Real estate investment trusts (REITs) have been stellar performers so far in 2021. The real estate sector’s roughly 30% total return (price plus dividends) through the end of August easily beats the 21%-plus return for the S&P 500 Index.
Better still: Several factors suggest that REITs are likely to continue beating other investments in the remaining months of 2021.
The first is a scarcity of high yields. At present, both the 10-year Treasury note and the S&P 500 yield a paltry 1.3%. But REITs yield more than double that, at 2.7% on average, making real estate stocks one of the market’s top income-generating sectors.
Another trend favoring REITs is higher inflation. Real estate stocks offer a natural hedge against inflation due to their ability to raise rents. Data from the National Association of REITs shows that this asset class outperforms the S&P 500 Index 80% of the time during periods of high and rising inflation.
Additionally, some REIT sectors are experiencing booming demand because of COVID-related social distancing that shifted many transactions from in-person to digital. Industrial REITs supply the facilities that enable timely fulfillment of on-line orders. Data REITs house the servers that power websites and e-commerce. Cell tower REITs provide infrastructure for wireless communications growth.
Another thriving REIT sector is manufactured housing, which benefits from the current shortage of affordable housing. U.S. housing inventories are near historic lows and new home prices on average exceed $287,000 versus less than $82,000 for a manufactured home.
Read on as we explore the 10 best REITs for the rest of 2021 – selected from the top-performing real-estate industries. Most offer rising dividends, rich yields and exceptional growth prospects in the second half of this year.
Data is as of Aug. 30. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. REITs are listed in reverse order of yield.
- Market value: $132.8 billion
- Dividend yield: 1.8%
American Tower (AMT, $291.68) is a leading cell tower REIT with a global portfolio of more than 214,000 communications sites. Over the last decade, the real estate stock has delivered 14% annual FFO per share (funds from operations, an important REIT earnings metric) growth by adding more tenants on existing cell towers and building/acquiring new assets.
Demand for communications infrastructure is expanding worldwide due to exponential growth in mobile data traffic, which is forecast to rise 28% annually through 2026, and an increasing number of mobile-connected devices. KeyBanc analysts point to 5G rollout as another catalyst that will increase wireless provider infrastructure investment to more than $33 billion in 2023.
American Tower greatly expanded its cell tower network in early 2021 by acquiring Telxius Tower, which owns 31,000 cell towers and 3,300 sites under construction concentrated in Germany, Spain and Latin America. Through this purchase, American Tower also expands its relationship with an important tenant, Telefonica (TEF), and gains immediate FFO accretion.
The REIT’s adjusted FFO per share rose 17% during the June quarter and American Tower is guiding for 12% adjusted FFO gains this year and double-digit annual growth over the longer term.
The Telxius purchase temporarily raises the REIT’s leverage, but American Tower retains its investment grade credit rating and liquidity (over $4.7 billion of cash and available lines of credit). The REIT anticipates reducing leverage to its targeted 3x-5x range over the next few years.
Plus, Barron’s says American Tower is one of the infrastructure stocks most likely to benefit from the Biden administration’s roughly $1 trillion spending bill. While not exactly the cheapest of REITs at 28 times forward FFO, AMT offers the one of the industry’s safest and fastest-growing dividends. Dividend per share growth has averaged 20% a year since 2012, and the cash dividend payout ratio is a modest 50.5%.
Americold Realty Trust
- Market value: $9.6 billion
- Dividend yield: 2.4%
Americold Realty Trust (COLD, $36.67) is the largest public REIT specializing in the cold storage space. COLD owns 242 temperature-controlled warehouses and 1.4 billion feet of refrigerated storage space spread across North and South America, Europe and Asia.
Its customers consist of leading food producers like Conagra Brands (CAG), Unilever (UL), Kraft Heinz (KHC) and Danone (DANOY), and food retailers such as Kroger (KR), Safeway, H-E-B and Sprouts Farmers Market (SFM). The REIT owns a 21% share of the U.S. cold storage market.
Strong food industry fundamentals, long-standing customer relationships and steady growth in the number of fixed commitment contracts enhance earnings visibility and create a long runway for COLD’s growth. Americold’s largest customers average 35+ years with the company and typically contract for multiple facilities and several value-added services. The majority of the REIT’s top customers have signed fixed commitment contracts averaging seven-year terms and these contracts currently account for nearly 40% of revenues.
COLD’s future growth will come from continued rent and occupancy gains, geographic expansion, new development and acquisitions. Americold expects to invest $175 million to $300 million annually in new development and recently acquired a major competitor, Agro Merchants Group, which is the third largest cold storage business in Europe and the fourth largest in the U.S. This acquisition adds 46 warehouses across 10 countries to the REIT’s holdings.
