Real estate investment trusts (REITs) have blossomed over the past decade or two. While many started simply as collections of commercial or residential properties where the REIT was essentially the landlord, many have developed into far more unique arrangements. But that doesn’t make finding the best REITs easy.
For investors, REITs are interesting because they are structured so that the shareholders (technically trust holders) are direct business owners. They get paid a distribution of net income in the form of dividends.
That means the best REITs can be a great source for stable income.
But they’re also tax advantaged, especially since the December 2017 tax cuts went into effect. Depending on your tax bracket, investors get a 20% reduction in taxes on their earnings in real estate.
On top of all that, real estate investment trusts now are highly specialized and with super low interest rates. The best REITs take advantage of adding more properties to expand operations and build bigger competitive moats. However, chasing high yields in REITs could blow up in your face … which is why I use my Portfolio Grader service to tag real estate investments that aren’t simply slashing their payouts.
What’s more, these stocks provide access to industries that could see a major transformation in the next few years — a “second wave” of innovation that rivals the early internet boom. The seven REITs ready for a rebound below are some of the industry’s best in class choices and are well prepared to grow”
- Safehold Inc (NYSE:SAFE)
- Digital Realty Trust (NYSE:DLR)
- Hannon Armstrong Sustainable Infrastructure Capital (NYSE:HASI)
- CoreSite Realty (NYSE:COR)
- Americold Realty Trust (NYSE:COLD)
- Medical Properties Trust (NYSE:MPW)
- American Tower REIT (NYSE:AMT)
Here’s what makes each among the best REITs to choose from today.
Best REITs Ready to Rebound: Safehold Inc (SAFE)
This is a ground lease REIT that operates in the top 25 markets in the U.S. as well as other cities and towns.
It’s also what’s known as a “triple net lease” company, which means the company that leases the land also pays the taxes, maintenance and development of the property. That keeps it simple for the REIT, since those costs aren’t part of its cost structure.
A ground lease simply means SAFE leases land in a location to a company where the company can build a store, building or warehouse. The leases are usually very long term, and the fact that companies are building properties means their commitment to the investment is significant.
SAFE specializes in ground leases for offices, multifamily dwellings, medical offices, retail, industrial and student housing.
With the decline of shopping malls and the growth in some sectors it specializes in, SAFE has been on a tear — it’s up 66% in the past 12 months. But those big gains dig into the yield, which is currently around 1.2%. But that’s a very solid annual return with more to come.
Digital Realty Trust (DLR)
By now, you know about the cloud, artificial intelligence, self-driving cars, the internet of everything, etc.
Well, the fact is, all these revolutions of the digital economy rely on data farms. And those data farms need to be redundant, which means they also need to be located around the country and the globe.
Instead of companies like Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) building out their own data farms and managing the properties and equipment, they farm out a lot of this to DLR and similar companies. These are the sort of companies that hold the “master key” to unlocking massive gains in technology.
But DLR is one of the top players in the industry with over 34.5 million square feet of space available across the U.S., Canada, Asia, Europe, Australia and now Brazil. It has 275 data centers in 21 countries, and it’s growing.
This company is both a REIT and a tech firm, which is a great space to be in since both sectors are in fine form right now. DLR stock is up 21% in the past year and provides a very attractive 3% dividend.
Hannon Armstrong Sustainable Infrastructure Capital (HASI)
This 8-year-old REIT has some very interesting aspects that make it a good selection for investors looking to diversify their REIT portfolios or for those that are green energy proponents.
It is a smart play on the ESG (environment, social and governance) investing movement that is gaining significant traction among institutional investors and their key clients. Basically, this concept isn’t new, but it has been codified by investors under this acronym.
HASI is a direct play on the ‘E’ in ESG. It’s an environmental REIT that works “behind-the-meter” with customers to improve energy efficiency, develop energy storage and support distributed solar. That’s about 60% of HASI’s revenue. Another 38% is direct investments in onshore wind and solar projects. Its sustainable infrastructure division is small right now but has a lot of room to grow in coming years.
And one of the best things about HASI is, most of its project financing is backed by the U.S.-government, so its risk is backstopped by the best lender in the business — the U.S. government.
