Real estate investment trusts (REITs) offer investors unique diversification into real estate while paying attractive dividends, making them an appealing investment option for both growth and dividend income. While some real estate industries are still in rocky territory as the coronavirus, labor shortages, supply chain challenges, and inflation continue to impact demand and performance, several REITs are doing exceptionally well.
Invitation Homes (INVH -1.26%), Extra Space Storage (EXR -1.90%), and Camden Property Trust (CPT -1.62%) are all benefiting from high demand today but are also well-positioned for growth, despite economic concerns moving forward. That's exactly why I'd buy these three REITs right now, without any hesitation.
Invitation Homes is the largest single-family rental-property REIT, with ownership or interest in over 80,000 rental properties across 11 states. While it's still a relatively new REIT, having gone public in 2017, it's done extremely well growing its portfolio, revenue, and funds from operations during that time.
Single-family rental demand has soared since the start of the pandemic as people look for more space and more affordable housing outside of major metro markets. This shift in demand alone has given Invitation Homes a huge boost over the past few years, but the company also benefits from where its properties are located.
Roughly 95% of Invitation Homes' revenue is derived from the Sun Belt -- states in the warmer southern region of the United States, which are experiencing a major influx of residents. As of the third quarter of 2021, rental growth on a blended average was 10.6%, while occupancy sat at a record 98%, showing the fervent demand for single-family rentals in the Sun Belt's various markets.
The company has also entered into several strategic partnerships to help it grow, including partnering with homebuilder PulteGroup and, most recently, launching a lease-option program that will provide tenants the opportunity to buy the rental home if desired after leasing. Given that rental demand isn't wavering as real estate prices continue to soar, INVH is in a strong position for continued growth without major interruptions from supply chain issues, rising interest rates, or inflationary impacts.
Extra Space Storage
Self-storage has consistently remained one of the top-performing subsectors for REITs, as tracked by the National Association of Real Estate Investment Trusts (NAREIT). Most people who want to expand their portfolio into this high-growth, high-performing industry look to Public Storage, the largest self-storage REIT and one of the largest REITs by market cap. But bigger isn't always better.
Extra Space Storage has been a publicly traded REIT since 2004 and today has ownership, interest, or management in more than 2,500 properties across the United States. Over the past 10 years, Extra Space Storage has outperformed its peers, including Public Storage and the S&P 500, with a total return of 923%, a 630% increase in share price, and 377% growth in funds from operations (FFO).
Not only does it benefit from operating its own self-storage facilities, but it also has the ability to grow revenue through its third-party management solutions, which as of last year's third quarter included 827 facilities. Like rental real estate, storage demand increased during the pandemic as people relocated or downsized their spaces. Net rental growth in Q3 was up 16.2% from the same period the year before, more than double its next-highest annual year over year rent growth. Self-storage's low overhead and strong growth prospects mean Extra Space Storage should benefit from continued growth as living situations remain in flux while the pandemic lingers.
Camden Property Trust
Camden Property Trust is one of the premier residential REITs, having interest and ownership in 171 apartments with a total of 58,300 rental units, primarily in the Sun Belt. The company serves largely middle- to higher-income earners through newly developed Class A and updated, modern Class B apartments in both the suburbs and urban metros. Many apartment operators are battling decreased demand after tenants fled big cities in search of more affordable housing.
Camden, however, remained somewhat immune to this because of its asset locations. The company owns apartments in some of the fastest-growing housing markets in the entire nation -- like Tampa, Phoenix, Austin, and Charlotte -- and thanks to its Sun-Belt-centric portfolio exposure, blended rent growth in Q4 2021 was 15.5%. Earnings per share (EPS), FFO, revenues, and net operating income all rose in 2021, and occupancy sits at 97%.
Like Invitation Homes, Camden benefits from healthy rental demand and the ability to hedge inflation by raising rents. With its five communities in development, it should have another healthy few years ahead.
As with any investment, these REITs do carry risks and aren't immune to negative economic impacts. However, given their investment strategies, well-positioned portfolios, strong management, and healthy balance sheets, these three REITs are worthwhile buys even in today's volatile economy.