Americold’s revenues grew 36% during the June quarter and net operating income (NOI) rose 21%. However, adjusted FFO per share was one cent below analysts’ consensus estimate due to COVID-related global food chain supply disruptions that hurt margins. This triggered downgrades from Raymond James and Citi analysts to Neutral and a roughly 7% decline in the share price. This, however, likely created an attractive entry point for new investors looking to gain exposure to one of the best REITs out there.
COLD has been a dividend-paying stock since its 2018 initial public offering (IPO) and has increased payments by roughly 5% per year. The security of the dividend is supported by a highly liquid balance sheet, which shows $1.3 billion of cash and available credit lines.
- Market value: $1.1 billion
- Dividend yield: 3.2%
UMH Properties (UMH, $23.93) owns and operates manufactured housing communities and leases home sites to private residential owners. At present, the REIT owns 127 communities and 24,000 developed home sites spread across 10 U.S. states. UMH also owns 8,600 manufactured homes that it leases to renters and plans to add 800-900 new units to the rental portfolio each year. Its rental units are 95.9% occupied and occupancy rates for leased home sites exceed 86.0%.
The REIT’s existing portfolio allows for considerable expansion, based on 3,500 currently vacant lots and undeveloped land that could support an additional 7,300 future sites.
In the last four years, UMH has generated 60% revenue growth, 67% NOI gains and a 59% increase in FFO. In the June quarter alone, FFO per share rose 29%.
The REIT’s occupancy rate and rental units both rose during the pandemic and UMH is currently benefiting from a nationwide shortage of affordable housing that is accelerating demand for manufactured housing. In addition, the REIT has a strong presence near the Marcellus and Utica Shale natural gas fields, where development activity has fueled employment gains and booming demand for housing.
UMH has paid a dividend every year since 1998 and raised its quarterly payout by 5.5% in January. Cash dividend payout is conservative at less than 60% and the REIT has low debt and great financial flexibility.
Analysts certainly think this is one of the best REITs out there. Of the seven covering the stock tracked by S&P Global Market Intelligence, six call it a Strong Buy and one says it’s a Buy.
- Market value: $6.9 billion
- Dividend yield: 3.4%
Warehouse owner STAG Industrial (STAG, $42.57) benefits from e-commerce growth and actually expanded during the pandemic, acquiring 48 buildings. Today, the REIT owns 501 warehouses and over 100 million square feet of leasing space spread across 39 U.S. states.
Approximately 40% of this REIT’s portfolio is e-commerce-related. Considering digital U.S. retail sales have risen to 13.6% from less than 6% over the past 10 years, this has created steady growth for STAG. The real estate name is also capitalizing on the $1 trillion industrial real estate market via acquisitions and plans to extend its foothold in the top 60+ U.S. markets.
This REIT’s robust growth has not come at the expense of safety thanks to a portfolio well-diversified by geography, tenants and lease terms. STAG’s largest tenant, Amazon.com (AMZN), contributes just 3.9% of rents and its other tenants represent at least 45 different industries. Lease expirations are staggered as well, with only 30% of leases expiring through 2023.
The REIT’s adjusted FFO per share increased 10.6% during the June quarter and STAG boosted 2021 FFO guidance by roughly 2% to a range of $2.02 to $2.04 per share. In addition, the company raised guidance for same-store cash NOI growth and acquisition volume.
STAG has paid dividends 10 years in a row. Monthly dividends are supported by a conservative balance sheet that shows debt at 23% of total capitalization and 4.7 times run-rate adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).
Wells Fargo named STAG as a “Signature Pick” among REITs in May. This means analysts feel the real estate stock exhibits a favorable risk/reward ratio and is expected to return at least 15% over the near term.
- Market value: $9.8 billion
- Dividend yield: 4.0%
STORE Capital (STOR, $35.89) invests in single-tenant properties leased to tenants who provide everyday necessities. These tenants, which include quick-serve restaurants, auto repair shops, early childhood education facilities and medical and dental practices to name a few, represent over 118 different industries.
At present, the REIT owns 2,738 properties spread across 49 states and rents to 529 tenants. Its leases have 14-year weighted-average remaining terms and support a 99.6% occupancy rate.
Since its IPO in late 2014, STORE has generated 4.2% annual adjusted FFO per share growth and 6.4% yearly dividend gains. The REIT targets 5% annual organic growth over the longer term.
