We're going to look at this year's seven best-performing real estate investment trusts (REITs) of 2020, as of Friday's market close.
If you like dividend stocks, REITs are a great group to explore. They tend to have attractive yields because they're required to distribute at least 90% of their taxable income each year as dividends to shareholders in exchange for the special tax treatment they receive. Of course, like all dividend stocks, investors should be cautious when considering high-yielding REITs, as these are generally riskier. The stocks below currently have yields ranging from 1.4% to 6%.
Image source: Getty Images.
The 7 top-performing REIT stocks of 2020
These companies are ranked based upon their returns so far this year. To be included on the list, they had to have a market cap of at least $2 billion, which means they are mid-caps or larger. This criterion was included to screen out very small companies, whose stocks tends to be riskier.
|
Rank |
Company |
Market Cap |
Dividend Yield |
Projected 5-Year Annualized EPS Growth* |
2020 Return |
5-Year Return |
|---|---|---|---|---|---|---|
| 1 | Safehold (SAFE) | $2.2 billion | 1.4% | 36.9% | 12.7% | N/A (156% since IPO**) |
| 2 | Liberty Property Trust (LPT) | $10.2 billion | 2.5% | 5% | 8% | 99.9% |
| 3 | Prologis (PLD -1.15%) | $60.7 billion | 2.2% | (6.1%) | 7.9% | 149% |
| 4 | Essential Properties Realty Trust (EPRT 1.27%) | $2.5 billion | 3.4% | 34.5% | 7.5% | N/A (110% since IPO**) |
| 5 (tie) | Gaming and Leisure Properties (GLPI 1.06%) |
$9.9 billion | 6% | 11.3% | 7.3% | 104% |
| 5 (tie) | Healthpeak Properties (PEAK -0.17%) | $18.3 billion | 4% | 2.5% | 7.3% | 12% |
| 7 | Digital Realty Trust (DLR 0.12%) |
$26.8 billion |
3.4% | 16.7% | 7.1% | 112% |
| S&P 500 | 1.8% | -- | 2.1% | 78% |
Data sources: Yahoo! Finance and YCharts. EPS = earnings per share. *Wall Street's consensus estimates. **Safehold and Essential Properties Realty Trust held their initial public offerings (IPOs) in June 2017 and June 2018, respectively. Returns shown are from the closing price on IPO day. Note: Over the long term, growth in EPS tends to provide a decent indication of growth in funds from operations (FFO) per share. FFO is a key metric for REITs as it drives dividend changes. Data as of Jan. 24, 2020.
Why isn't Innovative Industrial Properties (IIPR 0.37%), which buys and leases properties used for growing and processing cannabis, on this list? Two reasons: Its market cap doesn't meet the size criterion -- it's a bit shy of $1 billion. Moreover, while its stock is up a market-beating 6.5% so far this year, that's not good enough to earn it a place on this winners' list. That said, investors won't find a REIT with a better performance over the last three years or so. Since Innovative Industrial Properties' IPO in Dec. 2016, its stock has quadrupled from $20 to $80.76, as of Friday's close.
Two winners from 2019 make the list
The REITs that raced out of the gate in 2020 include two that were among the six best-performing REITs in 2019: Safehold (No. 1) and Essential Properties Trust (No. 4). Safehold is unique as it's involved in a niche space, while Essential Properties is a more traditional REIT focused on retail occupancies. The two companies share a key commonality, though: They're relatively new to the public markets, holding their IPOs in mid-2017 and mid-2018, respectively.
Safehold is the first publicly traded company that buys, owns, and capitalizes ground net leases (GNLs). Rather than owning properties -- or structures -- it owns the land underneath commercial properties. Of course, this business model would only make good sense in an area where land is extremely pricey. Indeed, the company is focused on New York City.
Essential Properties Realty Trust buys single-tenant, primarily retail properties, which it rents to restaurants, car washes, providers of automotive services and medical services, convenience stores, and other types of businesses. This company has the feel of a newer and smaller Realty Income (O 1.94%), whose stock has been a great long-term performer. Both REITs focus on single-tenant occupancies that are pretty well insulated from online competition. That is, many of their tenants provide services, rather than sell physical goods.
The other four diverse REITs
Liberty Property Trust (No. 2) likely gets its name from the city in which it was founded, Philadelphia, the "Cradle of Liberty." It owns and manages 547 office and industrial assets, comprised of about 107 million square feet, across the United States and United Kingdom. The company, which has a reputation for its development chops, has about 1,200 tenants, with the largest being XPO Logistics, Amazon, and Home Depot. The portfolio's occupancy rate is 94.6%.
Gaming and Leisure Properties' (No. 4) name also reflects its focus: gaming, as in gambling. The company was spun off from Penn National Gaming in late 2013. Its portfolio includes 44 gaming and related facilities -- two of which it also operates -- located across 16 U.S. states. The Tropicana in Atlantic City, N.J., is probably one of its best-known properties. The company intends to eventually diversify beyond the gaming space.
Healthpeak (No. 5) owns and develops healthcare real estate across the U.S. It focuses on life sciences facilities, senior housing, and medical offices.
Digital Realty Trust (No. 6) wraps up the list. It's a global company that specializes in data centers, an attractive focus given growth trends such as cloud computing and artificial intelligence (AI). Another option for investors interested in this realm is Equinix (EQIX 1.10%), which touts that its data centers are the world's most interconnected. Over the last five years, Equinix stock has returned 197%, significantly outperforming both the market and Digital Realty stock.
Are any of these REITs worth buying in 2020?
Investors should use caution when considering investing in Prologis and Healthpeak, given their long-term earnings growth projections, as listed in the chart, and Healthpeak stock's poor performance over the last five years. Though, of course, Wall Street's expectations are just estimates.
Four stocks stand out as worth considering investing in, or at least putting on your watch list: Safehold, Essential Properties Realty Trust, Digital Realty Trust, and Gaming and Leisure Properties, in no particular order. While the latter's 6% dividend yield looks enticing, keep in mind there's usually no free lunch in the stock market: There's nearly always some trade-off of stability involved to achieve a dividend yield this high.
