The effects of the COVID pandemic made 2020 a tough year for real estate investment trusts (REITs). Even with its generous dividends, the real estate sector suffered a 2% loss last year.
Retail and office REITs were hit especially hard as a result of shutdowns and work-from-home mandates that left spaces empty and rents uncollected. Even the year's best REITs – namely, the industrial and self-storage industries – were negatively impacted, delivering respective 9% and 10% total returns in 2020 that still lagged the S&P 500.
The good news for investors? REIT yields are plenty generous as we begin the new year. The Vanguard REIT ETF (VNQ) is doling out 4.2% at current prices – just less than three times the broader market, and roughly four times the yield on the 10-year T-note.
Better still: With COVID vaccines signaling the eventual end of the pandemic and REIT stocks poised for a 2021 rebound, there might never be a better time to lock in rich real estate yields.
Read on as we explore the 11 best REITs for 2021 – a list of real estate firms representing numerous industries. Most offer strong balance sheets and steadily rising dividends, and all share improved growth prospects in the coming year.
Data is as of Jan. 14. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. REITs listed in reverse order of yield.
American Tower
- Market value: $95.5 billion
- Dividend yield: 2.2%
American Tower (AMT, $214.19) is a leader in telecommunications infrastructure. This REIT owns a global portfolio of 181,000 cell towers, including 41,000 sites in the U.S., 75,000 sites in India and sites scattered across Europe, South and Central America and Africa.
American Tower can boost profits by expanding the number of tenants per tower. With mobile device penetration growing 8% per year, data usage up 28% annually and 5G technology rollouts, the REIT is poised to leverage its existing tower leases and sign new tenants.
In addition, American Tower is capitalizing on high-return international opportunities by accelerating its new build program and making acquisitions. The REIT is expanding into Canada this year by acquiring InSite Wireless Group, which owns 3,000 communication sites across the U.S. and Canada, in a $3.5 billion deal that is immediately accretive to funds from operations (FFO, an important measure of REIT profitability).
And UBS also notes that a recently announced deal to buy Telxius Towers will make "AMT … the 2nd largest independent tower company in Europe with 31K sites."
"We remain constructive on AMT given attractive valuation and strong long-term growth visibility amid the 5G rollout and new spectrum deployments," says analyst Batya Levi, whose $270 price target implies 26% – a target that, if reached, likely would make American Tower one of the best REITs of 2021.
The REIT has generated better than 15% annual adjusted FFO growth over the past 10 years and remained resilient during the pandemic, delivering 15% adjusted FFO growth during the September quarter.
American Tower began paying out dividends in 2011 and has rewarded investors with higher dividends in every quarter since; a 21-cent-per-share payout in Q1 2012 has ballooned to $1.14 as of the most recent distribution. Better still: The payout is conservative at 60%, suggesting that investors can look forward to similarly big dividend hikes in the coming years.
Equity LifeStyle Properties
- Market value: $10.9 billion
- Dividend yield: 2.3%
Equity LifeStyle Properties (ELS, $59.62) owns sites where tenants locate manufactured homes, resort cottages and recreational vehicles (RVs). Its 415 properties are located in popular resort and vacation destinations and encompass approximately 158.000 housing sites across 33 states. Many of its properties offer lake, river or ocean frontage, and 120 of its communities are within 10 miles of a US coast.
Equity LifeStyle Properties is a play on downsizing by retiring baby boomers, with an estimated 10,000 seniors turning 65 each day through 2030. Its tenants own the units placed on-site and pay rents to the REIT under leases that renew annually. This business model has produced same-site income growth averaging over 4% per year, exceeding both apartment REIT and overall sector growth rates. It also has demonstrated great resiliency across business cycles, supporting 9% annual FFO growth and 24% yearly dividend hikes since 2006.
Equity LifeStyle has consistently exceeded analyst FFO estimates in fiscal 2021 and recently expanded its portfolio by acquiring new properties in California, New Jersey, Florida and Virginia and land parcels adjacent to four existing parks. These acquisitions were funded by available cash. Analysts forecast FFO per share at $2.17 in 2020, and $2.31 per share in 2021 – both easily cover the REIT's $1.37 dividend.
