Amid rising inflation, certain strong real estate stocks offer promising performance. Real estate investment trusts were up 29% as of December 1st, 2021, and thus entered 2022 strong. As one of the most resilient investments around, picking the right REIT could prove extremely profitable over the long term. Over the last fifty years, REITS delivered an average of 13.5% return to investors, whereas S&P 500 stocks only delivered 13.1% returns. Here is a look at five of the top REITS within the US real estate sector.
Prologis Inc. (NYSE: PLD)
San Francisco-based real estate investment trust Prologis Inc. which has rental contracts with Amazon.com, Home Depot and FedEx, to name but a few big clients, finally divulged its full-year financial results on April 21st, 2022. Prologis is in a great position for the coming financial year. The company reported strong growth for 2021 with a funds from operations value of $1.09 per share paid, which beat forecasts. Almost all rental holdings are occupied, with the quarter ending at 97.4% occupancy and same-store net operating income growth hitting a record tally of 8.7%. Everything points to dominance of the retail rental market with an influx of new developments on their way.
It’s not only occupancy that is up for the US retail giant. Tenant retention rates are fantastic through the fourth quarter of 2021 as well. Almost all of Prologis’ leases are long-term contracts signed at under current market value. This being said, there’s still a 46% income possibility for the company before any of the year’s new developments are taken into consideration, thanks to a massive $3.5 billion NOI instead of the prior year’s $1.6 billion. Demand is higher than it has been for years, and stock is rallying higher and higher in 2022. With a current median forecast of $179.67 and a low of $153, and a high of $228, PLD may just rally all the way to its high despite being moderately overpriced with a 43.79 P/E ratio.
Equinix Inc. (NASDAQ: EQIX)
Redwood City’s revered data centre leader with over 240 locations spread across the world, Equinix, Inc., is on a path of rapid expansion in order to meet escalating demand but remains a very expensive stock despite all its promise. Equinix is one of the most promising real estate investment trusts (REITs) this year despite few options being left after several large acquisitions by private industry. The pure-play REIT, Equinix, which is the largest data centre operator in the world, recently experienced a dip in its share price after missing its fourth-quarter 2021 forecasts. Even though prices are down, Equinix is still traded at well above market value with a PE Ratio of 139x as opposed to the REIT industry average of 19.73x.
Year-to-date, stock has dwindled by 7.73% as of the second last week of April 2022. Despite the high valuation, as indicated by the PE Ratio, stock has climbed 7.48% in the last month following Equinix’s financial reports. Over the last year, NOI rose 35%, while REIT profitability experienced 9% year-over-year growth. AFFO is expected to rise between 8% to 9% over the next year. Despite all these favourable metrics, Equinix is still an expensive stock. This being said, it remains likely to meet its median price objective set by Wall Street analysts of $814.24 if not going all the way to its high estimate of $950. The low of $768.17 seems almost impossible when one considers the current opening price of $766.50.
Realty Income Corp. (NYSE: O)
From its headquarters in San Diego, Realty Income Corporation manages a portfolio of over 11,000 properties. Otherwise known as The Monthly Dividend Company, Realty Income Corp pays $0.247 per share each month, which, while one can’t technically weigh the metrics the same, would equate to a very decent $2.964 EPS when calculated annually, a tally that’s steadily on the rise. Since its inception, Realty Income Corp shares have supplied a reliable return of 15.5% per year at a minimum that there is very little chance they’ll disappoint any time soon.
Realty Income has a 53-year record of thriving during all sorts of economic conditions. It is rock solid, with stability that few stocks can compare to. The company that’s still standing strong after eight recessions and a company valuation exceeding $57 billion also sustains an impressive 98.2% occupancy, while occupancy below 96.6% hasn’t been experienced since 1996. We’re confident that O shares will not only reach the average analyst EPS of $3.93 for the year but rather reach closer to the high target of $3.99 or beyond, especially if bolstered expansion is prevalent during 2022.
Equity Residential (NYSE: EQR)
Equity Residential is performing exceptionally well through the recent difficulty of markets. Almost all of the areas where Equity Residential holds significant investments have massive housing shortages, especially in the area where the company specialises, namely starter homes. Locked-in rates and low operating costs have secured Equity Residential’s outstanding stability amid volatility and its excellent metrics. Equity Residential’s dividend yield falls at 2.74% on an annual basis which translates to a quarterly dividend of $0.62 – not too bad at all for long-term investors.
We feel that marginally higher expenses and blended lease rates, which have dropped by 5.6% from pre-COVID levels, mean that Equity Residential is well-positioned to meet its targets but not necessarily to exceed expectations by anything significant. Funds from operations are down 8% year over year, but all factors considered, Equity Residential has only just begun to trend, which should forespell significant growth for new investors if analyst forecasts ring true. At the end of April, EQR shares were opening at $93.41, which is just 59 cents short of the median estimate already. It seems far more likely for Equity Residential to reach its high target, which is just under 12% away already.
Extra Space Storage Inc. (NYSE: EXR)
The Salt Lake County, Utah real estate investment trust, Extra Space Storage Inc., is experiencing good year-over-year growth of 25%, as indicated by the current EPS estimates ranging between $1.74 and $1.96 instead of the $1.50 from the previous quarter. At the end of fiscal 2021, the self-storage empire had $71.1 million in cash and cash equivalents while returning an astounding 24.72% return on equity as compared to the US REIT industry average of just 3.38%. By the end of 2021, Extra Space Storage grew its stores from 882 in 2011 to 2096 and continues to grow its number of branded stores and this year continues the company’s history of strategic expansion which positions favourably to capitalise on external growth opportunities.
Extra Space Storage has an excellent history of increasing dividends, and over five years, the dividend increase equates to 92.3%. With shares performing better than the industry but still down 3% year-to-date as of the last week of April, those looking for a good entry point may be looking at the right time. A P/E ratio of 32.43x certainly doesn’t make this REIT keep, but Extra Space Storage, Inc. could go all the way to $250 as a high estimate, whereas the median target set by Wall Street analysts falls at $224.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only