Real estate investment trusts (REITs) should finish 2021 as one of the stock market’s top performing sectors, barring a surprise late-year disaster. And investors positioned in the best REITs could be set up for a productive 2022.
The main reason REITs remain so popular with investors year after year is the reliable strength of their dividends. Remember: REITs are required to pay out at least 90% of their taxable profits as dividends (in return for some generous tax breaks). And even after a year of big stock price gains, real estate stocks continue to offer impressive yields. The average yield on REITs is presently 2.9%, or more than twice the 1.3% average yield on the S&P 500. Many of the market’s best REITs deliver even more income.
But there are other catalysts pointing specifically to strong REIT performance in 2022.
A major growth driver is the strengthening U.S. economy, which is increasing occupancy rates and rents for real estate in the industrial, housing and shopping-center industries, among others.
“As commercial activity and day-to-day life normalize, demand for commercial and residential real estate space will continue to recover,” says State Street Global Advisors. “Combined with higher rent inflation in 2022, this supports REIT dividend growth and potential valuation appreciation.”
Indeed, unlike most other businesses, real estate investment trusts typically benefit from inflation. That’s because of the structure of REIT leases, which allow frequent rent hikes, as well as rent increases linked to the consumer price index (CPI). Inflation also increases the worth of REIT assets, thus making their portfolios more valuable.
With that in mind, here are the 12 best REITs to buy for 2022. These 12 names stand out because of generous dividends, low valuations, growth prospects, or in most cases, a combination of these and other attributes.
Data is as of Dec. 15. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Stocks listed in reverse order of yield.
- Market value: $124.9 billion
- Dividend yield: 1.9%
American Tower (AMT, $274.35) is one of the world’s largest owners and operators of multi-tenant cell towers and related infrastructure. The REIT own 219,000 communication sites worldwide, with large concentrations of cell towers in India (75,000 cell towers), the U.S. (43,000), Brazil (23,000), Germany (14,700), Spain (11,400) and Mexico (10,100).
Cell towers can be highly profitable because they can support multiple tenants on the same structure. The REIT estimates its return on investment (ROI) at 3% for one-tenant towers, 13% for two-tenant towers and 24% for three-tenant towers.
Demand for cell tower space is steadily rising as a result of growing market penetration for wireless devices, higher data usage per device and mobile data traffic growth. AMT expects all of these trends will drive high-double-digit market growth through 2026.
American Tower has successfully leveraged the wireless wave, generating 15% average annual growth in revenues, 14% yearly gains in funds from operations (FFO, an important metric of REIT profitability) per share and better-than-20% annual dividend growth since 2012. In addition to steadily rising dividends, American Tower offers an ultra-safe 51% payout ratio.
But what really makes AMT stand out as one of the best REITs to buy for 2022 is how it’s priming itself for growth.
The REIT took a major step in re-positioning for 5G by recently offering $10.1 billion for CoreSite, which owns 25 data centers and has delivered double-digit annual revenue growth over five years. American Tower plans to accelerate CoreSite’s development pipeline and position its two businesses with complementary product offerings and 5G market leadership.
“The growth story remains alive for AMT following the CoreSite acquisition,” says Argus Research analyst Angus Kelleher-Ferguson (Buy), who raised his 2021 and 2022 adjusted FFO (AFFO) estimates for the company. “Following the transaction, American Tower will continue to be one of the best growth stories of all REITs under Argus coverage, as CoreSite brings a strong growth profile.”
It’s worth noting one small strike against AMT, at least for value investors: a forward P/AFFO ratio of 28 that’s well above the sector median of 21.
- Market value: $8.6 billion
- Dividend yield: 2.7%
If you prefer the large moats of niche real estate, Americold (COLD, $32.07) is one of the best REITs you can buy.
Americold is the world’s largest real estate investment trust focusing exclusively on temperature-controlled warehouses. The company owns 246 cold storage warehouses representing 1.4 billion square feet of storage capacity, which it leases out to approximately 4,000 tenants. Americold estimates that it holds a 22% shares of the U.S. cold-storage market.
