If you hold stocks, bonds and mutual funds in your investment portfolio, you might be looking to diversify beyond these traditional investments. If so, consider investing in a real estate investment trust, or REIT. Here’s what you need to know about REITs, and 11 good candidates to look into.
What Is a REIT?
A REIT, which stands for real estate investment trust, is a company that owns income-producing real estate. This may include residential, commercial, or industrial properties, including homes, office buildings, data centers, college dormitories and more. Investors can buy shares in the company, just like they would buy shares in any publicly held company. REITs allow the average investor to enjoy the benefits of investing in commercial real estate, without having to finance and develop it themselves.
REITs can own apartment buildings, shopping centers, warehouses, hotels, commercial buildings and more. Some REITs will own just one of these types of real estate, while others may own many different kinds of properties.
What Makes a REIT a Good Investment?
REITs can provide diversification in your portfolio, as the real estate market often moves differently than other sectors. REITs also generate income for shareholders, since REITs are required to pay dividends to their shareholders if they generate income. When they lease space in the buildings they own, they collect rent. The income generated by this rent is paid out to shareholders. REITs are required to pay out at least 90% of their taxable income to their shareholders, and many pay out 100%.
11 Best REITs To Buy Now
As with any investment, it’s important to understand what you’re buying, and the potential for the company in particular and the market in general. Given that, here are some REITs to look at now.
1. Simon Property Group (NYSE: SPG)
Simon Property Group (NYSE: SPG) owns shopping, dining and entertainment venues, and is an S&P 100 company. While the mall business has faced challenges since the pandemic, Simon Property has been restructuring its portfolio and moving toward mixed-use developments, which have been increasing in popularity.
2. Iron Mountain (NYSE: IRM)
Iron Mountain (NYSE: IRM) is moving from the physical records storage business into data storage, a business with much higher margins. With 225,000 customers, Iron Mountain has a loyal base from which to expand into the lucrative electronic data storage business, making this REIT one to watch.
3. Equinex, Inc. (Nasdaq: EQIX)
Equinex, Inc. (Nasdaq: EQIX) bills itself as “the world’s digital infrastructure company.” They have over 220 data centers on five continents. With the need for digital infrastructure showing no signs of abating any time soon, Equinex has a bright future.
4. Realty Income Corporation’s (NYSE: O)
Realty Income Corporation’s (NYSE: O) name says it all: it provides investors with income from real estate. Realty Income has paid monthly dividends for 613 consecutive months since it was founded in 1969, and investors in the company have enjoyed a 15.3% compound average annual total return since its IPO in 1994.
5. Innovative Industrial Properties (NYSE: IIPR)
Innovative Industrial Properties (NYSE: IIPR) owns cannabis cultivation and processing facilities. If you’re looking to capitalize on the growing cannabis market and the REIT opportunity at the same time, this is the only REIT on the NYSE that specializes in medical-use cannabis growers.
6. STAG Industrial (NYSE: STAG)
STAG Industrial (NYSE: STAG) focuses on warehouses and, as such, has seen significant benefit from the recent increase in online purchases. About 40% of STAG’s lessees are e-commerce companies and Amazon is STAG’s largest tenant. STAG pays dividends monthly, making it a good choice for investors who are looking for monthly income.
7. Digital Realty (NYSE: DLR)
Digital Realty (NYSE: DLR), a global data center REIT that caters to IT, communications, financial services, manufacturing, and consumer products customers. With a market value of $37.4 billion and a 15-year streak of growing dividends, Digital Realty is a force to be reckoned with.
8. American Campus Communities (NYSE: ACC)
American Campus Communities (NYSE: ACC) develops, owns and manages student housing. Its portfolio includes 205 properties comprised of over 141,000 beds. The pandemic has created an uncertain environment for college housing, but this seems to be abating and American Campus Communities has seen trends toward normalization.
9. STORE Capital (NYSE: STOR)
STORE Capital (NYSE: STOR) is a “net lease” operator, meaning it only collects rent from its tenants. The renters pay for taxes, insurance, and upkeep of the property. STORE’s portfolio includes over 2,700 properties rented by 529 customers, and as of June 30, 2021, was valued at $10.0 billion.
10. Sun Communities, Inc. (NYSE: SUI)
Sun Communities, Inc. (NYSE: SUI) acquires, operates and develops manufactured home and RV communities. Sun Communities has options like over-55 communities for those who are downsizing, RVs and resorts for vacationing, and rental and lease-to-own properties.
11. Life Storage, Inc. (NYSE: LSI)
Life Storage, Inc. (NYSE: LSI) acquires and manages self-storage properties nationwide. It operates over 67 million square feet of self-storage in 925 facilities in 34 states. As with residential REITs, Life Storage has been and will continue to benefit from the trend of Baby Boomers to downsize as they approach and enter retirement.
Adding one or more REITs to your investment portfolio can improve your diversification and generate some income as well.