REITs or real estate investment trusts had impressive performance in 2019. REITs are actually companies that invest in a wide range of properties such as apartments, office buildings, and self-storage facilities. One of the well-known REIT gauges called the FTSE Nareit All REIT Index built big gains of 25.4% including dividends by November 21, 2019. There were many other REITs with better performance. On the other hand, the Russell 2000 Index, a small capital gauge used mainly for comparison since most REITs are smaller firms had a lesser gain of just 18.9 percent. However, we are not talking about non-traded REITs, which have been one of the biggest losers
Why Invest in Real Estate?
Normally, investors don’t focus in REIT investments as a way of beating stock market averages but are in it primarily for income. The law states that REITs should pay out a minimum of 90% of their net income as dividends. A majority of REITs in the FTSE index have an average dividend yield of around 3.6% while the S&P 500 and 10-year Treasury note have dividend yields of 1.8%. Notably, when bonds and stocks yield goes down, REITs are the way to go.
One of the good things about real estate is the fact that the market provides diversification. REITs are actually stocks but don’t usually follow the same direction as the broad market. They have above-average yields that provide a good cushion in the face of a downturn.
10 Best REITs To Consider In 2020
There are many good REIT options to invest in if you are thinking of investing in a good real estate funds, including the Vanguard Real Estate ETF (VNQ). There are also a good number of individual REITs with high yields and good valuations. According to an equity analyst at CFRA Research, Chris Kuiper, REITs are not a homogenous group. In the past year alone, REITS recorded a performance difference of 160 percentage points.
So having said that, let’s look at the 10 best REITs prospects that you can include in your 2020 investment plans.
- $2.8 billion in market value
- 5.6% dividend yield
- 5.2% %-year annual dividend growth
- Total returns in 12 months: 32.1%
This is a popular shopping-center REIT which should not make you nervous given the number of shopping malls in your neighborhood with empty parking lots. SITE Centers actually owns and runs open air shopping centers mostly connected to a grocery store. Currently, grocery stores are still doing great despite the threat posed by online shopping. Amazon.com may be venturing into the grocery delivery sector but large grocery chains are already doing it.
So why is SITE a good REIT option for 2020? First, SITES has a new management team focused on making the most out the favorable credit market. According to Kuiper, SITES currently have a 3 to 5-year turnaround plan already in full implementation. The company expects to see 4.2% revenue growth in 2020 compared to 2019’s drop of 39%. Keep in mind that Wall Street favors a turnaround and their 5 plus percent yield is quite attractive. It is even rated as one of the most undervalued REITs available today.
- A market value of 21.1 billion
- 2.8% dividend yield
- 7.9% 5-year annual dividend growth
- 12.2% total return in 12 months
BXP, whose shares are valued at $136.75 is a leader when it comes to office space and prime properties from Los Angeles and San Francisco to Washington DC, Boston, and New York. The company owns 51.9 million square feet and 196 properties in different cities across the US, including New York City’s Times Square and Boston’s Prudential Center. Boston Properties currently has 13 more properties already under construction.
Office space is known to be sensitive to changes in the economy which is why office REITs have lagged in the past 12 months. BXP even reported a total return less than 50% of the FTSE Nareit All Equity Rate Index in the same period. However, BXP is a potentially good REIT to invest in if you are optimistic of the economy to pick up again or if you simply want a piece of the country’s hottest office markets.
- Duke Realty has a market value of $12.8 billion
- 2.7% dividend yield
- 6.7% 5-year annual dividend growth
- 2.64% total return in 12 months
When it comes to REITs, industrial space is not about factories but distribution centers and other forms of logistic facilities besides warehouses. These are properties that perform the important function of delivering goods to customers as opposed to bulk shipment stores. Such properties need complex logistic systems to ensure efficiency and timely processes when loading trucks and managing returns. They are often located in prime areas near transportation hubs such as rail terminals and rail terminals. Such companies are therefore the best REITs to invest in, especially with the growth of ecommerce.
Duke Realty has over 500 facilities covering 155 million square feet in 20 logistics markets across the US. The company has grown in the last 5 years with a 120% total return thanks to its connection to the fast growing ecommerce industry. According to Morningstar’s equity analyst, Yousuf Hafuda, Duke Realty’s value of $32 per share may seem a bit high but DRE is still a potentially good option to look at in 2020.