STORE Capital grew adjusted FFO per share 13.6% during the June quarter and increased full-year FFO guidance. The REIT also closed $612 million of acquisitions during the first six months of 2021 and has $12.5 billion of potential purchases in its pipeline.
Despite being one of the best REITs in terms of dividend growth and safety, STOR shares are valued at just 17.1 times 2022 adjusted FFO estimates and a 15% discount to its peers.
Warren Buffett recognizes this real estate stock’s success in borrowing cheap to acquire high-yielding properties. He owns 9% of STOR, making it the largest REIT holding in the Berkshire Hathaway portfolio.
Healthcare Trust of America
- Market value: $6.6 billion
- Dividend yield: 4.3%
Healthcare Trust of America (HTA, $30.23) is the largest owner/operator of medical office buildings (MOB) in the U.S. This REIT owns 471 buildings, 25.6 million square feet of leasing space and has an investment portfolio valued at $7.5 billion.
HTA plans to grow by expanding its footprint in densely populated metro areas of the U.S. that have research facilities and university hospitals. The REIT’s largest markets include Dallas, Boston, Houston, Miami and Indianapolis.
Partnerships with leading national and regional health systems enabled Healthcare Trust to maintain a roughly 90% occupancy rate and to grow FFO per share during the pandemic.
Longer term, HTA should benefit from rising demand for healthcare from an aging U.S. population and a trend favoring outpatient facilities that can provide more cost-effective medical care. The highly fragmented nature of the MOB gives the REIT plenty of acquisition opportunities.
Healthcare Trust stands out for being the only MOB REIT that has increased dividends eight years in a row, averaging 11.3% annual growth. The payout ratio is currently at 80%.
The REIT’s acquisition program is supported by a liquid balance sheet showing $1.3 billion of cash and available credit, a BBB credit rating from Standard & Poor’s and no significant near-term debt maturities.
During the first six months of 2021, Healthcare Trust grew FFO per share by 7.3%, closed $373 million of investments, expanded its pipeline of pre-leased projects to $375 million and issued guidance for 2021 FFO per share of $1.70 to $1.77, up roughly 1.3% at the midpoint and easily covering the $1.30 forward dividend.
HTA shares trade at a 19.5 times multiple to forward FFO and a discount to other REITs. Bullish investors may like this real estate stock for its reliable FFO and dividend growth and acquisition opportunities in a market where demand for MOB is rising.
- Market value: $16.5 billion
- Dividend yield: 4.8%
VICI Properties (VICI, $30.75) owns top-tier gaming, hospitality and entertainment properties. This REIT’s portfolio consists of 28 properties comprising 47 million square feet, roughly 17,800 hotel rooms, 200 restaurants, bars and nightclubs and four championship golf courses.
Its properties are triple net leased to best-in-class tenants like Caesars Entertainment (CZR), Hard Rock Cafe and Century Casinos (CNTY), who pay all property expenses and taxes. Leases have terms that average 34.2 years.
Thanks to the resiliency of these tenants, VICI was not only able to maintain 100% occupancy during the pandemic, but also collect 100% of rents and increase adjusted FFO per share by 10.8%. More good news is that gaming is on the rebound in 2021 with U.S. commercial casinos matching their best quarter ever revenue-wise in the first three months of the year, according to the American Gaming Association.
The REIT is expanding its portfolio, and in March, agreed to buy the Venetian Resort Complex from Las Vegas Sands (LVS), which includes three hotel towers, the Sands Expo Center and roughly 225,000 square feet of gaming space.
And in August, VICI agreed to acquire MGM Growth Properties (MGP), a major competitor. After the closing, VICI will gain 15 entertainment properties from the deal, which will likely make the REIT the largest landowner on the Las Vegas Strip.
Commenting on the MGM acquisition, Truist Securities gaming analyst Barry Jonas saw it highlighting for investors the attractiveness of gaming real estate. Jeffries gaming analyst David Katz likes VICI’s continued expansion during the pandemic and aggressive appetite for growth.
Despite becoming the largest gaming REIT, VICI shares trade at a 17.6 times multiple to 2022 FFO per-share estimates and more than 22% discount to other REITs. VICI’s dividend has grown every year since its 2018 IPO, including a 9% hike in August.
Easterly Government Properties
- Market value: $1.8 billion
- Dividend yield: 5.0%
Easterly Government Properties (DEA, $21.37) is a unique REIT focused on properties leased to U.S. government agencies. The REIT owns 84 properties, mostly office space, warehouses and outpatient facilities, and 7.6 million square feet of leasing space. Its portfolio is 99% leased to tenants from a number of different U.S. government agencies, including the Federal Bureau of Investigation (FBI), Food and Drug Administration (FDA), Homeland Security, Immigration and Customs Enforcement (ICE) and the military.
