Investors who put money in real estate investment trusts (REITs) in early 2021 have celebrated juicy returns over the holidays. Following pandemic-induced lockdowns in 2020, we witnessed a huge rebound in 2021. That also meant a rally for shares of real estate names.
Over the past one year, the Dow Jones U.S. Real Estate Index returned an eye-popping 34%, outpacing most major indices including the S&P 500. Now, analysts are debating whether these gains in real estate companies can extend into 2022 as well.
REITs are companies that own and usually operate income-generating real estate, such as apartment complexes, warehouses, healthcare facilities and more. Seasoned investors also know that real estate can be a good hedge against inflation; rents and property values tend to rise when prices do.
In addition, in the United States, REITs are required to pass on 90% of their taxable income to shareholders in the form of dividends. According to S&P Global Market Intelligence, “As of Nov. 2, 2021, publicly traded U.S. equity REITs posted a one-year average dividend yield of 2.9 percent.”
Concerns about new variants of Covid-19 persist. Still, millions of people working from home also look forward to returning to the workplace in 2022. Thus, the post-pandemic recovery is expected to create another huge boost for REITs in areas like retail, office space and infrastructure.
With that said, here are seven REITs poised to generate stable returns in 2022:
- ALPS REIT Dividend Dogs ETF (NYSEARCA:RDOG)
- Americold Realty Trust (NYSE:COLD)
- CareTrust REIT (NASDAQ:CTRE)
- Digital Realty Trust (NYSE:DLR)
- Pacer Benchmark Industrial Real Estate SCTR ETF (NYSEARCA:INDS)
- Plymouth Industrial (NYSE:PLYM)
- Store Capital (NYSE:STOR)
REITs to Buy: ALPS REIT Dividend Dogs ETF (RDOG)
52-week range: $39.96 – $54.44
Dividend yield: 3.15%
Expense ratio: 0.35% per year
First up on today’s list of REITs is actually an exchange-traded fund (ETF). The ALPS REIT Dividend Dogs ETF provides access to “the five highest-yielding segments within nine REIT segments.” It tracks the S-Network REIT Dividend Dogs Index.
This passively managed fund currently has 39 holdings. Total net assets have grown over $29.7 million since its inception in May 2008. The top ten names account for a little more than 26% of the fund. Industrial Logistics Properties Trust (NASDAQ:ILPT), Omega Healthcare Investors (NYSE:OHI) and Crown Castle International (NYSE:CCI) lead the names on the roster. As the fund is equally weighted, moves in an individual stock do not have a significant impact on price.
In terms of sectoral breakdown, investors may want to know that this ETF includes names from tech REITs which provide exposure to increased digitalization trends. However, it excludes mortgage REITs (mREITs), which could be sensitive to interest rate changes.
RDOG has returned more than 31% for the past one year. In addition, the current price supports a juicy dividend yield of 3.15%. The fund also recently hit record highs. Interested readers might want to keep the ETF on their radar and invest during the next pullback.
Americold Realty Trust (COLD)
52-week range: $27.88 – $40.85
Dividend yield: 2.76%
Atlanta, Georgia-based Americold Realty Trust is one of the largest public REITs focusing on temperature-controlled warehouses. These properties are used mainly in the food supply chain. COLD has almost 250 facilities across North America, Europe, South America and the Asia-Pacific region.
This company released third-quarter financial results back in early November. For the period, revenue came in at $708.8 million, up 42.5% year-over-year (YOY). Net income of $5.3 million translated into earnings of 2 cents per diluted share. In the year-ago quarter, net income and diluted earnings per share (EPS) were $12.4 million and 6 cents, respectively. In Q3 2021, cash and equivalents also ended the period at almost $153 million, down over 75% YOY. On the earnings call, CCO Rob Chambers cited the following:
“[T]hrough all this short-term disruption, we remain confident in the global demand for all types of food in our diverse portfolio, and we are confident that food manufacturers will return to pre-COVID inventory levels as end consumer demand remains firmly intact.”
As with the broader food and agriculture industry, the cold storage sector anticipates some fundamental tailwinds. These include population increases and urban expansion, neither of which has shrunk even amidst the ongoing pandemic. According to one report, “The cold storage market size is expected to increase” by $31.97 billion from 2020 to 2025. That makes for a compound annual growth rate (CAGR) of 2.79%.
Shares of COLD stock have come under pressure over the last few months, mainly due to labor shortages. The stock hit a 52-week low in October but has risen significantly since then. For the past one year, shares are down about 10%, currently hovering around the $32 mark. Shares are trading at 3.07 times trailing sales and 2.12 times book value. The 12-month median price forecast for COLD stock is $36.50.
REITs to Buy: CareTrust REIT (CTRE)
52-week range: $19.45 – $24.89
Dividend yield: 4.69%
Next up on this list of REITs is CareTrust, which focuses on healthcare-related properties like skilled nursing facilities stateside. Recent research highlights the demand prospects for healthcare REITs over the medium- to long-term. It suggests that, “Since aging is inevitable, America will require more investment in the healthcare real estate sector in senior individuals’ residences.” As such, the segment will get increased interest from Wall Street.
Management released Q3 financial results on Nov. 8. For the quarter, rental revenue grew to $48 million. Net income stood at $11.9 million as well, or 12 cents per diluted share. That’s compared to $21.5 million and 23 cents per diluted share in the previous-year quarter. Finally, cash and equivalents ended the period at $17.7 million.
On the results, CEO Greg Stapley remarked, “Skilled nursing occupancy is growing steadily month by month towards the pre-pandemic level of 77.7%.” But Stapley also “warned that a shortage of qualified workers and a sharp increase in labor costs is a growing challenge, especially as patient and resident counts rise.”