Americold serves customers including Kraft Heinz (KHC), Smithfield, Conagra (CAG) and Walmart (WMT) and has relationships with its top 25 customers averaging 35 years. These top customers all utilize multiple facilities, and 92% of them purchase value-added services.
Inflation and labor disruptions have negatively impacted 2021 FFO, and Americold recently lowered its full-year adjusted FFO guidance to $1.15 to $1.20 per share from a prior range of $1.34 to $1.40. And in early November, the company let go of CEO Fred Boehloer.
That said, a 15% decline in 2021 might be setting investors up for a good dip-buy for 2022.
Baird analysts say they expect the REIT to fully absorb this year’s 8% to 10% labor cost increases in 2022 by increasing rents and re-negotiating lease terms with long-term customers.
“Given the long occupancy recovery and persistent labor and power cost pressures that are pushing development yields lower, the added uncertainty of a CEO search could create softness,” Baird says. “We suggest adding on meaningful weakness for longer-term investors.”
Americold’s payout is stretched at the moment, at 100% of FFO in 2021, but should drop into the mid-80s range next year on higher 2022 consensus analyst FFO estimates.
- Market value: $48.3 billion
- Dividend yield: 2.7%
Digital Realty (DLR, $170.37) isn’t just one of the nation’s largest digital REITs – it’s one of the nation’s largest real estate stocks overall.
This REIT owns a global portfolio of 291 data centers that serve more than 4,000 corporate and government customers. This company mainly serves Fortune 500 firms. Its top 20 customers include IBM, Meta Platforms (FB), Oracle (ORCL), LinkedIn, JPMorgan Chase (JPM), Comcast (CMCSA) and Verizon (VZ).
Customer retention rates average around 80% and are likely to remain high due to high switching costs ($15 million to $20 million) associated with moving megawatts of data to a new facility. Embedded 2% to 4% annual rent escalators and strategic acquisitions supported by Digital Realty Trust’s investment-grade balance sheet have made it one of the best REITs for decades. DLR boasts 11% annual growth in core FFO per share since 2005, as well as 16 consecutive years of 10% average annual dividend expansion.
The REIT’s FFO per share rose 6% year-over-year during the first nine months of 2021; Digital Realty increased full-year guidance to $6.50 to $6.55, easily covering its $4.64 annual dividend.
During the September quarter the REIT formed a joint venture with Brookfield Infrastructure Partners LP (BIP) expanding its digital center footprint in India, negotiated a joint venture with Nigeria’s leading colocation provider, invested in one of Europe’s leading data center providers and sold 10 North American data facilities for $581 million.
William Blair analyst Jim Breen (Outperform, equivalent of Buy) likes that DLR is focusing on international expansion but isn’t overlooking U.S. development.
“Approximately 75% of Digital Realty’s 270 megawatts of development pipeline is outside the United States,” he says. “However, the company still has development in key markets in the United States such as Ashburn, Santa Clara, and Hillsborough, and the company continues to bring on colocation in all of its major colocation markets in the United States.”
Just note that Digital Realty is in a growth industry, and it trades like it. DLR trades at nearly 27 times AFFO estimates, which is a 27% premium to the rest of the sector.
- Market value: $1.0 billion
- Dividend yield: 2.8%
Plymouth Industrial REIT (PLYM, $29.89) owns distribution centers, warehouses and industrial properties located primarily along the main logistics corridors of the U.S. in secondary markets including Kansas City, Indianapolis, Chicago, Cleveland and Columbus.
The fragmented nature of industrial real estate in secondary markets has helped the REIT to acquire its current portfolio at 55% of replacement cost. In the last five years, Plymouth has closed nearly $900 million in real estate purchases.
In addition to lower purchase costs, the REIT’s focus on secondary markets has created above-average opportunities for rent growth. Plymouth had 4.7 million square feet of new leases commencing during the first nine months of 2021 at rental-rate increases of 9.7%.
The REIT’s current real estate portfolio consists of 152 properties representing 26.6 million square feet of leasing space. During the September quarter, PLYM collected 99.7% of rents, acquired 10 buildings totaling 3.4 million square feet, and generated core FFO per share of 43 cents – flat compared to last year due to a higher share count that offset acquisition growth. Plymouth expects to end 2021 with full-year core FFO per share of $1.70 to $1.74. Analysts believe that number will hit $1.90 in 2022.
