Real estate has always been a powerful sector for building long-term wealth. While private real estate investments may seem out of reach for many investors, there is a way to gain exposure to this asset class - through Real Estate Investment Trusts (REITs).
In my personal dividend portfolio, I aim to have 20% to 30% exposure to the REIT sector. Despite the challenges that the stock market faced in 2020, with falling occupancy rates and missed rent payments, the REIT sector proved its resilience.
While the S&P 500 ended the year up nearly 20%, the REIT sector (VNQ) fell 5% on the year. However, in 2021, the roles were reversed, and REITs came roaring back. The Vanguard REIT ETF climbed 40.5%, outpacing the S&P 500, which had a stellar year itself.
As we move into 2022, investors face new uncertainties, including high inflation, geopolitical turmoil, and rising interest rates. The latter is of particular concern for those interested in REITs. However, despite these challenges, it is still a great time to invest in REITs.
In this article, I will discuss five of my favorite REITs for 2022 and beyond. These companies have shown strength, growth potential, and a history of delivering strong returns to their shareholders. Let's dive in and explore these opportunities together.
#1 Realty Income (O)
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Realty Income, also known as "The Monthly Dividend Company," is one of the most well-known REITs globally. The company has successfully navigated the challenges of the past year, including acquiring VEREIT and $1.7 billion in casino assets from Wynn Resorts.
CEO Sumit Roy highlighted the company's strength during the pandemic, with positive earnings growth in 2020. Realty Income stands out for its stability, low cost of capital, and ability to generate sizable investment spreads. With an attractive forward P/FFO of 17.1x and a safe dividend yielding 4.4%, Realty Income is a solid pick for any long-term investor.
#2 Simon Property Group (SPG)
Simon Property Group is the best-performing REIT in my portfolio. It boasts the largest and highest-quality portfolio of mall properties globally. The company expanded its portfolio through acquisition, acquiring TCO in 2020.
Simon Property Group's malls are classified as A+ to D based on their retail sales per square foot. With Retail Sales per square foot reaching a record high of $713 in Q4 2021, Simon Property Group has proven its resilience in the face of challenging market conditions.
Led by CEO David Simon, who has guided the company for over two decades, Simon Property Group is an industry leader. With shares currently trading at an appealing $130 and a forward P/FFO of only 11x, Simon Property Group offers an excellent investment opportunity.
#3 VICI Properties (VICI)
VICI Properties is a leader in the gaming sector of real estate. The company recently acquired MGM Growth Properties, making it the largest landlord on the Las Vegas strip. The pent-up demand for visiting properties owned by VICI is significant and will drive future growth.
Compared to other top net-lease REITs, VICI trades at a lower FFO multiple but offers higher growth potential. With an FFO multiple of 13.9x, VICI is an intriguing option for investors looking to capitalize on the gaming sector.
#4 Medical Properties Trust (MPW)
Medical Properties Trust was one of the best-performing REITs during the pandemic. As the largest non-governmental owner of hospital properties globally, MPW benefited from the increased demand for healthcare facilities.
MPW's model of acquiring healthcare facilities allows hospital operators to focus on patient care while MPW takes care of the real estate. With built-in escalators tied to inflation and a solid balance sheet, MPW presents a long-term investment opportunity.
#5 Public Storage (PSA)
Public Storage is the largest self-storage REIT in the US, with a market cap of $65 billion. The company has maintained a strong balance sheet, with an A2 and A credit rating from Moody's and Standard & Poor's, respectively.
While Public Storage has already experienced significant appreciation, with shares up 55% in the past 12 months, it remains a high-quality investment. Although the stock is not cheap, the company's track record of success makes it a worthy contender for any investor.
Investor Takeaway
REITs offer investors an opportunity to increase their passive income with favorable yields. The five REITs discussed in this article all share a common characteristic - high-quality. With valuations below their five-year averages, these REITs present compelling opportunities for long-term investors.
Remember, investing in REITs requires careful consideration and due diligence. By choosing high-quality REITs with strong growth potential and proven track records, investors can position themselves for long-term wealth creation.