Berenberg Bank analyst Keegan Carl initiated coverage of ELS stock with a Buy rating in October. He thinks investors are undervaluing the REIT's strong fundamentals and predicts above-average growth in 2021.
"We believe 2021 will be another great year for ELS and build on the positive momentum we saw in 2H20," BofA Securities' Jeffrey Spector adds. "Industry fundamentals remain very healthy which should drive strong (same-site net operating income) in 2021 and (we expect) it to be one of the highest within REITs."
Americold Realty Trust
- Market value: $8.6 billion
- Dividend yield: 2.4%
COVID-related dine-at-home trends are stretching food storage supply chains. Americold (COLD, $34.18) stands out as a rare publicly traded REIT specializing in temperature-controlled warehouses. Americold owns 185 cold-storage warehouses representing 1.1 billion cubic feet of storage space across the U.S., Canada, South America and Australia.
Americold is an essential link in the farm-to-table supply chain. Its 2,600 customers include leading national and international food producers and distributors such as ConAgra (CAG), Unilever (UL), Kraft Heinz (KHC), Safeway and Kroger (KR).
Contracted rent increases, occupancy growth and an improving customer mix have supported steady margin expansion and 8% yearly revenue growth for Americold since 2015. The REIT is also expanding via development and acquisitions; it expects to close at least two to three major expansion/development projects each year, and it has more than $1 billion of potential investments already in its pipeline.
Americold is paying $1.74 billion to acquire privately owned Agro Merchants Group, the world's fourth-largest temperature-controlled warehouse business, and its 2,900 customers. The purchase is accretive to FFO and boosts Americold's share of the U.S. cold-storage market to an industry-leading 20%. During the first nine months of 2020, the REIT extended its presence in the Northeast by purchasing eight cold-storage warehouses from a competitor and invested $84 million in enlarging its Arkansas facility that serves ConAgra brands.
Despite the pandemic, Americold was able to deliver nearly 13% sales gains and 20% core EBITDA (earnings before interest, taxes, depreciation and amortization) growth during the first nine months of 2020.
This is one of the youngest operators on our list of the best REITs to buy in 2021. It went public in January 2018, but it has since earned Strong Buy or Buy ratings from four of the five Wall Street analysts who cover it.
Innovative Industrial Properties
- Market value: $4.2 billion
- Dividend yield: 2.7%
Many investors who think of marijuana stocks think about the companies that Innovative Industrial Properties (IIPR, $189.77) serves.
IIPR acquires cannabis cultivation and processing facilities that are leased to growers under long-term, triple-net contracts. It is the only NYSE-listed REIT specializing in medical-use cannabis growers. As of December 2020, the REIT's portfolio consisted of 66 properties and 5.4 million square feet across 16 states. Remaining lease terms are lengthy at 16.1 years, and its properties are 99.3% leased.
Medical cannabis is a $12.4 billion industry expected to nearly triple to $34 billion by 2025. Used to treat a wide variety of medical conditions, medical cannabis is already legal in 35 states and expected to be legalized in all 50 states within the next four years.
This REIT's performance over the past year has been impressive. Adjusted FFO is up 79%. The dividend has rocketed nearly 60% across multiple hikes. Shares are up 125% on the nose.
New tenants and properties will drive future growth. The REIT acquired properties in Massachusetts and Washington during December and signed multi-state cannabis grower 4Front as a new tenant. Analysts forecast 2021 FFO per share growth at 60% for the REIT that could lead to similarly sized dividend growth over the next year.
"The growing states approving (NJ, AZ, MS, SD, and MT) coupled with likelihood that States-rights remains in effect, means that the market continues to expand, without interstate commerce, that could cut into states' taxes," says Piper Sandler's Alexander Goldfarb, who rates the stock at Overweight (equivalent of Buy). "Thus, the need to grow in-state to sell in-state, while remaining illegal Federally (i.e., no banking access), gives IIPR continued runway."
Digital Realty
- Market value: $37.4 billion
- Dividend yield: 3.4%
Digital Realty (DLR, $133.45) is a leading global data center REIT serving customers across the IT, communications, social networking, financial services, manufacturing, healthcare and consumer products industries.
