REIT Outlook 2021

Top 5 REIT Stocks I’m Buying for 2021

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How to pick the best REIT stocks and types for 2021 returns

All you out there in the Nation know I love real estate. It’s where I got my start as a commercial property analyst and no other asset class has created as much family wealth.

I truly believe every investor needs some exposure to real estate.

Of course, that’s tough when one property can set you back tens of thousands for a down payment.

But with REIT stocks, real estate investment trusts, you can put property in your portfolio just like you do other stocks. REITs are companies that own real estate, usually hundreds or even thousands of properties, and then sell shares to investors.

Now this year has been a tough one for REITs with the overall market down more than 7% and some property types plunging as much as thirty- and forty-percent. So in this video, I’m going to show you which property types I’m watching for 2021 and reveal the five REITs to buy for cash flow and returns.

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I’ll be using to narrow down that list. Stockcard has a great search feature that will help you find stocks within a theme or group. Just search for a topic, like REITs, and the drop down shows you all the groups in the theme.

Don’t forget to check out our 2021 Bow Tie Nation portfolio on the platform. We’re two months into the portfolio and already up more than 30% and beating the market by 25% over the period. It’s free to follow the portfolio and you’ll get notifications whenever I buy or sell from the list, even before these videos come out.

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REIT Performance and 2021 Outlook

Let’s look back on that performance table of REIT stocks here by the National Association of REITs because I think this can really help put it in perspective and pick our targets for next year.

REIT Outlook 2021
REIT Outlook 2021

On the left, you see the individual property types or sectors of the market. And coming down here, Retail was probably the hardest hit with REITs in the sector falling 28% on average and malls falling by almost 40%.

Now I think we could be set up for a quick bounce in the first half of the year, especially in those hard-hit mall properties like SPG and Macerich, but you really have to be careful long-term on retail. That shift to online spending accelerated this year and it’s only going to get worse so that traditional retail property sector isn’t going to be out of the woods even after COVID.

Residential property was hit as well, with REITs there falling about 13%, and there could still be more pain to come in the first half of the year. It’s estimated as many as 14 million Americans are at risk of eviction come January with over $25 billion in back rent due…

I don’t see Congress stepping in to do much and even some rent forgiveness isn’t going to save millions with thousands in rent coming due. Nation, I’ve had my own rental properties for going on 20 years now and most people, faced with the choice of paying a couple grand in back rent versus moving…they’re just going to move.

That’s going to increase tenant and maintenance costs for residential REITs and I think you have to be careful for at least another quarter or two.

5 REIT Stocks to Buy for 2021

Lodging and resorts is where I think you see the most pent-up demand. It could take another quarter to start coming back but the market is forward-looking so I like these hotel REITs even before that rebound happens.

So we can search for REITs in stockcard and here it drops down with all the property types, so down here to Hotel & Motel and the first stock I’m watching, $2.9 billion Apple Hospitality, ticker APLE.

Apple owns 235 hotels in 34 states and across 13 brands including Hilton, Marriott and the Hyatt. A third of the hotels are the extended stay type so a little more stable in that longer-term cash flow.

Apple had one of the best financial positions going into this year and has just 40% debt to total capital, so not highly leveraged like a lot of REITs. It’s got $381 million in liquidity through cash and a loan revolver with no big debt maturities until 2022.

The company turned cash flow positive in July with all 235 hotels open and receiving reservations. You see here the occupancy rate by month and it’s really impressive that the company can be cash flow positive even at 50% occupancy.

This REIT was paying a monthly dividend of ten cents a share but stopped in March to protect cash flow. If we see any kind of a turnaround, I think they bring that dividend back by mid-year which could be up to a 9% yield on the current price. Even if shares take a year to get back to that fifteen or $16 each, that’s a solid double-digit return plus the dividend.

Healthcare is another favorite of mine, not just in REIT stocks but the broader sector. We see here the REITs have fallen about 13.9% this year but that’s on higher costs to COVID services and having to postpone some of the more profitable elective surgeries.

As those electives start coming back, I think the entire healthcare sector has a really good year in 2021 and REITs are on my list here as well.

One healthcare REIT I’ve owned for years is Welltower, ticker WELL. Now this is a senior living REIT with about 1,300 properties across the U.S. but also with 22 million square feet of outpatient facilities.