The stock is up 8% in the past 12 months and distributes a generous 4.5% dividend.
CoreSite Realty (COR)
Headquartered in San Jose, California, a hub of Silicon Valley, this data center REIT is smaller, U.S.-focused play on the massive growth in data center demand.
Not only is there huge demand for cloud services and real-time connectivity for everything from self-driving cars to online gaming, but there’s also demand from the carriers to be able to get this data to customers that are on smartphones, working remotely and traveling. It’s cut from exactly the same “master key” cloth I alluded to earlier. These companies usually keep a low profile, operating in a profitable niche of various megatrends, such as Big Data, which could set investors up for years to come.
All this creates niches for smaller players that allow them to grow their business to the level of the big players, or eventually show up as tantalizing takeover targets. And that’s the case with COR stock at this point.
Its $4 billion market cap makes it a great target for larger data center REITs as well as cloud-focused firms looking for a division to run their operations.
The stock is up 4% in the past year and maintains an attractive dividend that’s nearly 4%.
Americold Realty Trust (COLD)
There’s little doubt that the world has changed the way it provides and distributes goods, not only because of the pandemic, but also because of the nature of just-in-time inventory.
And that has been a great change for COLD. It’s a REIT that has 185 distribution centers across North and South Americas, Australia and New Zealand.
Its producers, retailers or distributors, include temperature-controlled warehouses and distribution centers that are crucial to building and maintaining markets that depend on broad distribution of perishable goods.
The pandemic makes this space even more important since much more food is going directly to people’s houses, rather than traditional end points like grocery stores and restaurants. Now that this trend has been in place for a while, it’s likely to become a new opportunity for COLD to look for more ways to exploit it.
COLD stock is up 7% in the past 12 months and has a 2.3% dividend.
Medical Properties Trust (MPW)
Another megatrend sector to watch is medical properties. And REITs are a good way to play the space since they’re brand agnostic. They provide growing healthcare firms properties on a triple net lease basis, which keeps more capital in the REITs’ pockets to buy more properties or distribute as dividends.
MPW has properties in the U.S., the U.K., Germany, Spain, Italy, Switzerland and Australia. It provides hospitals, acute care and rehabilitation facilities as well as financing for expansion and renovation to existing properties.
Its recent challenge has been the current challenges of the novel coronavirus pandemic have strained hospitals in MPW’s markets, but right now it’s all about managing the crisis, rather than expanding operations.
But in the scheme of things, the pandemic is an event and healthcare demand is a massive trend.
MPW stock is down slightly — about 3% — in the past 12 months, but makes up for it with a big 6% dividend that’s safe for now.
American Tower REIT (AMT)
The other side of the data center story is the end user. And that end user may be on a smartphone or laptop. The digital revolution has enabled the mobility revolution.
AMT is one of the leaders in getting those signals across mobile networks and to customers around the world. The company has towers in the Americas, Europe, Asia, Africa and the Middle East.
In the developed nations, the race is on to upgrade mobiles services to the next generation in transmission technology, 5G. In developing nations, mobile services are the lifeblood of communications since laying cable is very expensive outside of major urban areas. It’s much more efficient to put up towers for broad mobile access.
5G does have different needs than earlier generations of telecom transmission, but big towers are still in demand to send signals across long distances. And AMT is certainly well positioned to keep its strong market position moving forward.
AMT is up 25% in the past year and that growth will likely be the key attraction, since the current dividend is around 1.7%.
Many of the industries I’ve named here are going to undergo massive transformations in the coming years.
The secret to unlocking gains in these industries begins and ends with what I call “the master key.” Whether it’s self-driving vehicles, telemedicine, semiconductors, the Internet of Things or artificial intelligence, there is a disruptor that’s being overlooked.
But in hindsight, you wonder why you ever missed these companies in the first place. I’m talking about companies such as the following:
- Baidu (NASDAQ:BIDU) — where I saw a 204% gain.
- Regeneron (NASDAQ:REGN) — a 130% gain.
- Amgen (NASDAQ:AMGN) — a 204% gain.
- Dell (NYSE:DELL) — a 307% gain.
Today’s disruptors will be tomorrow’s household names. But it’s not too late to get in on these stocks before they change the investment landscape.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.