rated balance sheet.
SUI's FFO per share rose 6.3% during the March quarter and full-year guidance looks for 11.5% gains at the midpoint in 2022. Sun Communities closed $1.6 billion of acquisitions during the quarter, purchasing 41 U.K. holiday parks and four marinas in the U.S.
All eleven of the covering analysts rate SUI shares either Buy or Strong Buy. In May, Citi strategists added SUI to a list of quality stocks recommended for purchase during a market pullback.
American Tower
- Market value: $109.0 billion
- Dividend yield: 2.4%
American Tower (AMT, $234.49) is a leading owner, operator and developer of multi-tenant cell towers, providing the infrastructure that powers wireless communications networks. The REIT operates globally and owns a portfolio of 221,000 cell tower sites, which include 43,100 sites in the U.S., 49,000 across Central and South America and 75,500 in India.
Long-term demand for cell towers is fueled by growing wireless penetration, increasing usage of mobile data and spectrum auctions that enable the deployment of more antennas. Mobile device penetration is forecast to rise at least 10% annually through 2027, and average data usage per device is predicted to increase at a 21% annual rate.
The REIT's growth has come from deploying more cell towers and from adding more tenants to its existing sites. Adding a second tenant to an existing tower boosts AMT's tower return on investment (ROI) from 3% to 13%, and adding a third tenant increases ROI to 24%.
The operating leverage inherent in its business model has helped American Tower achieve 13.8% average annual growth in adjusted FFO per share since 2011. It has also allowed the REIT to reward investors with better than 20% annual dividend growth, on average.
5G ramp-ups in the U.S. and Europe powered American Tower's March quarter results. The REIT delivered 23.2% revenue growth and 12.8% adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) gains. Adjusted FFO per share grew 4.4%. AMT is guiding for 8.8% adjusted FFO gains this year.
American Tower has delivered 10 consecutive years of dividend growth, including increasing its shareholder payout every quarter since 2012. Payout from adjusted FFO is conservative by REIT standards at 56%.
Analysts certainly think AMT is one of the best REIT stocks for the rest of 2022, with the consensus recommendation among the 20 pros following the name a Buy. Citi strategist Scott Chronert has a Buy rating on AMT, and recently added the REIT to a list of quality stocks he expects to outperform in the event of a possible recession.
Prologis
- Market value: $81.9 billion
- Dividend yield: 2.9%
Prologis (PLD, $110.66) is a global logistics REIT and the world's largest owner of industrial real estate. Its portfolio consists of 4,675 industrial properties and more than 1.0 billion square feet of leasing space. PLD owns facilities across 19 countries, including major supply-chain hubs in North and South America, Europe and Asia. An important player in the retail logistics chain, the REIT benefits from e-commerce growth driving insatiable demand for warehouse space.
PLD's portfolio was 98% leased in the March quarter and showed a 75% retention rate. The company was able to hike rents by an average 37%. Prologis serves approximately 5,800 customers, most of whom are engaged in retail fulfillment and business-to-business transactions.
Prologis is aggressively expanding its foothold and is paying $26 billion for REIT rival Duke Realty (DRE) – the largest real estate deal since the pandemic began. Duke owns approximately 160 million square feet of warehouse space in key U.S. markets that include Southern California, New Jersey, South Florida, Chicago, Dallas and Atlanta. The deal is expected to close in this year's December quarter and immediately add 20 cents to 25 cents per share to core FFO.
According to Timothy Arndt, chief financial officer of Prologis, the REIT's balance sheet and outlook is in excellent shape. Existing leases being marked to market are expected to drop over $2.00 to EPS this year with no additional rent growth required. Plus, PLD commenced over $1 billion of development projects during the March quarter. The potential buildout associated with the company's existing land bank is valued at $28 billion. Prologis has nearly $7 billion of liquidity and over $18 billion of investment capacity available to fund new acquisitions and development.