It's one of the largest U.S. REITs overall. It's well on its way to becoming a Dividend Aristocrat by virtue of its 15-year dividend growth streak. And given its line of business, it could be one of the best REITs for 2021 and well beyond.
Digital Realty is the market's largest data center real estate operator in terms of the number of properties owned. Its footprint consists of 284 data facilities across 23 countries on six continents. Pandemic-related demand for streaming content has boosted 2002 data storage demand; DLR also benefits from longer-term trends like 5G technology rollout.
It has been riding a rising tide for a while, as evidenced by impressive 12% annual growth in FFO per share since 2005, as well as a roughly 1,810% total return (price plus dividends) since then versus a 336% total return for the S&P 500.
So far in its fiscal year, the REIT has produced three consecutive quarters of positive FFO surprises and raised its full-year guidance to $6.10 to $6.15 per share, easily covering the $4.48 dividend. Dividend growth has averaged 5.7% annually over the past five years.
A roughly 15% dip over the past three months is presenting a decent entry point at the moment. TD Securities analyst Jonathan Kelcher recognized the stock's attractive valuation in December when he upgraded DLR to Buy.
CubeSmart
- Market value: $6.6 billion
- Dividend yield: 4.0%
With 1,260 properties nationwide, CubeSmart (CUBE, $33.81) ranks among the top three self-storage REITs in the U.S. CubeSmart owns more than 500 stores and 37.1 million square feet of rentable space and manages another 750 stores and 48.9 million square feet of space for third parties.
The company has a nationwide footprint, but it derives nearly 70% of revenues from major metropolitan markets like New York, Miami, Chicago and Dallas.
The self-storage industry represents some of the best REITs across economic cycles, with 10-year returns averaging 17% annually as a result of the most diverse tenant base, high margins and short-term rentals that allow frequent repricing. CubeSmart has been a top sector performer based on same-store revenue, income, margins and FFO growth that consistently exceeds peers.
Over the past five years, CUBE has grown its FFO by roughly 8% annually, and its dividends by 10%, while maintaining an investment-grade balance sheet and expanding its property portfolio by more than $1.6 billion via acquisitions and development.
During the September quarter, CubeSmart had five East Coast joint venture properties in development, acquired eight self-storage properties in New York City and expanded its third-party managed platform by 130 stores.
Stifel analyst Steve Manaker upgraded CUBE to Buy in November, saying that its robust September-quarter growth should continue into 2021. "We believe we are in the middle, not the end, of the run," he says.
American Campus Communities
- Market value: $5.9 billion
- Dividend yield: 4.5%
American Campus Communities (ACC, $43.10) is the largest owner/manager of student housing in the country, at 204 properties with approximately 140,000 beds across 69 U.S. markets.
American Campus Communities acquires and/or develops student housing near universities that compete in top nationally ranked athletic conferences or that have PhD programs generating strong research activity. Nearly all of its properties are within easy walking distance of a major campus.
Student housing REITs benefit from consolidation opportunities in a highly fragmented industry and a growing trend by colleges to outsource student housing to third parties to free up capital and improve quality.
Admittedly, ACC's growth of funds from operations has been meager because it has been repositioning its portfolio, dumping noncore assets and replacing those with new developments that haven't yet begun to generate strong rental income. But the REIT anticipates returning to stronger growth through its Pursue Growth 2030 plan, which focuses on acquisitions funded through joint ventures and expanding management fees from third party-owned properties.
Pandemic-related campus shutdowns hurt 2020 results, but American Campus expects to return to pre-pandemic occupancies levels exceeding 97% later this year as a result of many of its university customers resuming on-campus classes in the spring. Development projects nearing completion should also help near-term growth. The REIT recently finished Phase II of its $615 million Disney College program (housing for interns of the Walt Disney World Resort), completed $171 million development projects at two California university campuses and broke ground on a new 476-bed student housing facility at Georgetown University.
Analysts forecast a healthy 18% average annual FFO growth for American Campus Communities over the next five years. That should add fuel to the dividend, which has been growing every year since 2012.
