Blackstone (NYSE:BX) President and Chief Operating Officer Jon Gray appeared on Bloomberg Wealth with David Rubenstein in July. Gray, who launched Blackstone’s real estate business in 1992, was asked by Rubenstein where to put $100,000. Gray suggested private and public real estate investment trusts (REITs) to buy were your best bet.
His fallback recommendation: a Standards and Practices (S&P) 500 fund.
“You should stay away from buggy-whip businesses,” Gray told Rubenstein. “You should stay away from land-line phone companies, and some of the legacy retailers, some legacy media businesses. You want to focus on the future.”
The future is code for the tech sector. Some REITs, naturally, are more exposed to the tech sector than others.
My task today is to find three possibilities to make you money throughout the long haul. While it’s not an REIT, so I won’t make it one of my three selections, it is Blackstone itself. It currently has a real estate portfolio valued at $585 billion. Buying BX stock gives you a tiny ownership slice of those assets.
For those who prefer a public REIT, here are my three choices.
REITs to Buy: Digital Realty Trust (DLR)
There are three REIT sectors vital to the e-commerce ecosystem. All three use technology to drive growth. The first of three sectors is data centers. Digital Realty Trust (NYSE:DLR) is my choice in this sector.
Digital Realty owns and operates more than 310 data centers across 25 countries and 50 major cities worldwide. Its customer list is a who’s who in tech. Nvidia (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) are just three of more than 5,000.
In 2023, it expects revenue of $5.55 billion at the midpoint of its guidance, with $$2.7 billion in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).
It’s hard to find companies with EBITDA margins nearing 50%. Digital Realty comes very close with a projected margin of 49% in 2023. It also expects 2023 funds from operations (FFO) per share of $6.60. Based on its projection, its shares are trading at less than 20 times FFO. Given its high margin, the REIT’s valuation is more than reasonable. If you are in the market for REITs to buy, this is a great place to start.
Prologis (PLD)
Prologis (NYSE:PLD) is the world leader in logistics real estate. The REIT owns or co-owns 1.2 billion square feet in 19 countries leased to more than 6,700 customers.
In September 2020, I recommended Prologis stock and nine others I thought were good long-term buys due to secular trends their businesses were following. In Prologis’s case, it was e-commerce. While the e-commerce surge of the pandemic is over, it continues to grow.
When I wrote the article three years ago, it had 963 million square feet of logistics real estate. That’s since grown by 25%. Yet its shares have gained only 20% over the past 36 months as investors cooled on logistic REITs.
Analysts love PLD stock. Of the 24 that cover it, 21 rate it “Overweight” or an outright “Buy,” with a target price of $145.52, nearly 20% higher than where it’s currently trading.
The REIT’s venture capital arm, Prologis Ventures, invests in early and growth-stage companies transforming the supply chain, digital infrastructure and construction industries. Given that these are its customers, the business will likely bear fruit well into the future.
Yielding 2.8%, get paid to wait for the next big run-up in price. PLD easily earns its spot on our list of REITs to buy.
American Tower (AMT)
The last tech-related REIT is American Tower (NYSE:AMT), owning more than 224,000 cell towers worldwide. Of those towers, approximately 81% are outside the United Sates and Canada. The three countries with the largest number of cell towers are India (77,900), U.S. (43,000), and Brazil (22,800).
Despite the U.S. and Canada accounting for just 19% of the cell tower sites worldwide, the U.S. and Canada account for 52% of its revenue. Between 2012 and 2022, American Tower’s revenues have grown by 14.1% compounded annually.
Over the same period, its U.S. and Canada operating profit has grown by 10.3% annually, to $3.98 billion in 2022 from $1.50 billion in 2012. Internationally, its operating profit has increased by 18.1%, compounded annually over the same period.
The beauty of its business is that it maintains long-term contracts with its tenants. As a result, American Tower had $62 billion in non-cancellable tenant lease revenue. Given that it generated $10.5 billion in revenue in 2022, it’s guaranteed approximately six years of future revenue.
Its top three tenants by percentage of revenue are T-Mobile (NASDAQ:TMUS), AT&T (NYSE:T), and Verizon Communications (NYSE:VZ).
Unless you think cell phones are about to be replaced by another communication device, AMT is about as stable a REIT investment as you will find. If you are looking for REITs to buy, look no further than these!
On the date of publication, Will Ashworth 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.
