Real estate investing used to be the domain of the rich. They were the only ones with the capital and access to invest in income-producing commercial real estate. And thus did the rich get richer by investing in this wealth-creating real estate.
However, that changed in 1960, when Congress created real estate investment trusts (REITs). These entities allowed anyone to enjoy the benefits of investing in commercial real estate.
There are lots of great REITs with long histories of growing wealth for their shareholders. Three REITs that should be able to continue enriching their investors in the decade ahead are Stag Industrial (STAG), Medical Properties Trust (MPW -1.00%), and Mid-America Apartment Communities (MAA -0.37%).
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A long growth runway ahead
Over the past 10 years, Stag Industrial has delivered more than a 415% total return (17.8% annualized), outpacing the S&P 500's 14.6% total annualized return during that period. The REIT has steadily grown by acquiring a diversified portfolio of industrial real estate. Since its IPO more than 10 years ago, it has purchased about 450 properties, expanding its portfolio to 544 buildings.
The industrial REIT has a long growth runway still ahead. The U.S. industrial real estate market currently stands at around $1 trillion. With a mere 0.6% share of that market, Stag Industrial has an enormous opportunity to continue acquiring income-producing industrial real estate.
Stag Industrial has acquired an average of $785 million of properties annually over the past seven years. Thanks to its strong financial profile, it expects to ramp up its acquisition volume to between $1 billion and $1.2 billion this year. Combined with rising rental rates, those new additions should enable STAG Industrial to continue growing shareholder value in the coming years.
A healthy opportunity set
Medical Properties Trust has generated more than a 340% total return (16% annualized) over the past decade. Like STAG Industrial, the healthcare REIT has steadily grown by acquiring income-producing properties.
The company specializes in purchasing hospitals. It has delivered transformational growth since 2019, purchasing $12.1 billion of hospital properties, creating $5.4 billion of shareholder value in the process. It's currently the second-largest non-government owner of hospitals globally, with more than $20 billion in assets.
The REIT has an enormous opportunity set. It estimates that there's $500 billion to $750 billion of operator-owned hospital real estate in the U.S. and an equally large international market. In addition to hospitals, Medical Properties Trust entered the behavioral healthcare market last year. It estimates that the U.S. market opportunity is $260 billion. On top of that, it sees significant international potential to acquire behavioral healthcare properties. With a solid balance sheet, Medical Properties Trust has the financial flexibility to continue expanding its hospital portfolio and growing value for shareholders.
Focused on where people are moving
Mid-America Apartment Communities has delivered more than a 350% total return over the past 10 years (16.2% annualized). The residential REIT has benefited from steady population growth in the Sun Belt region, where it focuses on owning apartments. That location focus has enabled it to benefit from rising rent rates. It has also provided opportunities to expand its portfolio by building new apartment communities.
Demand for apartments should continue to grow in the coming years as more people and businesses migrate to the Sun Belt region because of its weather and lower tax rates. The REIT currently has over $700 million of active development projects or recently completed communities in the lease-up phase that should drive growth in the near term. Meanwhile, it has a large and growing development pipeline, which it sees reaching up to $1.2 billion by the second half of this year.
Mid-America is also investing capital into renovating and repositioning older apartment communities. That's enabling it to capture even higher rental rates. In addition, the REIT has the financial flexibility to continue buying new communities and funding third-party development projects, further enhancing its growth prospects. These growth drivers should enable Mid-America Apartment Communities to continue growing value for its shareholders in the coming years.
Another decade of greatness awaits
Stag Industrial, Medical Properties Trust, and Mid-America Apartment Communities have enriched their investors over the past decade, primarily by acquiring income-producing commercial real estate. All three have a long runway to continue growing, given their opportunity sets. They look like great REITs to buy and hold for the next decade.
