The best asset anyone can have when it comes to investing is time. The longer you can be in the market, the greater your chances of becoming wealthy on your investments. Those with the patience and discipline to buy and hold for a decade or more can generate incredible returns -- if they make sound investments.
If you are looking to make an investment and not worry about it for 10 years, then real estate investment trusts (REITs) are an attractive option. Historically, REITs have performed well without anywhere close to the volatility of the broader stock market. Five REITs that stand out as ideal candidates for a decade-long investment are:
- Industrial REITs Duke Realty (NYSE:DRE) and Prologis (NYSE:PLD).
- Data center specialist Equinix (NASDAQ:EQIX).
- Residential real estate owners Mid-America Apartments (NYSE:MAA) and Sun Communities (NYSE:SUI).
Here's why each is worth your consideration.
Industrial real estate is in a better place than ever before
Industrial real estate, in general, has been a very attractive business over the past decade. According to the Urban Land Institute, industrial real estate vacancy rates have dropped from 17.5% in 2009 to around 5% in 2021 nationwide. In high-demand regions like major metropolitan areas, those vacancy rates can get even lower. According to one real estate investment trust, industrial vacancy rates in Los Angeles county are below 1%.
The combination of e-commerce demand for warehouse and logistics space; supply chain inventory buildup; and some modest returns of manufacturing to the U.S. have become a major demand driver for industrial real estate that will likely continue for years to come.
Prologis and Duke Realty are great investments in this industry to buy and hold for the long term. Both Duke and Prologis have investment-grade credit ratings that lower their cost of capital and give them ample access to it, and both have large development pipelines for growth over the next several years. Prologis' development pipeline is much bigger than Duke's. In fact, its development pipeline of 181 million square feet of space is larger than Duke's entire portfolio right now. Duke's development pipeline as a percentage of total assets, though, is one of the largest in the industrial real estate industry, so there is ample growth opportunity for its shareholders.
The dominant data center play
As with industrial real estate, space in data centers is in high demand right now. Major tech developments like autonomous vehicles, artificial intelligence, and augmented realty have created multitrillion-dollar market opportunities from virtually nothing over the past few years. These types of development are only possible with enough cloud storage and cloud computing to support it, though. A Research and Markets report estimates that data center demand is expected to grow from $59 billion in 2020 to $143 billion in 2027.
Unlike an apartment building or an empty storage warehouse, building a data center is an expensive endeavor on a per-square-foot basis. So having an investment-grade credit rating and access to tons of capital is crucial to meet this demand. Few companies in this industry are better equipped to do this than Equinix. Like Prologis in the industrial arena, Equinix is the biggest fish in the data center pond by a wide margin. It has 31 major data center builds in the pipeline right now and several joint ventures to boost growth even further.
Equinix management has set a target of growing funds from operations by 7% to 10% annually until 2025. While that doesn't sound like much on paper, growth rates like that can go a long way over a decade and generate serious shareholder returns.
Sometimes investing is about hitting singles and doubles
Neither Mid-American Apartments nor Sun Communities can point to major technological shifts that will drive demand for apartments or mobile home communities. Fortunately, neither really needs those kinds of secular tailwinds, because both have been extremely good capital allocators that have generated superior returns for their investors over the long haul.
Owning and developing multifamily apartment complexes isn't a massive growth market, but it is a slowly growing one. What makes Mid-America appealing is that it is just darn good at maximizing the value of its facilities. Management estimates that the markets in which it operates expect population growth more than double the national average, and it has operations in 14 of the 20 markets with the highest expected rental growth rates over the next four years.
In a similar vein, manufactured home communities, marinas, and recreational vehicle (RV) parks isn't a high-growth industry, but Sun Communities has been able to generate incredible returns thanks to consistent rental rate growth and relatively low-cost ground-up development to grow the business. It is also an active acquirer of properties in market segments where there aren't a lot of big institutional players -- it has grown its portfolio by 4.3 times since 2010 through acquisition. It is a strategy that has led to community net opening income growth of 5% annually since 2000, more than double the average of multifamily REITs.
Not cheap, but proven track records
Even though all five of these REITs cover different segments of the real estate market, they all have two things in common: None of them are what you would call cheap stocks, and all of them have beat the S&P 500 on a total return basis over the past decade. Considering their track records for rewarding shareholders over the long haul, it isn't really surprising that all of these stocks are trading at high valuations.
The longer your time horizon, the less it matters if you are getting a great stock on the cheap. If you are looking to put some money away today and check on it a decade later, these five stocks should do an incredible job of making you richer.