STORE Capital
- Market value: $8.2 billion
- Dividend yield: 4.7%
STORE Capital (STOR, $30.99) is the first of several "net lease" operators among the best REITs for 2021. The name stems from a business model where the REIT merely collects rent – tenants are responsible for taxes, upkeep and insurance.
STORE boasts a with a diversified portfolio of nearly 2,600 properties leased to more than 500 tenants across 110 industries and 49 states. It leases single-tenant properties primarily to chain restaurants, early childhood education facilities, health clubs, furniture stores and auto service centers, as well as other retailers and even some manufacturing. As of Sept. 30, its portfolio was 99.6% leased.
This fast-growing REIT has been adding roughly 14 new customers and 70 properties per quarter, with repeat customers accounting for one-third of new business. While the pandemic caused 2020 FFO declines, rent collections began improving in the September quarter, positioning STORE Capital for a 2021 rebound in FFO as the American economy strengthens.
In addition, the REIT should benefit from weighted remaining lease terms averaging 14 years and 2% embedded rent escalations, which STORE Capital believes can fuel consistent 5% internal growth.
The REIT's yearly net income growth has averaged 16% since its 2015 IPO, and dividends have grown by greater than 7% annually. A modest 70% payout of FFO provides ample room for more hikes over time.
Also note that STORE Capital is a rarity: It's the lone real estate investment trust in Warren Buffett's Berkshire Hathaway portfolio.
STAG Industrial
- Market value: $4.5 billion
- Dividend yield: 4.8%
STAG Industrial (STAG, $30.40) invests in warehouses across the country and has been a major beneficiary of e-commerce trends. The REITs largest tenant is Amazon.com (AMZN), and roughly 40% of its portfolio is leased to e-commerce tenants. As of Sept. 30, STAG Industrial owned 462 warehouses accounting for 92.3 million square feet of leasable space.
The country's same-store net operating income (NOI) growth, which has averaged 1% over the past five years, has been helped by small yearly rent increases. It expects that growth to accelerate to 2% to 3% annually through 2025. In addition, acquisition activity, which has averaged $675 million annually in the past is anticipated to rise to a range of $800 million to $1 billion in the future.
Overall, analysts forecast 4% to 5% annual growth in FFO over the next several years.
STAG is one of a few monthly dividend stocks – one that is well supported by cash flows from long-term leases, with less than 25% of its leases expiring through 2022. A solid balance sheet showing debt at just 25% of capitalization and only 12% of debt maturing through 2022 gives STAG flexibility to further step up its payouts.
Already high dividends make STAG one of the best REITs if you're looking for income in 2021: Its 4.8% yield is one of the best among industrial real estate names.
Realty Income
- Market value: $20.9 billion
- Dividend yield: 4.9%
Realty Income (O, $57.83) is a reliable net lease retail REIT that owns nearly 6,600 retail properties leased to approximately 600 tenants across 51 industries. Its top tenants – including Walgreens (WBA), 7-Eleven, Dollar General (DG), FedEx (FDX) and Dollar Tree (DLTR) – are recession-resistant businesses. Consider that despite COVID and the recession, Realty Income grew adjusted FFO by 4% over the first nine months of 2020.
The real estate firm also managed to hike its payout in each of those three quarters, while closing $1.3 billion of acquisitions and maintaining a conservative balance sheet, no less.
Portfolio occupancy improved to 98.6% in the September quarter and has never dropped below 96%. The REIT's contracted rent collections increased to 93.6% in November and are on-track to improve further in 2021 if the economy rebounds.
Realty Income is as dependable as they come. It has produced positive EPS growth in 23 of the past 24 years. Since going public in 1994, the REIT's median annual EPS growth has exceeded 5%, and annual total shareholder returns have ranged around 15%. Some of those returns have come via its monthly dividend, which has been improved upon for 93 consecutive quarters.
And if you hate market volatility, you should enjoy O shares, which have a beta of 0.4, implying that the stock is 60% less volatile than the overall stock market.
BofA Securities analysts list Realty Income as their REIT representative among their 11 best stocks for 2021, lauding its "high quality, non-discretionary tenants."
