Despite some recent turbulence, the stock market has been strong over the last year. Overall, it's up more than 15%. That's well above its historical average.
As hot as the market has been, some stocks have been even hotter. Three red-hot stocks are Camden Properties Trust (CPT -0.66%), Prologis (PLD 0.17%), and Public Storage (PSA -1.33%), which are all up more than 50% in the past year. Despite that surge, all three real estate investment trusts (REITs) still look like excellent buys for the long term.
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Focused on red-hot markets
Shares of residential REIT Camden Properties Trust have rocketed 53% over the past year. The primary driver is the strong demand for apartments across the Sun Belt region. The company currently owns 171 communities with 58,300 apartment homes in 15 of the fastest-growing markets, which are benefiting from strong employment and population growth trends. That's driving up occupancy and rental rates, with rents rising at double-digit rates in the past year.
Camden Properties should continue benefiting from strong rental market fundamentals in the coming years. With more jobs and people moving to the Sun Belt region, demand for rental housing should remain strong. The company is investing $603.5 million to develop five new communities with 1,773 apartment homes to capture some of that growth. It also has a large development pipeline, with the potential to invest another $1.145 billion in building nine more communities with 2,828 apartment communities.
Acquisitions are another growth driver. Camden purchased a 558-home apartment community at the end of last year for $165.5 million. The company also plans to acquire all the outstanding partnership interests in two investment funds. It's paying $1.1 billion to increase its stake in 22 multifamily communities from 31.3% to 100% in a deal that will immediately boost its income per share. With a strong balance sheet, Camden has plenty of financial flexibility to continue acquiring and developing apartment communities to take greater advantage of the demand for housing in the coming years.
Concentrating on hot properties
Prologis' stock has surged 57% over the past year. The industrial REIT is benefiting from blistering demand for warehouse space. Last quarter, the company noted that "demand for our 1 billion square foot global portfolio shows no signs of slowing."
That robust demand is driving up occupancy and rental rates. Prologis noted that new rental rates as existing contracts rolled over were up 33% last quarter. At that level, the company has more than $1.2 billion of net operating income (NOI) upside as legacy leases expire and Prologis secures current market rents. That's significant upside for a company that generated $3.4 billion of NOI last year.
Prologis sees even more rental income upside in the coming year, expecting rents to rise another 10%. In addition to that, Prologis has an enormous pipeline of development projects and an excellent acquisition track record. The company is reportedly bidding on a large-scale industrial portfolio in Europe, which could further accelerate its growth in 2022 and beyond.
Cashing in on demand for extra space
Self-storage REIT Public Storage has skyrocketed 58% in the past year. The company is benefiting from strong demand for self-storage space. On top of that, the REIT accelerated its investment spending.
Strong market conditions helped drive double-digit growth in same-store revenue last year. Meanwhile, with occupancy levels on the rise, the company reduced its marketing spending, which helped boost its same-store NOI by 15% last year.
Public Storage further boosted its financial results by spending $5.1 billion to acquire 232 self-storage facilities. The company also invested $218 million in developing six new properties. The REIT has 15 more properties under contract and a large pipeline of development and expansion projects to drive future growth. With a top-notch balance sheet, Public Storage has ample financial capacity to continue growing in the coming years.
These red-hot REITs likely won't cool off anytime soon
Camden, Prologis, and Public Storage are benefiting from strong market conditions. That enabled all three to capture significantly higher rental rates, driving up their income and stock prices. With those market conditions unlikely to cool off anytime soon, these REITs should be able to continue delivering strong growth rates in the future. Add in their ability to make value-enhancing acquisitions and development projects, and these REITs look like great buys even after their run-up over the past year.
