- Rising occupancy, higher dividend yields and solid future growth prospects make these REITs to buy attractive investment propositions.
- American Tower Corporation (AMT): Forefront in investing on 5G data center facilities. This should propel growth in the future.
- Digital Realty (DLR): The data center REIT has a large client base. Rising demand for virtual realty should keep its growth momentum going.
- Prologis (PLD): Largest provider of logistics real estate. The company is further strengthening its position through strategic acquisitions.
Real estate investment trusts (REITs) have been a great source of investment for passive investors as these companies have to distribute 90% if its income in form of dividends to gain tax benefits. That makes finding the best REITs to buy an attractive investment proposition.
Generally, REITs pool investors’ fund to invest in income generating properties. In times of high inflation, REITs tend to perform better due to their ability to pass cost headwinds to consumers in form of higher rent.
In the current scenario with inflation peaking at 8.5% in March 2022, highest in the last 40 years investment in these companies are sought after. Further, as the economy is normalizing back to pre-pandemic levels, occupancy rates across sectors (residential, commercial, and industrial) should improve.
In 2021, REIT stocks performed better than S&P 500. The sector gained 46.2% versus S&P 500 index that increased 28.7% during the year. I expect the sector to continue to beat the markets in 2022 based on strengthening economy and high inflation.
Below is my list of REIT stocks that I expect to perform well in 2022. These companies are well reputed, have solid growth prospects and high dividend yields, making them an attractive investment option.
|AMT||American Tower Corporation||$230.22|
|DLR||Digital Realty Trust, Inc.||$128.41|
REITs to Buy: American Tower Corporation (AMT)
American Tower Corporation (NYSE:AMT) is one of the leading providers of wireless communications infrastructure. The company owns and operates 221,000 cell towers across 25 countries. AMT has largest presence in India with 75,500 cell towers, followed by the U.S. (43,000), Brazil (23,000), Germany (14,700), Spain (11,500) and Mexico (10,100).
Over the last 10 years, the company has grown significantly with a rising penetration of wireless devices, growing data traffic and higher mobile usage. American Tower has delivered an average top-line growth of 15% with 14% rise in funds from operations.
The company maintained its annual dividend growth of 20% with a payout ratio of 50%.
Much of this growth can be attributed to its timely investment to diversify its income stream. For example, in December 2021, the company announced to acquire CoreSite along with its 25 data centers for $10 billion. As 5G deployments and wireless and wireline convergence accelerate, the company should benefit from CoreSite’s highly interconnected data center facilities. The transaction is expected to be modestly accretive to its FFO initially but is likely to be increasingly accretive over time.
For 2022, AMT expects a 14% growth in revenues with 7.6% improvement in adjusted funds from operations. Management estimates top-line growth in high-double-digits through 2026.
Digital Realty Trust (DLR)
Digital Realty Trust (NYSE:DLR) is the second largest data center REITs in the world in terms of market capitalization, behind Equinix (NASDAQ:EQIX). The company owns and operates 291 data centers, catering to more than 4,000 corporate and government customers. Most of its clients are comprised of Fortune 500 companies including IBM (NYSE:IBM), Meta Platforms (NASDAQ:FB), Oracle (NYSE:ORCL), JPMorgan Chase (NYSE:JPM), Comcast (NASDAQ:CMCSA) and Verizon (NYSE:VZ).
Average customer retention has remained stable at 80%, given a higher switching cost associated with moving facilities between $15 million to $20 million.
The company has grown its revenues at an average rate of 15% over the last 10 years. In tandem with the top line, the company’s FFO per share has increased at 11%. Further, the company expanded its annual dividends by 10% for 16 years in a row.
I expect this growth momentum to continue for DLR as companies increase investment in data centers with the world moving towards digital technologies and virtual reality.
REITs to Buy: Prologis, Inc.
Prologis (NYSE:PLD) is a global leader in providing logistics real estate. It operates a network of 984 million square feet of warehouses across 19 countries around the world. The company serves a large clientele of 5,800 customers to cater to their business-to-business (B2B) or online fulfilments. Some of its top clients include Amazon (NASDAQ:AMZN), FedEx (NYSE:FDX), and United Parcel Services (NYSE:UPS).
Over the last five years, PLD has delivered total return (price appreciation + dividend) of over 200%. I expect the company is well positioned to benefit from the rising demand for online shopping for business and retail purposes.
In May 2022, the company offered to acquire its rival Duke Realty (NYSE:DRE) to strengthen its position in the logistical REIT business. The deal was priced at $24 billion, reflecting a 30% premium. If the acquisition goes successful, it shall boost PLD’s already strong position in the industrial segment.
On the date of publication, Sakshi Agarwalla did not have (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.