“Going forward, we have raised our 2022 acquisition target to $375 million (from $325 million) and lowered acquisition cap rate expectations to 6.5% (from 7.1%),” say B. Riley Securities analysts, who say the stock is a Buy. “We expect that in addition to external growth, PLYM should be able to deliver strong rental rate growth.”
This REIT did have to cut its dividend during the pandemic, hacking its 37.5-cent-per-share payout down to 20 cents in June. But it started to claw back some of that ground in 2021, with a 5% hike to 21 cents, and its payout ratio is now a pretty safe-looking 48%. Meanwhile, shares appear reasonably priced at 17 times AFFO estimates.
- Market value: $1.3 billion
- Dividend yield: 3.0%
After nearly a decade of relatively lackluster performance, UMH Properties (UMH, $25.57) appears to have turned a corner, based on its greatly improved sales and profit growth.
This REIT is the nation’s leading owner/operator of manufactured housing communities. It owns 127 manufactured housing communities containing 24,000 developed home sites across 10 states that are leased to residential homeowners. In addition to home sites, UMH owns a portfolio of 8,700 rental homes and plans to grow its rental unit portfolio by 800 to 900 homes per year.
With 3,300 existing vacant lots to fill and nearly 1,800 acres available to build lease sites for another 7,300 homes, UMH has plenty of room to grow. The REIT is also an active acquirer of housing communities; over the past six years, it has purchased 29 housing communities representing nearly 6,300 homes sites.
Manufactured housing REITs such as UMH are benefitting from a steady uptick in the number of households owning single-family homes and rising home prices, which make manufacturing housing a more affordable option for first-time homebuyers.
UMH also has many housing communities located near the Marcellus and Utica Shale natural gas fields. Stepped-up development activity at these fields is attracting thousands of oil field workers that need housing. Occupancy rates for UMH’s portfolio have risen steadily since 2016 and currently exceed 86%.
Over the past four years, UMH has increased revenues by 60%, community net operating income by 67% and normalized funds from operations by 59%. The REIT’s revenues grew 10% during the first nine months of 2021, same-property operating income improved by 15% and normalized FFO per share jumped by 30%. UMH also ended the quarter in great financial condition. Debt is modest at 20% of market capitalization, and its net debt-to-adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) ratio is a slightly below its peers at 4.8.
“Demand for manufactured (affordable) housing remains strong and likely sources of both site and home financing are expected to continue to expand given the change in leadership at the FHFA,” say Wedbush analysts, who rate the stock at Outperform. Among other reasons UMH could be one of the best REITs to buy in 2022: favorable trends in the REIT’s same-property growth, as well as additional potential upside tied to a joint venture deal involving three Florida communities, announced in December.
UMH has paid dividends every year since 1998 and signaled its improving prospects with a 5.5% dividend hike in 2021. This was the REIT’s first dividend increase since 2009.
- Market value: $8.0 billion
- Dividend yield: 3.2%
Stag Industrial (STAG, $45.54) owns and operates single-tenant industrial properties across the U.S. Specifically, it owns 517 properties covering 103.4 million square feet of leasing space and valued at $8.7 billion.
STAG has grown through a combination of rent increases and acquisitions and is guiding for roughly 3.5% same-store growth in 2021 – if it hits that target, that would mark the highest same-store growth in company history. The REIT has benefited in 2021 from rent escalators, shorter downtimes between leases and 75% to 80% tenant retention rates. Acquisition volume forecast at $1.1 billion to $1.2 billion in 2021 also would be the highest ever for this REIT.
E-commerce has been a powerful growth catalyst. STAG estimates 40% of its portfolio is engaged in e-commerce fulfillment. Amazon.com (AMZN) is its largest tenant at 3.6% of the portfolio and other large tenants include Eastern Metal Supply, GXO Logistics (GXO), FedEx (FDX) and American Tire Distributors.
STAG offers a solid balance sheet, seven consecutive years of dividend growth and a conservative 70% FFO payout ratio. Compared to the other best REITs on this list, it’s hardly a steal at 21 times AFFO estimates, but shares still appear moderately priced.
