Investors worried about inflation impacts and rising geopolitical risks from Russia’s invasion of Ukraine conflict could find some solace in stock from real estate investment trusts (REITs). With so many choices, though, it can be hard to know which REITs to buy.
Real estate asset returns usually lead or quickly catch up to inflation to shield investor portfolios. Their growing cash flows from rent increases may flow through to support inflation-beating dividend increases. And the best REITs to buy offer diversification benefits to any stocks and bonds portfolio.
According to the National Association of REITs (NAREIT) T-Tracker publication, REIT earnings (as measured by Funds from Operations (FFO)) surged by 24.6% in 2021.
Strong earnings growth rates could still be witnessed in the asset class as sectors continue to recover from the effects of the Covid-19 pandemic.
Interestingly, industry players enjoy some shield from rising interest rates in the near term. Most trusts took advantage of a low-interest rate regime to lock in lower interest costs for longer periods. The weighted average maturity of outstanding debt has increased from 60 months in 2009 to over 89 months by year-end 2021. REITs could do well as interest rates rise.
Most noteworthy, REITs can partly hedge stock market risks. Real estate survives inflation, and rent cash flows are protected by legally enforceable lease agreements. Even if a bear market were to persist, a REIT investor could still receive regular distributions, use the proceeds to buy the dips on beaten-down stocks or even pay the bills.
REITs distributions can pay the bills, and they are designed to do as such.
Below is my selection of the seven best U.S. REITs to buy for March 2022:
- AvalonBay Communities (NYSE:AVB)
- Independence Realty Trust (NYSE:IRT)
- Life Storage (NYSE:LSI)
- Digital Realty (NYSE:DLR)
- Crown Castle International (NYSE:CCI)
- Easterly Government Properties (NYSE:DEA)
- Postal Realty Trust (NYSE:PSTL)
Best REITs to Buy in March: AvalonBay Communities (AVB)
AvalonBay Communities is one of the largest apartment REITs in the United States, and a potential inflation hedging investment to consider right now. AVB owns a portfolio of 297 apartment communities with 87,992 apartment homes in 12 U.S. states and the District of Columbia.
The trust had 17 new communities under construction as of December 31, 2021, and 12 of them could be ready for occupation before the end of next year. AVB’s rental revenue could keep growing over the next 24 months.
AvalonBay’s portfolio saw same-property occupancy rates improve from 94.4% exit 2020 to 96.1% by the end of 2021. Business is getting better as Covid-19 challenges subside.
Management projected core funds from operations (FFO) for 2022 to range between $9.30 and $9.80 per share — an implied growth of 15.6% year-over-year. The portfolio’s same-property net operating income (NOI) may increase by 8.5% to 11.5% this year.
Given a booming rental business, low interest costs (an average interest rate of 3.1% per annum), and a very long weighted-average debt maturity of 8.8 years, AvalonBay stock is well-positioned to provide outperforming returns for investors in the next 24 months.
AVB units pay a regular dividend that yields 2.6% annually.
Independence Realty Trust (IRT)
A fast-growing multi-family apartment REIT Independence Realty Trust could be another good REIT investment to make in March to better your chances of achieving long-term financial independence.
The trust owns apartments units in 119 communities in the United States. Its units delivered a 92% capital gain over the past year, and the trust still has good momentum to add another double-digit return from here.
Although IRT’s current distribution yield is a paltry 0.3% over the next twelve months, capital gains could be substantial.
In a February earnings release, management projected an 11% year-over-year growth in same-property NOI for 2022. The company could grow its core funds from operations (CFFO) by a staggering 21% this year.
Organic growth was very strong last year as occupancy levels increased by 230 basis points to 95.7% in 2021. Rental rates also rose by 9.7% and NOI surged by 15.1% year-over-year during the fourth quarter of last year.
Most noteworthy, IRT REIT’s merger with Steadfast Apartment REIT (STAR) in December 2021 is accretive to growth and earnings. The market has shown its approval, units are a hotly sought-after investment even to this day.
Best REITs to Buy in March: Life Storage (LSI)
Self-storage properties giant Life Storage operates about 1,100 storage facilities in 35 states serving about 600,000 customers.