Prologis is one of the best REITs for growing dividends. The company has increased its payout by nearly 11%, on average, annually over 10 years. And Prologis holds payout below 60% of adjusted FFO. The REIT signaled its optimistic outlook in February by rewarding investors with a 25% dividend hike.
Camden Property Trust
- Market value: $13.4 billion
- Dividend yield: 3.0%
Camden Property Trust (CPT, $126.00) is a top apartment REIT that has a strong presence in faster-growing Sunbelt markets like Atlanta, Austin, Charlotte, Phoenix and Tampa. The REIT owns 170 properties comprising 58,055 apartment units and has another five properties in development that will boost the total to 59,894 apartments.
The company's Sunbelt markets are all experiencing net migration from other parts of the country and strong employment and population growth. Housing demand in these markets exceeds supply and is driving rental rates steadily higher. Camden anticipates housing demand in its market will remain high over the next few years due to the 67 million Americans who fit its core demographic (ages 20 to 34) largely preferring renting to home ownership.
The REIT's growth strategy focuses on purchasing well-located 15- to 20-year-old apartment communities and updating units to achieve higher rents. Camden acquired and updated nearly 36,000 apartments through the end of 2021, resulting in rent increases averaging $125 per month.
CPT achieved same-property revenue growth of 11.1% during the March quarter, the best quarterly growth rate in the REIT's history. Twelve of Camden's 14 Sunbelt markets posted double-digit revenue gains, with Tampa, Phoenix and Southeast Florida showing the strongest results. Rental rates on new leases were 15.8% higher than the year prior and lease renewals were up 13.2%. Portfolio occupancy averaged 97.1%.
The REIT's March quarter FFO per share rose 21% over the year-ago period, and it expects these impressive results to run through the remainder of 2022. Camden Property Trust recently raised its full-year guidance, targeting 2022 FFO per share that is 19%-23% higher than last year.
Camden is also one of the best REITs for dividends. The company has a 12-year track record of raising dividends and has generated 2.7% annual dividend growth over the last five years. Given the significant rental rate growth the REIT is experiencing, Camden Property Trust appears well-positioned to weather a recession and keep growing its dividend.
The REIT was recently added to the S&P 500 and Bank of America strategist Anthony Cassamassino has recommended CPT stock as one of his 10 favorite investment ideas for the June quarter.
Alexandria Real Estate Equities
- Market value: $22.1 billion
- Dividend yield: 3.5%
Alexandria Real Estate Equities (ARE, $135.37) specializes in research-oriented properties that are leased to life science, ag tech and technology tenants. The REIT counts major pharmaceutical companies such as Bristol Myers Squibb (BMY), Moderna (MRNA), Eli Lilly (LLY) and Sanofi (SNY) among its tenants. Its life science focus has enabled the REIT to participate in pharmaceutical industry growth and deliver attractive 15% average annual EBITDA growth over the past decade.
Demand for life science space in the markets served by this REIT remains near all-time highs. March quarter leasing volume was the second highest in Alexandria's history. The REIT has a pipeline of projects underway or commencing construction over the next six quarters that it expects will add $665 million to annual incremental rental revenues by 2025 – fuel that will help keep ARE among the best REITs for the rest of 2022 and beyond.
Thanks to a robust leasing environment, Alexandria Real Estate Equities was able to grow revenues 28% and net operating income 25% during the March quarter. Dilution from a recent equity offering held FFO-per-share growth to 7.3% and the REIT is guiding for an 8% gain in FFO per share at the midpoint this year.
At present, Alexandria's portfolio consists of various properties representing 74.2 million square feet of leased space across prominent research markets such as Boston, the San Francisco Bay area, San Diego and the Research Triangle. Portfolio occupancy was 94.7% in the March quarter and the weighted average remaining lease term was 7.3 years.
With 99.9% fixed rate debt and a credit ranking within the top 10% of the REIT industry, Alexandria is well-positioned for rising interest rates and the REIT has no major debt maturities before 2025.