Physicians Realty Trust
- Market value: $3.7 billion
- Dividend yield: 5.2%
Physicians Realty Trust (DOC, $17.66) is a healthcare REIT focusing on medical office space that is leased to national and regional healthcare networks. The REIT's portfolio consists of 269 properties valued at $4.9 billion and spread across 31 states. As of Sept. 30, its portfolio was 96% leased, with healthcare network tenants representing 89% of leased space.
Among healthcare REITs, Physicians Realty offers the highest percentage of investment-grade tenants, as well as the most facilities located off hospital campuses. Location matters: Patients and providers increasingly prefer healthcare delivery from outpatient facilities.
This trend accelerated during the pandemic, too. In a recent survey, 77% of patients said they prefer visiting physician offices and clinics that are not located on a hospital campus.
Although pandemic lockdowns muted 2020 growth, Physicians Realty had grown revenues by 32% and earnings from continuing operations 60% annually over the past five years. The REIT's outlook began improving in the September quarter as leasing volume returned to pre-pandemic levels and 98.4% of rents were collected. The REIT also negotiated an agreement with a healthcare network tenant that had fallen behind to collect deferred rents and related late fees over six monthly installments beginning January 2021.
With weighted average lease terms averaging more than a year longer than peers and only 21% of its leases expiring through 2024, Physicians Realty offers better safety and stability than its healthcare REIT competitors.
One note: Unlike many of the other best REITs on this list, DOC has held its dividends flat since 2018. The REIT has been focusing on acquisitions and development to fuel growth. However, Physician Realty's yield is generous at current levels, and any rise in FFO could yield resumed dividend growth.
W.P. Carey
- Market value: $11.7 billion
- Dividend yield: 6.3%
W.P. Carey (WPC, $66.61) is the world's largest diversified net lease REIT. The company owns 1,215 single-tenant properties encompassing 142 million square feet leased to more than 350 tenants across the U.S. and Europe. W.P. Carey's portfolio consists primarily of industrial, warehouse, office, retail and self-storage space.
The REIT embeds growth via 1.6% annual rent increases built into 99% of its leases and resiliency via occupancies averaging near 99% and average remaining lease terms at 10.6 years. WPC's top tenants are familiar names like U-Haul and Extra Space Storage (EXR) in the U.S., Pendragon auto dealerships in the U.K., and Hellweg DIY stores in Germany.
Because of the diversity and low retail exposure of its portfolio, W.P. Carey collected nearly 99% of contracted rents in 2020 despite the pandemic. The REIT also boasts an investment-grade balance sheet. At the end of the September quarter, W.P. Carey had $1.6 billion available on its credit facilities after closing nearly $1 billion of property acquisitions during 2020.
WPC's business model has produced 23% annual growth in EPS from continuing operations over the past five years; that figure is still 19% when you look back 10 years. That has funded 75 consecutive quarterly dividend increases.
Iron Mountain
- Market value: $8.7 billion
- Dividend yield: 8.7%
Iron Mountain (IRM, $30.19) is the highest yielder among 2021's best REIT picks, and as you might imagine, it's a turnaround play.
This REIT is transitioning its business from physical records storage and shredding to much higher-margin data storage. Iron Mountain owns 1,450 storage facilities in 50 countries and stores documents and data for more than 225,000 customers worldwide, including 95% of Fortune 1000 companies. Iron Mountain is leveraging its high 98% customer retention rate by cross-selling data storage to its existing customers. It's expected to grow this segment to 10% of adjusted EBITDA in 2020, supporting revenue diversification and margin enhancements.
IRM is on track to deliver 55 megawatts of new data center leases in 2020, far exceeding its original goal of 15 to 20 MW, and recently formed a joint venture to develop and manage a 27-MW hyperscale data center in Germany.
In addition to improving its business mix, the REIT has an expense-reduction program underway expected to deliver $375 million of annual cost savings by 2022.
Iron Mountain has increased dividends for nine years in a row, and its payout improvements have averaged roughly 5% over the past five years. While its dividend likely will exceed its full-year 2020 EPS, the payout should drop to a very manageable 75% should it hit analysts' growth forecasts for 2021.
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The 13 Best REITs to Own in 2021 - Kiplinger's Personal Finance
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