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3 Best REITs to Buy in January

By Matthew DiLallo – Jan 6, 2022 at 2:32AM

Key Points

  • Cousins Properties owns some of the best office buildings in the hottest markets.
  • EPR Properties is benefitting from a recovery in experiences.
  • Host Hotels & Resorts has a stronger portfolio to benefit from the rebound in travel.

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These real estate investment trusts look like great buys to start the new year.

Last year was a banner year for real estate investment trusts (REITs). The average REIT returned more than 35%, which crushed the S&P 500's 28% gain. 

Despite that big year, several REITs still look attractive heading into 2022 as investments because they still haven't fully recovered from the pandemic. Three REITs that stand out as the best to buy this January are Cousins Properties (CUZ 4.11%)EPR Properties (EPR 2.50%), and Host Hotels & Resorts (HST 1.35%).

People looking up at office buildings.

Image source: Getty Images.

1. Cousins Properties: Benefiting from the office shift

Cousins Properties is coming off a solid year in 2021. The office REIT delivered a 23% total return despite the ongoing pandemic's impact on the office sector. However, even with that rally, shares of Cousins Properties are still down about 1% since the start of 2020. 

That decline comes even though Cousins' office buildings are in high demand. While companies are using less office space these days, they're prioritizing high-quality space in markets where their employees want to live. That has played right into Cousins' hands, since it owns some of the best office buildings in the top Sun Belt markets.

Those markets are benefiting from significant migration trends as companies relocate and expand in those cities. For example, e-commerce giant Amazon recently leased more space in two of Cousins' latest developments to create even more jobs in two major Sun Belt markets.

Cousins Properties noted in the third quarter that demand for new, efficient, and highly amenitized office space in its markets is accelerating as more companies expand in the Sun Belt. That helped drive rental rates on second-generation leases on existing space 23.1% higher during the third quarter. As more companies firm up their return to the office plans this year, it should drive continued demand for space in Cousins' high-quality office buildings.

2. EPR Properties: Getting back to enjoying experiences

EPR Properties was hit hard by the pandemic. The REIT, which focuses on experiential properties like movie theaters and other attractions, struggled to collect rent as governments shut down and there was limited capacity at those venues in 2020. However, the wide availability of vaccines enabled people to enjoy those experiences again last year. That allowed its tenants to pay their rent, driving a 50% surge in EPR's stock price.

Despite that recovery, shares of the specialty REIT are still down about 30% since the start of the pandemic. Because of that, it has plenty of room to run as demand for experiences continues to recover.

This year looks to be a banner one for the REIT. Several potential blockbuster movies on the docket should help theaters fully come back to life. Meanwhile, EPR has strengthened its balance sheet over the past year, giving it the financial flexibility to expand its portfolio.

Those factors should help drive up its rental income, which should boost the REIT's share price. Add in its 6.21%-yielding monthly dividend, and EPR could produce strong total returns in 2022.

3. Host Hotels & Resorts: Repositioning for the recovery

Host Hotels & Resorts has also endured a tough stretch during the pandemic. The hospitality REIT was burning through cash as occupancy at its hotels plunged, forcing it to suspend its dividend.  

However, market conditions have slowly improved over the past year. Occupancy and revenue per available room (RevPAR) have steadily increased over several quarters, enabling the REIT to start making money again. That helped drive a nearly 19% rally in its stock last year, though shares are still about 4% below their pre-pandemic level.

Meanwhile, Host Hotels & Resorts has taken advantage of the downturn to enhance its hotel portfolio. It purchased six hotels in attractive markets for $1.3 billion last year. It helped pay for those acquisitions by selling six hotels for $750 million. The company believes these new hotels will generate better returns as the market recovers than those it sold.

Those new additions put Host Hotels & Resorts in an even better position to cash in on the continued recovery in hotel demand in 2022. That should enable the REIT to eventually reinstate its dividend. Those catalysts make it look like a great buy this January.

Great ways to play the ongoing real estate recovery

The pandemic has significantly impacted the real estate sector, weighing heavily on office, entertainment, and hospitality properties. Because of that, shares of Cousins Properties, EPR Properties, and Host Hotels & Resorts are still down since the start of 2020. However, with their businesses improving in recent quarters, they stand out as some of the best REITs to buy this January, as the continued recovery from the pandemic should help boost their fortunes in 2022.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Matthew DiLallo owns Amazon, Cousins Properties, EPR Properties, and Host Hotels & Resorts. The Motley Fool owns and recommends Amazon. The Motley Fool recommends EPR Properties and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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