Real estate investment trusts (REITs) are having a rough start for the year. Like much of the stock market, REITs are experiencing volatility due to concerns with rising inflation, potential bubbles, and now the Ukraine-Russia conflict. Even the highest quality and most reliable dividend-paying REITs with years of strong track records are seeing share prices down as much as 30% or more.
Despite turbulence in the marketplace, there are still incredible buys for long-term investors. Invitation Homes (INVH 1.00%) and American Tower (AMT -0.59%) are two stand-out REITs that should continue to do well regardless of today's market unpredictability. Here's a closer look at why these two REITs are perfect to buy and hold forever.
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American Tower
American Tower is one of the largest REITs by market capitalization and the premier communications operator across the globe. At the start of 2022, American Tower had interest or ownership in 43,000 properties in the United States and Canada as well as 175,000 properties internationally. These properties, which include raw land and cell communications towers are leased to institutional-grade tenants on long-term leases, which is how the company makes money.
Considering the size of the company and its current market share for communications property, concerns over future growth opportunities have caused its share price growth to fall flat over the past few years. Most recently, the downgrade from JP Morgan, labeling American Tower as "underweight" is part of the story why share prices to fall 22% year to date.
But investor uncertainty is falling at a time when the company is still reporting strong earnings, including a 16.4% year-over-year (YOY) growth in revenue, 51.8% increase in net operating income (NOI), and 15.4% YOY jump in consolidated funds from operations (FFO), an important valuation metric for REITs. Expansion internationally, including Europe and India among several others, is helping boost revenue growth with additional prospects on the horizon, including the continued adoption of 5G technology and the acquisition of CoreSite, a data center REIT.
Considering the need for communications towers and data storage isn't subsiding anytime soon, I think American Tower offers investors a super-reliable and safe dividend return in a company backed by a long-term demand. Plus, with today's discounted share price, it can be purchased at a much more attractive valuation of 22 times its FFO.
Image source: Getty Images.
Invitation Homes
Invitation Homes is the leading single-family rental home REIT. The company, unlike American Tower, doesn't have an extensive track record to stand on given its only five years young. But what it lacks in age is more than made up for in its growth and performance. Over the past five years, FFO has risen 187% while revenues have increased 113% , and the company has gone from owning 34,670 properties in 2017 to now owning or having an interest in over 80,000 homes today.
New demand for single-family rental properties in the Sun Belt of the United States, where the majority of the Invitation Home's properties are located, has helped boost the company's operations over the past few years. Rental growth quarter over quarter is in the double digits, while occupancy sits at 98.2%. The company also has several strategic growth opportunities in joint venture partnerships. One such partnership is with homebuilder PulteGroup as part of its latest lease-purchase program, which targets prospective homebuyers who may not be ready to buy yet.
Share prices are down around 16% year to date at no fault of the company. It had a strong year and its debt ratios improved YOY, meaning the company is in a better financial position. Share prices are trading around 25 times its FFO, which isn't quite as big of a steal as American Tower but definitely a discount from its recent prices.
No company is completely immune to market volatility. It's likely both of these companies could see share prices continue to tumble in the coming months or years. But each company is backed by demand in stable, essential sectors that should be able to stand the test of time. Taking a long-term approach to investing in these REITs, planning to buy and hold forever, could very well pay off handsomely.