Piper Sandler has included Stag in its “REIT Heavyweights,” which single out 25 companies that have outperformed their peers on eight specific metrics, signaling the ability to perform well in various operating environments. “By targeting [industrial properties], STAG has developed an investment strategy that helps investors find a powerful balance of income plus growth,” Piper’s analysts say.
Essential Properties Realty Trust
- Market value: $3.3 billion
- Dividend yield: 3.8%
Essential Properties Realty Trust (EPRT, $27.39) invests in single-tenant net lease properties across 45 states. (Net lease refers to a lease structure where the tenant pays all property expenses.)
EPRT owns 1,397 properties representing 12.4 million square feet of space and leased to approximately 300 tenants. Its tenants come from 17 different industries and are primarily service businesses such as medical/dental, automotive repair, casual dining and childhood education; many of these are e-commerce resistant. The portfolio’s weighted average occupancy was 99.9% during the September 2021 quarter.
On average, EPRT pays $2.2 million for a property. This small size makes these properties easier to sell and re-let, and the REIT keeps its tenant acquisition costs low by working with multi-unit operators.
Essential Properties is proactive in managing its portfolio. The company acquired 253 properties for $653 million during the first nine months of 2021. Approximately 86% of these deals were sale-leaseback transactions with weighted average lease terms of 15.3 years. The REIT also sold 36 sites for $55 million and booked a nearly $9 million profit on property sales.
With more than $400 million of unused borrowing capacity, Essential Properties has plenty of dry powder for acquisitions.
Essential Properties began paying dividends in 2018 and has raised its dividend every year. The last payout increase was by roughly 4% in June. The payout, meanwhile, is moderate at 74% of FFO.
Growth prospects make EPRT one of the best REITs to buy in 2022. The company expects to end 2021 with 18% adjusted FFO-per-share growth; on top of that, it’s guiding for another 13% improvement in 2022, which should also help it bolster the dividend.
“We continue to view EPRT as one of the best positioned net-lease REITs to deliver double-digit growth over the next few years given its small size, quality tenant roster, low leverage and external growth activity,” says Raymond James, which rates the stock at Outperform.
- Market value: $9.3 billion
- Dividend yield: 4.5%
Another net lease firm dotting the best REITs for 2022 is Store Capital (STOR, $34.03), which owns single-tenant properties across the U.S.
This REIT targets middle-market customers like Camping World (CWH), Bass Pro Shops and Spring Education Group that typically generate more than $50 million in annual sales and generate a third of their sales from repeat customers.
STOR owns 2,788 properties that are leased to 538 tenants and enjoys a 99.4% occupancy rate. And with more than 215,000 businesses nationwide fitting its target customer description, Store Capital has plenty of opportunities for growth.
The company uses a direct origination approach to property acquisitions that keeps purchase costs low, portfolio quality high and the acquisition pipeline full. The REIT’s deal pipeline has some $13 billion worth of properties. This direct origination acquisition strategy has helped Store deliver 5.1% annual growth in adjusted FFO per share and 6.8% yearly dividend gains over seven years.
Portfolio security is helped by longer-than-average leases, with Store’s weighted average remaining lease term at 13.5 years. Additional safety comes from the REIT’s investment-grade balance sheet, which shows 39% leverage and debt at just 3.4 times EBITDA, less than the net lease average of 5.0.
STOR targets 5% annual growth to be achieved through a combination of lease escalations, conservative payout and accretive property sales. The REIT is guiding for 2021 FFO of $1.99 per share, and a 9% increase in 2022 to a range of $2.15 to $2.20 per share.
Store Capital doesn’t have much of a dividend-growth track record, with seven years of uninterrupted raises, but it has held its payout ratio steady around 82%. Meanwhile, STOR shares trade at a roughly 19% discount to industry peers.
And no less than Warren Buffett views Store Capital favorably: STOR is the only REIT in the Berkshire Hathaway portfolio.
- Market value: $14.3 billion
- Dividend yield: 5.0%
Iron Mountain (IRM, $49.53) built its original business around the physical storage and shredding of records, though it has for years been transitioning to digital data storage.
