The Top 12 REITs to Invest in for the Next 12 Months

Image: Ryan Herron/E+ via Getty Images REITs, or Real Estate Investment Trusts, are currently a hot topic in the investment world. The Vanguard Real Estate ETF (VNQ) has seen a significant increase in value, rising...

Symmetric Aerial of Atlanta Skyline Image: Ryan Herron/E+ via Getty Images

REITs, or Real Estate Investment Trusts, are currently a hot topic in the investment world. The Vanguard Real Estate ETF (VNQ) has seen a significant increase in value, rising 26% in under two months. With the potential for further growth, now may be a great time to consider investing in REITs.

If the Federal Reserve follows through on its plan to reduce the prime rate next year, all risk assets, including REITs, are expected to benefit. This could make the yields from REITs more competitive with bonds and treasuries, especially if inflation remains low.

Despite a recent selloff, REIT balance sheets remain strong, with solid operating performance in most sectors. The average REIT debt ratio is only 30%, and the average Debt/EBITDA is a sturdy 6.3. Valuations are also coming back into the low end of their normal range, with an average FFO multiple of 18.0x. Additionally, the average Yield At Purchase (YAP) has fallen to 3.64%, which is slightly lower than normal and may suggest broad dividend increases.

In choosing the best REITs to invest in now, it is important to consider factors such as a strong balance sheet, positive FFO growth projections for next year, and one or a combination of the following: high, safe dividend yield, high, safe dividend growth (preferably double-digit), and high FFO growth (at least 7%, preferably double-digit). It is also essential to look for reasonable prices.

Cash COWs (High, Safe Yield)

The following REITs offer yields of 5.00% or better, with Dividend Safety of B- or better, according to Seeking Alpha Quant Ratings:

  • NewLake Capital Partners (NLCP) - Cannabis REIT with a yield of 9.7% and a Dividend Safety rating of A+.
  • Innovative Industrial Properties (IIPR) - Cannabis REIT with a yield of 7.01% and a Dividend Safety rating of A.
  • Kilroy Realty (KRC) - Office REIT with a yield of 5.22% and a Dividend Safety rating of A.
  • Cousins Properties (CUZ) - Office REIT with a yield of 5.23% and a Dividend Safety rating of A.
  • Apple Hospitality (APLE) - Hotel REIT with a yield of 5.65% and a Dividend Safety rating of A-.
  • Douglas Emmett (DEI) - Office REIT with a yield of 5.00% and a Dividend Safety rating of B+.
  • VICI Properties (VICI) - Casino REIT with a yield of 5.24% and a Dividend Safety rating of B+.
  • Broadstone Net Lease (BNL) - NNN REIT with a yield of 6.52% and a Dividend Safety rating of B.
  • City Office (CIO) - Office REIT with a yield of 6.43% and a Dividend Safety rating of B-.
  • EPR Properties (EPR) - NNN REIT with a yield of 6.79% and a Dividend Safety rating of B-.
  • Realty Income (O) - NNN REIT with a yield of 5.33% and a Dividend Safety rating of B-.

REITs Cash COWs Image Source: Seeking Alpha Premium and Hoya Capital Income Builder

World Beaters

It has been observed that dividend growth rate tends to predict share price gains, as both are closely related to revenue growth. The following REITs have demonstrated double-digit dividend growth over the past 5 years, with Dividend Safety grades of B- or better:

  • InvenTrust Properties (IVT) - Dividend growth rate of 64.5% and a Dividend Safety rating of A.
  • Innovative Industrial Properties (IIPR) - Dividend growth rate of 39.1% and a Dividend Safety rating of A.
  • American Homes 4 Rent (AMH) - Dividend growth rate of 34.5% and a Dividend Safety rating of A-.
  • Rexford Industrial Realty (REXR) - Dividend growth rate of 18.9% and a Dividend Safety rating of A-.
  • Invitation Homes (INVH) - Dividend growth rate of 18.8% and a Dividend Safety rating of B.
  • Equinix (EQIX) - Dividend growth rate of 13.3% and a Dividend Safety rating of A-.
  • Prologis (PLD) - Dividend growth rate of 12.6% and a Dividend Safety rating of A.
  • Host Hotels & Resorts (HST) - Dividend growth rate of 12.5% and a Dividend Safety rating of A+.
  • EastGroup Properties (EGP) - Dividend growth rate of 12.0% and a Dividend Safety rating of B-.
  • Park Hotels & Resorts (PK) - Dividend growth rate of 11.2% and a Dividend Safety rating of A+.

REITs World Beaters Image Source: Hoya Capital Income Builder and Seeking Alpha Premium

Among these top performers, there are a few standouts worth considering for their strong fundamentals and potential for share price outperformance:

  • IIPR: A Cannabis REIT that excels in dividend growth and has a Yield of over 7%.
  • AMH: A Single Family REIT with a strong dividend growth rate, albeit with a lower YAP.
  • REXR: An Industrial REIT with a higher yield and currently selling below its estimated NAV.
  • INVH: Another Single Family REIT with no serious weaknesses and a reasonable yield.
  • EQIX: A Data Center REIT with robust fundamentals, albeit with a lower YAP.
  • HST: A Hotel REIT with a good dividend yield and rated A+ for Dividend Safety.
  • EGP: An Industrial REIT with steady fundamentals, selling at a good price.

Investors' Bottom Line

While it's important to note that not all REITs will perform equally, the 12 REITs mentioned in this article are considered the surest bets based on their strong fundamentals and potential for dividends and/or share price growth. Investing in the Cash COWs can provide high and safe yields, while the World Beaters offer the potential for share price outperformance.

Ticker Sector Mkt Cap Price YAP Div. Score FFOx Style
IIPR Cannabis 2.88 $101.13 7.01% 18.81 12.6 COW, WB
CUZ Office 3.73 $24.58 5.23% 13.64 9.4 COW
APLE Hotel 3.87 $16.76 5.65% 4.94 10.7 COW
VICI Casino 33.14 $31.99 5.24% 5.98 13.4 COW
BNL Net Lease 3.25 $17.33 6.52% 7.43 11.3 COW
O Net Lease 42.11 $57.65 5.33% 5.83 9.5 COW
AMH Single Family 13.11 $36.06 2.42% 5.89 22.2 WB
REXR Industrial 11.94 $56.46 2.67% 4.49 25.9 WB
INVH Single Family 21.09 $34.35 3.23% 5.41 19.5 WB
EQIX Data Center 75.98 $807.71 2.09% 3.04 25.8 WB
HST Hotel 13.84 $19.63 4.07% 5.79 10.2 WB
EGP Industrial 8.55 $184.72 2.75% 3.87 23.9 WB

Table Source: Hoya Capital Income Builder and author calculations

Keep in mind that the final decision on which REITs to invest in rests with you, as it's your money. It is also important to note that not all REITs trade on major U.S. exchanges, so be aware of the associated risks when considering these stocks.

In conclusion, 2024 is expected to be a favorable year for REITs. While there may be some underperformers among these 12 REITs, they are considered the best options based on their strong fundamentals and potential for dividends and/or share price growth. By investing in a combination of high, safe Yield REITs (Cash COWs) and those with strong dividend growth potential (World Beaters), you can create a diversified portfolio that offers both stable income and potential capital appreciation.

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