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3 REITs to Build Your Portfolio Around

By Liz Brumer-Smith – Nov 15, 2021 at 9:01AM

Key Points

  • Prologis is the largest industrial operator, providing excellent exposure to this red-hot industry.
  • Invitation Homes is one of the best ways to take advantage of shifting tenant preferences through single-family rentals.
  • Switch is the newest REIT to the data center industry, making it a great growth opportunity.

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See why these three REITs are solid pillars to build your investment portfolio around.

Diversifying your portfolio is one way to hedge against volatility and risk in the marketplace. But there is a lot to be said about carefully selecting a few core investments around which to build your portfolio. Real estate investment trusts (REITs) can be incredible pillars for building a portfolio because they offer exposure to high-quality real estate assets across a diverse range of sectors while also returning dividends to investors. If you're looking to start or expand your real estate portfolio, here are three REITs you can build your portfolio around.

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Image source: Getty Images.

Prologis

Prologis (PLD -0.89%) is the largest publicly traded industrial REIT in this space today. The company specializes in the leasing of logistics and warehouse buildings across the globe and has interest or ownership in 4,675 buildings, equating to 994 million square feet under management across nine countries.

2021 has been a stellar year for industrial real estate, and the growth of e-commerce over the past decade has slowly created more and more demand for this real estate class. Today, though, supply chain woes are driving even more demand to this undersupplied asset class.

Prologis's occupancy was 96.6% in Q3 2021, and its rental growth was 27.9% for the quarter, a staggering year-over-year increase. Prologis estimates that around 2.5% of global GDP relies on or flows through its buildings, and the company is still expanding.

Given the company's size, the quality of its assets, investment strategy, and strong balance sheet, Prologis is one of the best ways to gain exposure to this red-hot industry.

Invitation Homes

Invitation Homes (INVH 0.21%) is the largest single-family rental REIT in the business, with over 81,000 homes under management across the United States. The company, which was founded from opportunistic market conditions after the Great Recession, continues to acquire single-family residences in addition to developing built-for-rent homes to grow its portfolio.

Invitation Homes has done incredibly well despite pandemic concerns. The company's latest earnings showed an 11% year-over-year increase in revenues, a 27% increase in funds from operations (FFO), and a nearly 12% increase in same-store net operating income (NOI). Occupancy is at record highs, and collection rates have remained strong.

But it's not just its current performance that makes this a great REIT to build a portfolio around. Single-family home rental properties have become a preferred rental unit for many Americans as people look for more space and seclusion in the wake of the pandemic. The majority of Invitation Homes' portfolio is in the Sun Belt region of the United States, an area experiencing explosive growth and record-high demand.

Switch

Switch (SWCH) is the newest REIT among data center operators, making it a great growth opportunity in a narrow but growing industry. Data centers are key to keeping our digital world connected and are becoming the backbone of our global infrastructure.

Switch owns, operates, and leases 16 data centers across six campuses, ultimately providing 16 million square feet to more than 1,300 customers. In comparison to its major competitors, Switch is still rather small, which means investors have the opportunity for growth in a high-demand sector.

Switch has targeted five core markets it operates in strategically located throughout the major regions of the United States. The company is actively focused on expanding its footprint within each area, with three properties in active development and five planned for completion between 2024 and 2026. In total, these developments will add 3.21 million square feet to its portfolio.

Why these three REITs are great portfolio builders

When it comes to choosing pillars for your portfolio, you want to take into account the role each type of real estate plays not only in today's economy but also in the future. Long-term demand is a huge driver to growth potential, so it's important to consider the supply and demand the industry is experiencing today and if the demand will be sustained. These three REITs operate in incredibly high-demand sectors of real estate today but are also backed by long-term trends, indicating demand should continue.

Liz Brumer-Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Invitation Homes Inc., Prologis, and Switch. The Motley Fool has a disclosure policy.

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