This REIT has unmatched scale in physical records, storing documents for approximately 225,000 customers, including 95% of Fortune 1000 companies. In this business, Iron Mountain boasts a 98% customer retention rate, consistent organic growth and 15-year average relationships with customers.
Iron Mountain is using the reliable cash flows from physical records storage to build digital data storage capabilities. At present, the REIT operates 15 data centers that have 445 megawatts of potential information technology capacity and serve more than 1,300 customers. Approximately 144.7 megawatts of its data center capacity is already leasable, and the REIT has another 66 megawatts under construction and 234.8 megawatts held for development.
The company’s Project Summit initiative is streamlining operations while at the same time sharpening the REIT’s focus on its higher-growth digital business. Iron Mountain expects to achieve $375 million of annual run rate EBITDA benefits from Project Summit by year-end 2021, with another $50 million of benefits realized in 2022.
Through the end of Q3 2021, Iron Mountain has leased 24 megawatts of digital storage and the REIT is on-track to exceed its original 2021 goal of 30 megawatts leased. Although digital storage currently comprises only still about 10% of the REIT’s business, data center profit contributions and Project Summit savings are helping boost Iron Mountain’s bottom line.
A recent spate of data center real estate acquisitions, including the $15 billion sale of CyrusOne and the $10 billion CoreSite deal, are reducing the number of big players in the data REIT sector and boosting valuations for the remaining digital REITs, including IRM.
Iron Mountain has an 11-year track record of paying dividends that includes eight dividend hikes and occasional big special dividends. At present, shares yield 5.3% and payout from adjusted FFO is 81%. A caveat for investors is that the company plans to hold its current $2.47 annual dividend flat until its goal of 60% adjusted FFO payout is achieved.
IRM shares were up nearly 70% through mid-December 2021. But Iron Mountain still could be among the best REITs to buy in 2022 because of a still-appealing forward P/AFFO of 14 – a 31% discount to its peers. Meanwhile, five of the seven analysts covering IRM stock call it a Strong Buy or Buy. Several cite accretion from its data center expansion, supported by recurring revenues from its physical records storage business, as reasons to invest.
- Market value: $13.1 billion
- Dividend yield: 5.1%
Medical Properties Trust (MPW, $22.02) operates hospitals, inpatient rehabilitation centers and behavioral health facilities worldwide and is the industry’s second largest non-government owner of hospitals. The REIT owns 442 medical properties across 34 states and nine other countries, which are leased to 52 healthcare systems in the U.S. and overseas. Acute care hospitals are the backbone of a portfolio valued at $21.4 billion.
Medical Properties Trust’s largest tenant is Steward Healthcare, which leases 36 properties and represents roughly 2.6% of the portfolio. Other major tenants include Prospect Medical Holdings (U.S.), Circle Health (U.K.) and Swiss Medical Network (Switzerland).
Safety is embedded in the portfolio not only by the credit quality of its large tenants, but also by a net leasing structure where tenants bear all property costs. The REIT’s leases have 10- to 20-year initial terms and feature inflation-based or fixed-rate annual rent escalators.
Medical Properties Trust’s sale-leaseback acquisition model facilitates portfolio expansion while helping hospital tenants to free up cash that can be used for site improvements. During the September 2021 quarter, the REIT sold Macquarie Asset Management a 50% interest in eight Massachusetts hospitals for $1.3 billion; entered into a $900 million sale-leaseback of five Florida hospitals and a $760 million sale-leaseback of 18 inpatient behavioral health centers; and acquired a cancer treatment center in Portugal for $20.4 million.
The REIT’s adjusted FFO per share rose 12% in the first nine months of 2021 to $1.01. Medical Properties Trust is guiding for annual run-rate adjusted FFO of $1.81-$1.85 and a 6.0 times ratio of net debt-to-EBITDA.
MPW has been growing its dividend for eight consecutive years, at an average annual rate of 3% over the past half-decade. Its payout ratio, meanwhile, is a conservative 64% of funds from operations. Meanwhile, shares trade for a little more than 16 times adjusted FFO estimates, which is a 22% discount to industry peers.
“The company’s tenant base is improving, in large part due to the largest tenant’s ability to turn around the operations of some hospitals,” say Stifel analysts, who rate the stock at Buy and add that “the current stock price is attractive in absolute terms.”
