Real estate investment trusts (REITs) suffer from one key myth: When rates rises, REITs lose.
Part of that logic — and short-term self-fulfilling prophecy — is that cash is the lifeblood of REITs and when rates rise the cost of borrowing for REITs is higher, so their margins are squeezed.
But that leaves out one key piece of information out of the equation. If rates are rising, the economy is growing. And over time, REITs do very well in an expanding economy because it is easier for them to raise rates or capture tenants willing to pay higher rents on their properties.
And this theory proves itself out time and again.
Considering most economic indicators, it looks like the U.S. is starting that expansion once again. And that means it’s a good time get some REITs in your portfolio. Below I have picked the seven best REITs to buy now. They represent strong buys because of their business sector, region or both.
REITs to Buy Now: Digital Realty (DLR)
Digital Realty Trust Inc (NYSE:DLR) doesn’t rely on the overall economy for its business to thrive. It focuses on one of the most enduring growth sectors in the global economy – tech.
DLR provides properties for data centers and colocation services. Colocation services are basically a building where a firm can set up its servers and the REIT provides the infrastructure, like cooling, power, bandwidth and physical security.
DLR has properties around the world and is one of the top REITs in this niche. It has 145 properties, 104 in the U.S. and 41 on other continents. That scope gives DLR plenty of room for growth and also diversifies its risk, not relying on country’s tech presence completely.
Its recent earnings report was encouraging. Funds from operations (FFO), the key indicator of a REIT’s profitability, are continuing to expand and the DLR raised its estimates for next quarter.
REITs to Buy Now: IRSA Propiedades (IRCP)
IRSA Propiedades Comerciales SA (ADR) (NASDAQ:IRCP) is not your average REIT. This one is for those who have slightly more risk tolerance when it comes to the usual conservative total return play.
IRCP operates in Argentina. Its focus is on commercial properties, like office buildings and shopping centers.
The reason you need to have a healthy heart for this one is, Argentina’s economy is prone to boom and bust cycles. If you recall, a few years back it was trying to default on some government bonds it had issued and was taken to court by a handful of large U.S. hedge funds that held a substantial amount of them.
But Argentina is in the boom cycle again and that means the hard times are over and there are a few years (at least) of boom left.
It’s up about 10% year to date and is delivering a 3% dividend yield.
REITs to Buy Now: UMH Properties (UMH)
UMH Properties, Inc (NYSE:UMH) is about as American as you can get in the REIT space.
Since 1968, UMH has been building manufactured home communities in New York, New Jersey, Ohio, Pennsylvania, Tennessee, Indiana and Michigan. UMH has 106 communities spread across its region and rents a number of units in the communities, as well as sells them. It went public in 1985.
Manufactured homes are pre-built in a shop and then delivered to the site fully assembled. They usually run between 1,000 and 2,500 square feet. Usually, the communities are on the outskirts of larger urban areas, so tenants have access to the towns and cities for work, but don’t have to pay a premium for the access.
UMH is up 13% in the past three months and it’s still delivers a solid 4% dividend yield. As the economy improves, so do the fortunes of UMH.
REITs to Buy Now: Jernigan Capital (JCAP)
Jernigan Capital Inc (NYSE:JCAP) is kind of a REIT bank of sorts. It basically provides debt equity capital to private developers, owners and self-storage facilities operators that then operate their facilities under the CubeSmart brand.
This unique approach means JCAP is doing the financing for the projects and then gets its cut of the business as well as branding the sites.
Given that money is still relatively cheap, this is still a very good market for this strategy. Also, as the job market tightens, it means that people will look to opportunities in other cities and that means an increased demand on storage units. It’s no surprise JCAP is predicting another big year in 2017.
The stock is up about 6% year to date, but it’s 6% dividend makes it a solid performer.
REITs to Buy Now: New England Realty (NEN)
New England Realty Associates LP (NYSEMKT:NEN) is a focused REIT that operates in Massachusetts and New Hampshire. It owns and develops commercial properties as well as condominiums and apartments in about 20 complexes around the region.
Like in most big cities these days, real estate prices are through the roof. But the cities are where the jobs are. This disconnect is a great opportunity for NEN. It offers properties that are accessible to the work but don’t cost an arm and a leg.
This is the perfect time for NEN, as the economy begins to warm up again and workers are moving to jobs from out of town.
The stock is up 12% year-to-date, but it has one of the lower dividends in the group, at around 1.7%.
REITs to Buy Now: Corenergy (CORR)
Corenergy Infrastructure Trust Inc (NYSE:CORR) is the first publicly traded REIT focused on energy infrastructure. CORR owns assets like pipelines, storage tanks and transmission systems.
This is a new idea but a very compelling one, given the growth of the U.S. energy patch. The challenge will be for CORR to not be as volatile as the industry it represents. But the short-term volatility is a small price to pay for the long-term potential here.
U.S. exploration and production companies have come back from 2 years ago far more efficient in drilling, discovery and extraction. Cost per barrel is down and production quantities are up.
Plus, CORR is in the best spot to be right now — midstream properties. This is less price sensitive than exploration and production. It’s more about demand. And if the economy at home and abroad continue to grow, CORR will do very well.
The stock is flat year-to-date, but its 8.7% dividend pays you well for your patience.
REITs to Buy Now: RMR Group (RMR)
RMR Group Inc (NASDAQ:RMR) is a holding company that manages four REITs, three real estate related operating companies, one real estate securities mutual fund and a firm specializing in commercial real estate finance.
Basically it’s the management company for eight publicly traded, real estate related firms. Its business is real estate, but it doesn’t directly own properties as a way of making money. It’s a bellwether for the real estate industry.
And times are good. According to its first-quarter earnings release earlier this week, revenues were up 12% compared to the same quarter last year, net income was up 13% and Ebitda was up almost 14%.
With those kinds of numbers and the prospects of a brighter economy it’s no surprise RMR is up nearly 30% year to date. That run has taken some shine off its dividend, which sits at a hair below 2% now. But who needs a big dividend when you’re posting growth like that?
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.