The most recent data from the U.S. Bureau of Labor Statistics indicated that the consumer price index rose 7.5% year over year in January 2022. This was the highest reading since February 1982.
And with analysts expecting a 7.9% year-over-year increase in the inflation index when the data for February is released on March 10, high inflation won't be going away anytime soon. This makes it more important than ever for investors to select inflation-resistant stocks for their portfolio.
Retail real estate investment trust (REIT) STORE Capital (STOR) and hospital REIT Medical Properties Trust (MPW -0.33%) are two stocks that will continue to grow despite elevated inflation readings.
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1. STORE Capital
STORE Capital purchases single-tenant properties from businesses and then leases those properties back to the business. This is called a sale-leaseback transaction. Selling real estate can provide the capital necessary for a business to expand its operations or repay debt, which explains how STORE Capital has grown its portfolio to nearly 2,900 properties.
The benefit to STORE Capital from this triple net lease business model is that its tenants are contractually obligated to pay all of the costs associated with the property that they are leasing. These expenses include maintenance, insurance, taxes, and utilities. STORE Capital also receives a monthly base rent check from its tenants.
Thanks to STORE Capital's $10.7 billion real estate portfolio, the company is well diversified in a variety of ways. STORE Capital's properties are located in 49 U.S. states, with the top 10 states comprising 55.6% of its annualized base rent (ABR).
STORE Capital is also spread out across various types of industries. The service industry (i.e., full-service restaurants and early childhood education centers) accounted for 64.8% of ABR last year, retail made up 15.2% of ABR, and manufacturing contributed to the remaining 20% of ABR. Finally, STORE Capital's top 10 customers were just 18.4% of ABR last year.
STORE Capital's appeal doesn't end at its diversification. The company's weighted average lease term is 13.4 years, which ensures enhanced revenue visibility. And best of all, 85% of STORE Capital's lease escalations (e.g., rent increases) in ABR is tied to CPI, with another 14% having fixed increases. This has played a large part in STORE Capital's 5.5% annual adjusted funds from operations (AFFO) per share growth since its initial public offering in 2014.
Investors can pick up STORE Capital's market-smashing 5.2% dividend yield at a reasonable price for its growth potential. The stock trades at a price-to-AFFO per share ratio of just 13.4, which is what makes it one of the best REITs to buy right now.
2. Medical Properties Trust
Medical Properties Trust owns 438 health facilities with approximately 46,000 licensed beds in the U.S. and eight other countries around the world. The company's reputation and $22.3 billion real estate portfolio makes it the leading source of capital for hospitals. But why have hospitals and other healthcare facilities throughout the world turned to Medical Properties Trust?
The company pays hospital operators up to 100% of their property's real estate value. The proceeds from a sale-leaseback can be used by hospital operators to build additional facilities in new locations, invest in new technology and equipment, and recruit new physicians and staff.
In exchange for capital, Medical Properties Trust's tenants sign contracts with initial 10- to 20-year lease terms in which they pay all costs of the property and a monthly base-rent check to the company. These lengthy lease terms provide Medical Properties Trust with a steady stream of growing revenue.
Medical Properties Trust is able to grow its revenue and AFFO per share from lease escalations. In fact, 99% of the company's leases come with inflation-based or fixed annual rent increases. Along with acquisitions, this explains how Medical Properties Trust has been able to record double-digit annual AFFO per share growth through the first two years of the COVID-19 pandemic.
Investors can scoop up Medical Properties Trust's market-crushing 5.7% dividend yield at a price-to-AFFO per share of 15, which makes the stock a compelling buy for income investors.