The outpatient and health services properties are 31% of net operating income, so that’s given the company stability in cash flow through the pandemic. Another 22% of the portfolio is on triple-net lease which means the senior living properties pay all costs and Welltower collects its rent with no expenses.

That business model has helped Welltower keep paying a dividend when most other healthcare REITs have paused their payouts. The payment was cut in February but is still a 3.7% yield at this point and shares still have 23% to where they were at the beginning of the year.

The company has $5.2 billion in balance sheet liquidity with $2.2 billion of that in cash. You see debt maturities here; just $341 million maturing next year and $1.3 billion in 2022, so no cash problems and plenty of financial flexibility.

Investor sentiment is about even on Welltower though the 50-day moving average has moved higher than the 200-day, a good indicator of upward momentum in the share price and I like this one back up to $80 a share plus that dividend.

Medical Properties Trust, ticker MPW, is one of my favorite REIT stocks right now and in fact, one I highlighted recently in a best dividend stocks video.

MPW owns more than 390 hospitals, long-term care facilities and other medical assets in nine countries. At $17 billion in assets, it’s the 2nd largest owner of hospital beds in the U.S. with 67% of revenue from the states, 26% from Europe and 5% from Australia. And this is a very well diversified portfolio of assets, maybe a little heavy in general acute care at 80% of assets but very little of the senior-care facilities that have hurt the medical REITs over the past year.

I love the business model for this company. It uses a sale-leaseback strategy for acquisitions, which means it buys medical properties from the healthcare companies and then leases the property back to them. Servicers like this because it frees them up to focus on healthcare and MPW can focus on the real estate. So this is decades of potential growth as the company takes advantage of ultra-low interest rates to consolidate all the medical properties out there with gross assets growing at a 30% annualized pace over the past ten years!

The company puts leases on a triple-net model which means the tenant bears all property costs. These are long-term leases up to 20 years and 97% of them have inflation-based rent escalators.

The company announced its eighth consecutive year of dividend increases this year with a yield of 5.1% on the shares now. Analysts have an average target of $21.29 per share over the next year but I think it can get back to that high around $24 each for a 20% return plus the dividend yield!

Infrastructure and Data Centers did really well this year with the boom in 5G coming and the data centers needed to stream all that internet traffic, the two groups were up ten- and 17% through November.

Valuations are a little more expensive here but I think you can still pick up a few of these for a strong long-term investment as 5G and data needs just keep growing.

Finding these on Stockcard, we search again for REITs, and these are going to be in that Specialty REIT category, so we click through and find 19 REITs we can research.

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Equinix, ticker EQIX is a leader in the data center space and an amazing track record for growth.

The company has a global footprint of 227 data centers in 26 countries with 8% revenue growth expected this year and 71 straight quarters of increasing revenue.

This is THE growth market in REITs with not only the increase in streaming this year but also the coming increase in 5G data and internet of things connections. Equinix has 46 approved expansions in the works including a new joint venture structure that’s allowing for faster growth.

Equinix has extremely stable cash flows in its long-lease structure with just 2% of leased square footage up for renewal prior to 2023. And you see that almost all leases are locked in until later in the decade or past 2034.

Now the dividend here is only 1.5% but the payment has grown by a 12% annual pace over the last three years and shares have produced a 20% annualized total return over five years.

Next here for the 5G rollout is a popular REIT, cell tower provider American Tower, ticker AMT.

The company is easily the largest tower provider with over 181,000 sites on just about every continent. And this market could be ready for just exponential growth in data demand. Even in the U.S. where pretty much everyone owns a smartphone already, data usage is expected to rise 32% a year on the ramp up of 5G and Internet of Things connectivity.

So not only are we still seeing smartphone adoption pick up in emerging countries but overall data usage globally is set to jump, all of this meaning more towers and infrastructure needs.

In fact, the company has booked a consistent 9.4% annual pace in revenue growth over the last three years and has increased the dividend payment by 20% a year over the three-year period. The shares have come down about 15% on valuation concerns since July but even after that, have produced a 21% annualized return over the last five years. So maybe an opportunity here to get in on a great long-term pick while it’s at this lower price.

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