The U.S. government is one of the world’s largest employers and the nation’s largest renter of office space. The amount of real estate leased by the U.S. government has grown 23.3% since 1998, with the federal government now leasing more property than it owns. Given federal budget constraints, experts expect this trend favoring leasing over ownership to continue into the future.
The market for federally leased assets is also highly fragmented, with the top 10 landlords accounting for only 25% of the market, and no single landlord owning more than 5.4%. Barriers to entry are high due to complicated procurement processes and lease protocols that favor experienced landlords like Easterly.
Easterly’s revenues rose 13.3% in the June quarter, FFO per share improved 3.1% and DEA increased full-year FFO per share guidance. DEA expects to close $300 million in acquisitions this year. Additionally, plans by the Biden administration to bring federal employees back to the workplace could create tailwinds for the REIT in 2021.
DEA hiked its dividend 1.9% in July and has grown payments 4.3% annually over six years. At present, DEA shares trade at an 18 times multiple to forward adjusted FFO and at a 12% discount to its fellow industry REITs.
Global Medical REIT
- Market value: $990.6 million
- Dividend yield: 5.4%
Global Medical REIT (GMRE, $15.43) is a fast-growing healthcare REIT that invests in medical office buildings, ambulatory surgery centers, in-patient rehab facilities, acute care hospitals and other purpose-built medical facilities. Its tenants are major regional and national health systems such as dialysis provider Fresenius Medical Care (FMS) and post-acute services specialist Kindred Healthcare.
GMRE is differentiated from competitors in this space by its diverse assets and its triple net leases, which tend to outperform other lease types during downturns.
Thirteen new properties were acquired during the first six months of 2021, which increased the size of the REIT’s portfolio to 157 properties and 4.1 million square feet of leasing space. Global Medical’s properties are leased to 126 different tenants, boast 99.1% occupancy rates and enable steady organic growth from embedded annual 2% rent escalations in its leases.
Acquisitions helped to boost the REIT’s revenues by 27.2% year-over-year during the June quarter and adjusted FFO per share improved 14.6%.
The REIT hiked its dividend 3% in 2021, marking the company’s first dividend increase in four years. Investors now collect a rich 5.4% dividend yield.
Baird analysts expect the REIT’s robust acquisition pipeline to deliver strong earnings gains in 2022 and rate GMRE shares Overweight, which is the equivalent of a Buy. The real estate stock trades at a modest 14.2 times multiple to estimated 2022 adjusted FFO and a 25% discount to its peers.
- Market value: $14.8 billion
- Dividend yield: 5.4%
W.P. Carey (WPC, $77.92) is a global net lease REIT that invests in single-tenant industrial, warehouse, office and retail properties. The REIT owns 1,266 properties and more than 150 million square feet of leasing space spread across North America, Europe and Japan. Its facilities are leased to more than 350 tenants and have a 98% occupancy rate.
Industrial and warehouse space accounts for nearly 50% of the REIT’s portfolio. Its largest tenants are U-Haul, Advance Auto Parts (AAP), the government of Spain, U.K. auto dealer Pendragon, Extra Space Storage (EXR) and Hellweg, which operates big box do-it-yourself (DIY) stores across Germany.
Nearly all of W.P .Carey’s leases have contractual lease escalations, with 60% linked to the consumer price index (CPI). Organic growth is supplemented by acquisitions. The REIT closed roughly $1.0 billion of real estate purchases during the first six months of 2021 and targets full-year deal volume at $1.5 to $2.0 billion.
W.P. Carey increased adjusted FFO per share by 11.4% during the June quarter and raised its full-year adjusted FFO guidance to reflect higher deal volume.
Looking ahead, one potential catalyst to W.P. Carey’s near-term growth may come from liquidating its last two non-traded real estate funds. The larger of the two, CPA:18 Global, owns 50 net lease properties worth $1.5 billion. Analysts expect W.P. Carey to acquire at least some of these properties when the fund is liquidated, which could possibly happen as early next year.
WPC has generated over 20 consecutive years of dividend growth since its 1998 initial public offering and its yield exceeds that of major REITs and the S&P 500.
Dividends are supported by a solid BBB-rated balance sheet with no major debt maturities before 2024. WPC stock is attractively valued at 15.2 times forward adjusted FFO and a 27% discount to REIT industry peers.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.