The trust reported a strong 16.9% increase in same-property rental revenue during the fourth quarter of 2021. Its portfolio’s average occupancy levels increased and management successfully increased rental rates by 15.2% last year without losing clients.
A strong 30% growth in FFO for 2021 to $5.08 per share versus $3.90 for 2020 was a strong feat. Naturally, a 16% dividend raise for 2022 to $1.00 per unit each quarter could be followed by another good raise in 2023. The current distribution yields 3% annually.
Life Storage’s management team guided for an 11.5% to 12.5% growth in same-store net operating income for 2022. An aggressive acquisitions-led growth spree could top that stellar result.
It’s highly likely that the trust’s targeted year-over-year growth in adjusted funds from operations to between $5.93 and $6.03 per share could be achievable for 2022.
Dividends could keep growing, and shares could generate double-digit gains this year.
Digital Realty Trust (DLR)
The Digital Realty Trust is a data center REIT that operates over 280 data center facilities in 50 metropolitan areas across 25 countries on six continents.
Organic revenue growth helped the trust’s FFO per unit increase by 6% year-over-year to $1.54 during the fourth quarter of last year.
DLR REIT is a buy in March because the demand for its data center solutions remains robust. The trust is “…investing organically as well as strategically to expand our global platform to provide customers the capacity and communities they require to execute their digital transformation strategies around the world,” according to CEO A. William Stein.
The REIT increased its quarterly dividend by 5% to $1.22 per share this month. This marked the 17 consecutive years of dividend growth since DLR’s initial public offering in 2004. The new payout yields a respectable 3.6% annually.
Management revealed its high confidence in the business’s financial strength, growth potential, and stability of recurring cash flows by increasing the dividend even as interest rate and geopolitical risks mount.
Best REITs to Buy Now: Crown Castle International (CCI)
Investors in cell-tower and fiber network properties owner Crown Castle International stock may have booked a nice 339% capital gain over the past decade. Income growth could be key this year as management commits to near double-digit dividend increases into the future.
Riding on the 5G growth wave, demand for small cell towers has increased. CCI runs a growing real estate business with surging free cash flows right now.
Investors saw an 8% rent revenue growth to $5.72 billion, a 14% increase in adjusted funds from operations (AFFO), and an 11% dividend increase on CCI stock in 2021. Management recently projected another 9% year-over-year increase in rental revenue and a further 6% growth in AFFO to $7.36 per share in 2022.
CCI’s current dividend yields 3.4% and has had consistent annual increases each year since 2014.
Above inflation, dividend increases could protect current income. Further, sustained revenue and earnings growth will support steady increases in CCI’s stock price beyond 2022.
Easterly Government Properties (DEA)
Easterly Government Properties features on this list as one of the most defensive REITs to buy right now due to its unique status as a landlord exclusively targeting “mission-critical” U.S. government agencies.
The trust owns 89 Class A properties comprising about 8.6 million square feet leased almost entirely to the United States Government agencies with long-enduring missions. Its occupancy rates usually hover around 100% — a rare and spectacular feat in the real estate industry.
Investors could buy DEA units for the REIT’s very stable inflation-protected rental cash flows. Its high-quality credit tenant, and a strong commitment to an accretive acquisition-led growth strategy makes the REIT a good investment.
DEA’s monthly dividend yielded a respectable 5% at the time of writing.
Top REIT to Buy in March: Postal Realty Trust (PSTL)
The Postal Realty Trust is the landlord to the strategically positioned United States Postal Service (USPS). The trust owns and leases over 1,350 properties to the USPS. Properties range from last mile post offices to larger industrial facilities.
Income-oriented investors love PSTL for its high dividend yields and a strong commitment to dividend increases. The current distribution yield on PSTL units is a juicy 5%. The trust has increased its distribution every quarter since it went public in 2019. The most recent 1.3% dividend increase announced in February marked a tenth consecutive quarterly dividend increase.
The Postal Realty Trust is a great REIT to buy right now for its commitment to dividend increases and strong revenue growth outlook. Analysts project a 30% growth in the trust’s total revenue for 2022.
Units could maintain some strong growth momentum as management executes an aggressive acquisitions-led growth spree.
On the date of publication, Brian Paradza did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.