CTRE stock is now changing hands at around $23 per share. The stock is up about 19% from its 52-week low of $19.45. For the past year, it’s up nearly 5%.
Currently, shares are trading at 11.58 times trailing sales. Additionally, the price-book (P/B) ratio is 2.37 times. At present, the 12-month median price forecast for the stock stands at $25. Despite near-term headwinds like omicron and staffing shortages, the long-term growth potential of names like CTRE seems solid.
Digital Realty Trust (DLR)
52-week range: $124.65 – $178.22
Dividend yield: 2.85%
Next up on our list of REITs is Digital Realty Trust, which owns and operates data centers “across 25 countries on six continents.” The company’s customers are tech names that offer data center or interconnection solutions across numerous sectors such as the cloud, communications, financial services, energy and consumer products.
According to Digital Realty Trust’s Q3 financial results announced in late October, revenue was $1.1 billion, up about 11% from the prior-year quarter. The REIT generated a net income of $136.5 million, or 44 cents per diluted share. That’s compared to a loss of $1.5 million or a loss 14 cents per diluted share in the prior-year quarter. Lastly, cash and equivalents ended Q3 with $116 million, down 88% YOY. On the results, CEO A. William Stein stated the following:
“Record new logo growth and continued strong bookings in the quarter reflect the global adoption of PlatformDIGITAL®, while our robust internal processes enabled us to execute consistently for our growing list of customers.”
Right now, DLR stock is trading for around $160, lower than the 52-week high of $178.22. For the past 12 months, the stock has returned over 21%. Shares are trading at around 98 times forward earnings and 10.38 times trailing sales. Additionally, the P/B ratio is 2.79 times.
The 12-month median price forecast for DLR stock is $176. Despite the lofty valuation, this REIT will benefit significantly from digitalization tailwinds. Plus, the current price improves the margin of safety.
REITs to Buy: Pacer Benchmark Industrial Real Estate SCTR ETF (INDS)
52-week range: $35 – $56.52
Dividend yield: 1.30%
Expense ratio: 0.60% per year
Next up, we will take a look at another ETF, the Pacer Benchmark Industrial Real Estate SCTR ETF. This fund invests in industrial REITs like e-commerce distribution and logistics networks as well as self-storage facilities.
INDS started trading in May 2018 and tracks the Benchmark Industrial Real Estate SCTR Index. The top ten names in the fund comprise over 72% of its $455 million in net assets.
This ETF currently holds 18 securities. Among the leading names are Duke Realty (NYSE:DRE), Prologis (NYSE:PLD), Life Storage (NYSE:LSI), Rexford Industrial Realty (NYSE:REXR) and Industrial Logistics Properties Trust (NASDAQ:ILPT). At present, the ETF is heavily weighted toward the industrial sector (81.4%), followed by the warehouse sector (18.6%).
INDS has returned almost 49% over the past 12 months, hitting a record high in the new year on Jan. 3. Potential investors could regard the $52 level and below as a better entry point.
Plymouth Industrial (PLYM)
52-week range: $13.96 – $32.37
Dividend yield: 2.83%
Based in Massachusetts, Plymouth Industrial focuses on single and multi-tenant industrial properties located across the United States.
According to Q3 financial metrics, revenue was $36 million, up about 31% compared with $27.5 million for the prior-year period. Net loss came in at $7.1 million, or a loss of 22 cents per share. That’s compared to the year-ago net loss and loss per share stood of $7.1 million and 36 cents, respectively.
Recently, management announced leasing and acquisition activities for Q4 fiscal 2021. CEO Jeff Witherell noted the following:
“With 6.4 million square feet of industrial buildings acquired during 2021 for $371.0 million and over 7.6 million square feet of leases signed for 2021 and 2022, the Plymouth team has strategically expanded our footprint in key markets and captured embedded rent growth in our properties.”
PLYM stock currently hovers at around $29 or so, up about 99% in the past one year. Shares are trading at nearly 6.5 times trailing sales and at a P/B ratio of 3.18 times. The 12-month median price forecast for the stock stands at $31. Current price levels make this pick of the REITs attractive.
REITs to Buy: Store Capital (STOR)
52-week range: $30.02 – $37.13
Dividend yield: 4.57%
Last up on this list of REITs is Store Capital, a net-lease REIT that invests in single tenant operational real estate. Its portfolio is comprised of over 2,800 property locations stateside.
Store Capital reported Q3 metrics in early November. For the period, revenue of $199.1 million was up nearly 14% from $175.2 million in the prior-year period. Additionally, net income came in at $75.9 million, or 28 cents per diluted share. A year ago, the net income and income per diluted share had been $54.6 million and 21 cents, respectively. Cash and equivalents ended the recent quarter at $37 million. CEO Mary Fedewa noted the following:
“Based on our year-to-date performance and outlook, we are reaffirming our net acquisition guidance of $1.0 billion to $1.2 billion and raising our 2021 AFFO [adjusted funds from operations] per share guidance range to $1.98 to $2.00; as well as introducing our 2022 AFFO per share guidance range of $2.15 to $2.20, representing 9.3% growth based on the midpoints for both years.”
STOR stock currently hovers at around $34, up more than 5% for the past one year. Shares are trading at 38.31 times forward earnings and 12.02 trailing sales. Additionally, the P/B ratio stands at 1.79 times. The 12-month median price forecast for Store Capital is $37.50. Interested readers could consider buying this name around $33 per share.
On the date of publication, Tezcan Gecgil did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.