ARE shares have earned Buy or Strong Buy ratings from all 11 of its covering Wall Street analysts. Bulls cite life science market tailwinds and the REIT's portfolio of investment-grade tenants as reasons to invest.
Alexandria Real Estate's history of dividend growth is impressive too. The REIT has delivered 12 consecutive years of dividend growth, including averaging 7% annual gains over the past five years. It also FFO payout below 60%. The latest dividend increase in May was a 2.6% hike to its quarterly payout.
Digital Realty Trust
- Market value: $36.2 billion
- Dividend yield: 3.8%
Digital Realty Trust (DLR, $124.57) is a leading data center REIT that owns 291 facilities representing 35.8 million square feet of space across 25 countries. DLR mainly serves cloud providers, IT companies and mobile telecoms and counts Meta Platforms (META), AT&T (T), IBM (IBM), Oracle (ORCL), LinkedIn and Verizon (VZ) among its customers.
Demand for data storage and processing is fueled by a fast-growing digital economy and tailwinds tied to new technologies like 5G, Internet-of-Things, autonomous vehicles and artificial intelligence (AI).
This REIT has produced 12 straight years of quarterly revenue growth on an annualized basis. Revenues rose 3% year-over-year during the March quarter and Digital Realty Trust achieved record bookings. The REIT's FFO per share grew at a respectable 6.7%.
Future growth will come from continued demand for data center space and new leasing activity. The REIT's data center occupancy rate, at 83.3%, has room to grow. Digital Realty Trust also has 8.1 million square feet of new data center space in development and 2.6 million square feet being held for future development.
While not the fastest-growing data center real estate investment trust, Digital Realty is one of the best REITs when it comes to profitability. Its net margin of 30.7% on a trailing 12-month basis is nearly twice the peer average and its return on equity (ROE) significantly exceeds its fellow data center REITs. DLR also offers below-average financial leverage and reliable 5.4% average annual dividend growth over the last decade.
Due to a massive tech stock sell-off, DLR shares are down nearly 30% for the year-to-date to trade at a low 19.2 times forward FFO. Meanwhile, the REIT's 3.8% dividend yield is among the highest in the digital REIT sector.
In June, BofA included DLR on its list of top Alpha Surprise stocks, which calculates potential upside based on dividend discount and earnings surprise model. Citi also recently recommended DLR shares on its list of quality growth stocks to buy during equity market pullbacks.
Agree Realty
- Market value: $5.1 billion
- Dividend yield: 4.1%
Agree Realty (ADC, $67.00) is a triple-net-lease REIT that mainly serves e-commerce and recession-resistant tenants. Roughly 86% of the REIT's space is leased to national retailers and 68% of its tenants enjoy investment-grade credit ratings.
Tenants are drawn from recession-resistant retail sectors such as grocery, pharmacy, home improvement, tire and auto service and convenience stores. They include well-known names like Walmart (WMT), Kroger (KR), Lowe's (LOW), Tractor Supply (TSCO) and Dollar General (DG), among others.
Triple net leases make the tenant responsible for real estate taxes, insurance and property maintenance costs and are generally considered less risky than other lease types.
The company owns a portfolio of 1,510 properties across 47 states, representing 31 million square feet of gross leasable space, as well as 186 ground leases comprising 4.9 million square feet of leasable space. At present, the portfolio is 99.6% leased and has a weighted average remaining lease term of 9.1 years.
ADC spent $430 million during the March quarter to acquire 124 retail properties and is guiding for $1.4 billion to $1.6 billion worth of acquisitions this year. In addition, the REIT has 18 development projects underway that will begin leasing over the next four quarters.
Reflecting a record number of new projects progressing during the March quarter, the REIT's adjusted FFO per share improved 16.4% during the three-month period. And the company extended its record of beating consensus analyst estimates to 14 of the past 16 quarters.
Agree Realty has grown dividends 5.5% annually, on average, over the past decade. The latest increase was 7.8% in April and the company became a monthly dividend payer in 2021. The payout ratio stands at a conservative 70% of core FFO.