- Market value of $17.0 billion
- 4.3% dividend yield
- 24.5% total 12-month return
Healthcare costs seem to be on an unstoppable rise. Healthpeak Properties (PEAK, $34.34) deals mainly with senior housing, life-science buildings, and medical offices in Boston, San Francisco, and San Diego. They have a generous 4.3% dividend that remained stagnant since 2016 after its spinoff, Quality Care Properties, caused a reduction in dividends. However, PEAK has a good history of dividend increases in the past and is a good option in 2020 thanks to its more diversified mix with healthcare.
Mid-America Apartment Communities
- Market value of $15.4 billion
- 2.8% dividend yield
- 5.7% 5-year annual dividend growth
- 38.5% total return in 12 months
Housing is expensive as anyone below 40 years will tell you. Notwithstanding low mortgage rates, homebuyers today have to pay up $27,510 as 10% down payment for an averagely priced home valued at $275,100. It is no surprise why most families are opting to rent rather than buy.
Mid-America Apartment Communities (MAA, $135.38) focuses on the sun-loving clients. The company’s 305 apartment communities are located in the Mid-Atlantic as well as in the Southwest and Southeast. Most are concentrated in Texas, North Carolina, and Florida. MAA also manages several furnished corporate apartments. They have a comparatively lower dividend yield but with a solid record of increasing their payout, they are definitely worth investing in, especially if you are a long-term investor.
- Market value of $24.9 billion
- 3.6% dividend yield
- 4.4% 5-year annual dividend growth
- 25.0% total return in 12 months
Realty Income (O, $76.50) owns around six thousand properties leased to major companies such as Walgreens (WBA), FedEx (FDX) and 7-Eleven. In fact the company has currently leased 98.3% of its properties under long-term triple-net agreements. Their rental income is therefore net of taxes, insurance, and maintenance because tenants take care of everything. With less to spend on almost every property they own, Realty Income has a more predictable income. It is one of our top REITs as well in Kiplinger’s best 15 income stocks picks.
The company has built a solid reputation in its monthly dividends and is also a long-term player having delivered 592 consecutive monthly dividends and 88 quarterly increases. If you want a high-quality properties portfolio REIT with twice the dividend you’d get in a 10-year Treasury note, go for Realty Income.
- Market value of $14.4 billion
- 4.9% dividend yield
- 2.0% 5-year annual dividend growth
- 29.6% total return in 12 months
W.P. Carey (WPC, $83.86) is another good option that is similar to Realty Income. The company deals in single tenant triple-net leases. Unlike Realty Income, W.P. Carey is more diversified because it owns different types of properties besides retail which accounts for 17.1 of its property portfolio. The company owns industrial properties (23.6%), offices (24.5%), warehouses (20.4%) and other types of facilities. The company has also expanded overseas with properties in Europe. According to the company, 99% of their leases include contractual rent increases while 62% are linked to the consumer price index, which the government uses to measure inflation.
W.P. Carey is popular with income investors because of its inflation-focused portfolio and quarterly rather than annual dividends. It is another good option to look into if you want a reliable REIT in 2020.
- Market value of $8.6 billion
- 2.4% dividend yield
- 6.7% 5-year annual dividend growth
- 23.0% total return in 12 months
Kilroy Realty (KRC, $80.99) focuses on West Coast’s high end office complexes. They are known to cater primarily for companies in the technology industry. In the third quarter, the firm had an impressive 94% occupancy of their properties compared to 93% last year. They are currently targeting San Diego. The tech industry is known for its cyclical nature especially with increasing cost of living in places such as Los Angeles and San Diego. A downturn in the industry could therefore affect the stock but if things remain the same, Kilroy Realty looks like a lucrative bet in 2020.
- Market value of $33.9 billion
- 4.2% dividend yield
- 1.8% 5-year annual dividend growth
- 26.2 total return in 12 months
Welltower (WELL, $83.50) is a healthcare REIT that focuses on high end senior housing, outpatient medical facilities, and facilities for skilled nursing. Their properties are concentrated in lower-cost areas and clients include Sunrise Senior Living which accounts for the company’s 15% net operating income. With high expectations for operation funds and increasing number of aging Boomers, Welltower is another promising RIET to look out for in 2020.
- Market value of $57.4
- 2.3% dividend yield
- 9.9% 5-year annual dividend growth
- 39.6% total return in 12 months
Prologis (PLD, $90.85) is an industrial REIT similar to Duke Realty but focuses on the large scale industrial property category. The company leases property to major retailers in the US, Europe, and Japan. Their clientele has big names like Amazon.com, BMW, and Nippon Express. Prologis is expected to grow even bigger in 2020 after announcing that it would buy one of its key competitors, Liberty Property Trust which has a $12.6 billion property portfolio. The company has also recorded close to 10% dividend growth in the last 5 years. It is another good REIT to consider for 2020.