- Market value: $330.1 million
- Dividend yield: 5.1%
Postal Realty Trust (PSTL, $17.75) is the biggest REIT in an unusual niche: post office properties.
PSTL is the nation’s largest owner and manager of facilities leased to the United States Postal Service. The REIT’s portfolio currently consists of 926 properties representing 21.3 million square feet of leasing space in 49 states, and it serves as manager for another 397 postal properties. Postal Realty Trust’s portfolio is 99.6% leased, has four-year weighted average lease terms, and its rents average $7.92 per square foot.
USPS is a best-in-class tenant that is recession-resistant and makes 100% of rent payments on-time. Since rents represent just 1.7% of annual USPS expenses, the burden the REIT’s leases impose on this tenant is minimal.
Since its IPO in 2019, Postal Realty Trust has grown its portfolio by 243%, rental income by 310% and its quarterly dividend by 257%, which includes nine consecutive quarters of rising its payout.
USPS has America’s largest retail distribution network and presents enormous opportunities for Postal Realty to grow via site acquisitions. Of approximately 31,000 postal facilities nationwide, nearly 26,000 are privately owned and thus potential acquisition targets for this REIT.
As e-commerce has grown, postal facilities have emerged as the principal provider of “last mile” delivery services. This has supported 11.9% packing and shipping revenue growth for USPS since 2012.
The REIT closed $19 million of property acquisitions during the September quarter, grew rental income 70%, generated adjusted FFO of $4.8 million, or 27 cents per share, and raised its dividend approximately 5%. Postal Realty Trust will exceed its $100 million acquisition target for a second year in a row and analysts forecast 2021 FFO per share of 96 cents rising to $1.06 next year.
While Postal Realty Trust’s dividend payout is on the high side at 93%, its high FFO per share growth should gradually reduce payout over the next two to three years.
“We believe there is a relatively strong moat around PSTL’s external growth for the next few years because few institutional investors focus on the space and limited capital sources make large-scale acquisitions difficult,” say Stifel analysts, who rate the stock at Buy. “In addition, the ownership of real estate leased to the USPS is very fragmented.”
If you want the biggest fish in a still-sizable pond, PSTL is among the best REITs you can buy in 2022.
- Market value: $14.9 billion
- Dividend yield: 5.3%
W. P. Carey (WPC, $79.78) specializes in net lease commercial properties across the U.S. and Europe and is one of the world’s largest owners of net lease assets.
W. P. Carey owns 1,264 properties together representing 152 million square feet of leasing space. Its portfolio is weighted towards industrial, warehouse and office properties, with lesser amounts of retail and self-storage.
The REIT leases properties to 358 tenants and enjoys a 98.4% occupancy rate and a 10.6-year average remaining lease term. Its top American tenants include U-Haul, Advanced Auto Parts (AAP) and Extra Space Storage (EXR); top tenants in Europe include DIY retailer Hellweg, auto dealer Pendragon and the Spanish government.
W. P. Carey is better positioned than most REITs to benefit from inflation. That’s because 99% of its leases incorporate contractual rent increases, and 59% have rent increases tied to CPI.
While dividend payout is on the high side at roughly 75% of cashflow, W. P. Carey has increased dividends 24 years in a row, indicating its ability to grow even through downturns. Dividends are also supported by an investment-grade balance sheet; importantly, there are no significant debt maturities before 2024.
In a November note to investors, Raymond James analysts highlighted WPC’s lowered cost of debt, abundant acquisition opportunities in Europe and the $2.5 billion liquidation of CPA 18, the last of WPC’s managed portfolios.
“WPC continues to hit the gas on acquisitions and is sticking to its more differentiated sandbox,” say Raymond James analysts. “There continues to be a lot of opportunity in Europe – while Realty Income’s (O) expansion overseas is a validation of WPC’s strategy, they don’t expect O’s presence will materially impact competition as there is plenty to buy.”
WPC shares are attractively priced at 15 times expectations for adjusted funds from operations, a 24% discount to REIT industry peers. It’s also the highest yielder among our best REITs to buy for 2022, at well above 5%.