Another reason ADC is one of the best REITs for the rest of 2022: The company's credit rating was recently upgraded by Moody's to Baa1, with the agency recognizing Agree's low leverage and resilient portfolio.
Morgan Stanley analyst Ronald Kamdem recently initiated coverage of ADC shares with an Overweight rating – the equivalent of Buy. He likes the company's defensive characteristics and growth opportunities. BofA analyst Joshua Dennerlein upgraded the stock to Buy in June, citing defensive characteristics that should enable the real estate stock to outperform during a recession.
CubeSmart
- Market value: $8.8 billion
- Dividend yield: 4.4%
CubeSmart (CUBE, $38.87) is one of America's top three self-storage REITs. Its portfolio consists of 1,272 properties across 154 markets and 38 states. The company also generates a steadily rising revenue stream from fees paid to manage 664 third-party properties.
Roughly 75% of the REIT's assets are located in the highest-demand MSAs (metropolitan statistical markets). CubeSmart is the undisputed leader in the New York City market, which has limited self-storage supply and few new developments because of restrictive legislative changes[.
CUBE's growth has come from acquisitions, development, joint ventures and third-party management services. The REIT has closed over $3 billion of acquisitions since 2017, nearly $1.0 billion of joint ventures and has $92 million in its new development pipeline.
The company acquired Storage West last December for $1.7 billion. The acquisition expands the REIT's footprint in attractive sub-markets like San Diego, Orange County, Phoenix, Las Vegas and Houston that are characterized by high barriers to entry. The deal was also immediately accretive to FFO.
Over the last five years, CubeSmart has averaged 7.3% annual FFO per share growth and 6.9% annual dividend gains. The REIT's FFO per share rose 23.1% during the March quarter
An investment-grade credit rating and no significant debt maturities before 2024 provide CubeSmart with plenty of flexibility for more M&A and development projects in 2022.
Raymond James analyst Jonathon Hughes upgraded CUBE to Strong Buy in June, making this company his top pick among REITs. Hughes likes that self-storage REITs are essentially recession-resilient and thinks that CubeSmart's superior diversification across both markets and tenants further reduces risk.
W.P. Carey
- Market value: $15.6 billion
- Dividend yield: 5.2%
W.P. Carey (WPC, $80.97) is a net-lease REIT whose terms are structured to keep pace with inflation. Nearly 100% of WPC's leases have embedded rent increases, with 60% tied to inflation. The company owns single-tenant commercial properties primarily in the U.S. and Europe. Its current portfolio consists of 1,336 industrial, warehouse, office, retail and self-storage properties representing 157 million square feet of leasing space.
Space is leased to more than 356 tenants; W.P. Carey's top tenants include U-Haul, Advance Auto Parts (AAP), Extra Space Storage (EXR), Marriott (MAR) and the Hellweg chain of German home improvement retail stores. The portfolio boasts 98.5% occupancy rate and a 10.8 year weighted average lease term.
In February, W.P. Carey agreed to acquire CPA:18, a non-traded REIT the company was managing, for $2.7 billion of cash and stock. This acquisition is expected to close in Q3 and will greatly boost W.P. Carey's presence in the self-storage market, while making it one of the largest owners of self-storage assets globally.
W.P. Carey's adjusted FFO per share rose 10.7% during the March quarter. The REIT is guiding for 2022 adjusted FFO per share 4.1% higher.
WPC boasts an investment-grade balance sheet, $2.4 billion of borrowing capacity on its credit line and no significant debt maturities before 2024.
W.P. Carey is one of the best REITs for dividend growth, having increased its payout every year since going public in 1998. Additionally, WPC has maintained a conservative, stable payout ratio since converting to a real estate investment trust in 2012.
The real estate stock remains a favorite among Wall Street analysts, who have a consensus Buy recommendation according to S&P Global Market Intelligence. And so far in 2022, two equity research firms – JMP Securities and Raymond James – have already initiated coverage with Outperform (Buy) ratings.
