Investors who are worried about inflation and the rising geopolitical risks caused by Russia’s invasion of Ukraine could find some comfort in REIT stocks (REITs). But since there are so many REITs to choose from, it can be hard to know which ones to buy.
For REIT investments over the next six months of 2022, you should look for names that meet the following criteria: First, you have to find the REITs that can still do well in an environment where interest rates are going up. This means the ones which are best able to raise rent prices.
Second, you should look for REITs that can survive a possible economic slowdown. In other words, REITs in areas such as industrial properties or in housing for more than one family, like apartment buildings.
Taking all of this into account, these seven real estate investment trusts are the best ones for 2022.
Camden Property Trust (CPT)
Camden Property Trust (NYSE:CPT), which is based in Houston, Texas, owns and manages apartment communities, with a focus on “sunbelt” markets in the Southeast. During the pandemic when many people worked from home because of the “stay-at-home economy,” Camden did very well. Many people who worked from home went to its markets.
But this pandemic isn’t helping it at all right now. Concerns have grown that the end of the pandemic and the rise in interest rates will lead to disappointing results in the future.
Still, it’s possible that the market has turned down too quickly. The demand for housing in its key markets is still strong. This REITs funds from operations (FFO) should go up by more than 10% this year. FFO is the REIT’s version of income. With a forward dividend yield of 2.7%, you might want to take advantage of the recent drop in CPT stock’s price and buy it.
Rexford Industrial Realty
Rexford Industrial Realty (REXR), currently worth $57.93, is an industrial warehouse REIT that is growing quickly. Due to problems in the supply chain, REXR could be one of the best REITs for the rest of 2022.
Rexford owns more than 60% of the industrial real estate owned by REITs near Long Beach and Los Angeles ports. The company only does business in Southern California, which has a huge industrial market worth $31.6 billion and is thought to be as big as the next five largest industrial markets in the U.S.
Hoya Capital says that the demand for industrial real estate will never end because of problems in the supply chain and the growth of e-commerce. Even though there are a record number of new buildings, industrial warehouse space is still in short supply, and demand is high. This is pretty evident since the net warehouse space absorption has been positive for 48 consecutive quarters.
Because of this, rents are rising quickly, and Rexford has a lot of pricing power thanks to its strong position in Southern California. Over the past five years, the REIT’s FFO (funds from operations, a measure of earnings for REITs) per share and dividends have grown by an average of 14% and 18% yearly.
Rexford also raised its outlook for 2022. At the midpoint of its new outlook, it expects core FFO per share to grow by 13 percent this year, which is more than the 9 percent growth it expected before. And earlier this year, the REIT gave investors a big dividend increase of 31%.
Independence Realty Trust
Independence Realty Trust (NYSE:IRT), like Camden, is an apartment REIT that focuses on the sunbelt. It’s also a name that peaked in 2021 when demand in these markets was very high.
On the other hand, IRT stock has dropped a lot in the last month because of fears in the market. Since mid-April, it’s gone down about 20%. Again, this is an example of how investors make decisions too quickly. Most apartment leases don’t last very long. It can raise rents to keep up with inflation and rising interest rates.
In turn, this will help it keep delivering steady growth in FFO. It would also be able to keep paying its dividends at the same rate of 12 cents per quarter and 48 cents per year. As of right now, the forward yield is 2.1%. So, add this REIT to your list of good ones to keep an eye on.
Sun Communities
Sun Communities (SUI, $151.04) owns and runs the most manufactured housing (MH) communities, RV resorts, and marinas in the United States. The REIT owns 646 properties in 39 states in the United States, Canada, and the United Kingdom. It has 283 housing communities, 192 RV parks, 130 marinas, and 41 RV holiday sites in the U.K. as part of its portfolio.
The REIT’s growth is driven by rent increases and additions in occupancy. Over 80% of its mobile home parks have rental rates tied to the CPI. During the March quarter, its MH communities had an average occupancy rate of 96.7 percent, but nearly three-quarters of its sites had an occupancy rate of 98 percent or more. This means that the remaining locations have more upside potential.
Internal growth is boosted by property purchases, which have added more than $11.1 billion to the portfolio over the past 10 years and grown it by almost four times. The REIT also keeps an active development pipeline to start three to five new projects each year.
SUI’s growth is helped by the fact that there aren’t enough affordable homes and that older Americans are buying vacation homes. This makes SUI one of the best REITs for the rest of 2022 and beyond.
American Tower
American Tower (AMT, $234.49) is a major owner, operator, and developer of multi-tenant cell towers, which are the backbone of wireless communications networks. The REIT does business all over the world and owns a portfolio of 221,000 cell tower sites. Of these, 43,100 are in the United States, 49,000 are in Central and South America, and 75,500 are in India.
Long-term demand for cell towers is driven by more people getting wireless internet, more people using mobile data, and spectrum auctions that allow more antennas to be put up. By 2027, the number of mobile devices is expected to grow by at least 10 percent per year, and the average amount of data used per device is expected to grow by 21 percent per year.
The REIT has grown by putting up more cell towers and getting more tenants for its existing properties. When AMT adds a second tenant to an existing tower, its return on investment (ROI) goes from 3 percent to 13 percent. When it adds a third tenant, ROI goes up to 24 percent.
Analysts agree that AMT is one of the best REIT stocks for the rest of 2022.
Prologis
Prologis (PLD, $110.66) is the world’s biggest owner of industrial real estate and a global logistics REIT. It has over 4,675 industrial properties and more than 1 billion square feet of leasing space in its portfolio. PLD owns buildings in 19 countries, including major supply-chain centers in North and South America, Europe, and Asia.
The REIT is an important part of the retail logistics chain, and the growth of e-commerce has put warehouse space in high demand. Prologis is rapidly expanding its foothold and reimbursing $26 billion for REIT’s rival Duke Realty (DRE). This is the biggest real estate deal since the pandemic began.
One of the best REITs for dividend growth is Prologis. For the last decade, the company has expanded its payout by an average of 11% per year. And Prologis keeps its payout at less than 60% of its adjusted FFO. In February, the REIT gave investors a 25 percent increase in dividends, indicating that it was optimistic about the future.
Digital Realty Trust
Digital Realty Trust (DLR, $124.57) is a renowned data center REIT that holds 291 facilities with 35.8 million square feet of space in 25 countries. DLR’s customers include Meta Platforms (META), AT&T (T), IBM (IBM), Oracle (ORCL), LinkedIn, and Verizon (VZ). Its main customers are cloud providers, IT companies, and mobile telecoms.
A fast-growing digital world and trends in new technologies like 5G, the Internet of Things, self-driving cars, and artificial intelligence are driving up demand for data processing and storage (AI).
The continued need for data center space and new leasing will drive growth in the future. At 83.3%, the rate of occupancy in the REIT’s data center has room to grow. Digital Realty Trust is also building 8.1 million square feet of new data center space and is holding 2.6 million square feet for future use.