Essential Properties Realty Trust
- Market value: $2.6 billion
- Dividend yield: 5.3%
Essential Properties Realty Trust (EPRT, $20.08) is a net-lease REIT specializing in property sale-leaseback transactions for middle-market customers. Selling and leasing back their real estate to Essential Properties enables businesses to raise capital to reinvest their core operations. During periods of rising interest rates, sale-leasebacks are an attractive alternative to debt for companies in need of capital.
At present the REIT's portfolio consists of 1,545 free-standing properties leased to 323 tenants across 46 states and representing 16 different industries. Its four largest tenant industries include early childhood education (14.1%), quick service restaurants (12.9%), car washes (11.5%) and medical/dental offices (11.4%). These recession-resistant tenants make up roughly 50% of the REIT's cash rents.
Essential Properties has grown adjusted FFO per share nearly 20%, on average, annually over three years and growth accelerated to 27% during the March quarter. The REIT is guiding for 13% FFO per share gains this year at the midpoint. Portfolio occupancy was nearly 100% during the March quarter and the portfolio's weighted average lease term is almost 14 years.
EPRT acquired $238 million of new properties during the March quarter and envisions a growing M&A pipeline in 2022 due to more businesses seeking to monetize their real estate. The REIT has plenty of liquidity thanks to its investment-grade credit rating, no significant debt maturities before 2024 and a debt-to-EBITDA ratio among the lowest in the net lease sector.
The REIT has only paid dividends for three years, but in that time, it has rewarded investors with 34.4% average annual growth. EPRT most recently boosted its dividend in June, by 3.8%.
Essential Properties earns Buy or Strong Buy ratings from nine of its 14 Wall Street analysts. Bulls cite the REIT's strong fundamentals and ability to benefit from rising interest rates via more demand for sale/leaseback transactions as reasons to invest.
National Retail Properties
- Market value: $7.0 billion
- Dividend yield: 5.3%
National Retail Properties (NNN, $39.63) is one of the best REITs for income investors, delivering 32 consecutive years of dividend increases. This mature triple net lease focuses on smaller properties primarily in the eastern half of the U.S.
At present, the REIT owns 3,271 properties spread across 48 states and representing 33.5 million square feet of leasable space. The portfolio has an average weighted lease term of 10.6 years and 99.2% occupancy.
NNN's defensive strategy focuses on single-tenant, freestanding retail properties (no malls or strip centers) and tenants that provide low-cost essential goods or services that hold up well during a recession.
National Retail Properties has more than 370 tenants. Its largest retail sectors are convenience stores, automotive services and fast-food restaurants, which together represent 40% of the portfolio. Multi-location tenants include 7-Eleven, Circle K, Goodyear (GT), Wendy's (WEN), Taco Bell and Dave & Busters (PLAY).
The REIT typically acquires properties priced in the $2 million-$4 million range. Low initial investment means affordable rents for tenants, contributing not only to their success, but also greater ease in re-leasing properties. During the March quarter, NNN acquired $210.8 million of new properties and sold 10 properties for $20.1 million.
The REIT has plenty of powder for additional acquisitions. The March quarter balance sheet showed $53.7 million of cash, no amounts drawn on its $1.1 billion bank line of credit and no material debt maturities before 2024.
Meanwhile, National Retail Properties generated 11.6% core FFO per share growth during the March quarter. It has also averaged a respectable 4.3% annual core FFO growth over the past five years.
NNN stock has been hit with broad-market headwinds in 2022, down 17.6% year-to-date. Still, the consensus estimate among the 14 analysts covering the REIT that are tracked by S&P Global Market Intelligence is Buy. Plus, shares are attractively valued at the moment, trading at a low 13 times forward FFO, which is more than 8% below the REIT sector median.
Source: https://www.kiplinger.com/investing/reits/603944/the-12-best-reits-to-buy-for-2022
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