The Top Real Estate Stocks of 2019

By: , Contributor

Published on: Dec 31, 2019 | Updated on: Dec 31, 2019

Some REITs outperformed the market by a wide margin.

2019 was a strong year for real estate investment trusts, or REITs. The real estate sector delivered a 28% total return for the year, thanks to the REIT-friendly falling interest rate environment and generally strong economy. However, it's important to realize that the S&P 500 delivered a 32% total return for 2019, so even though real estate had a good year, it underperformed the broader stock market.

While the average REIT underperformed the S&P by 4 percentage points, the returns of individual REITs varied dramatically. Many delivered a market-beating performance in 2019, and some did it by a wide margin.

With that in mind, here's a look at the 10 best-performing REITs of 2019 and some common themes that drove this group higher.

The top 10 real estate stocks of 2019

I won't keep you in suspense. Here's a look at the 10 REITs that generated the best total returns for investors in 2019, the type of properties they invest in, and their total returns for the year:

REIT (Symbol) Property Type 2019 Total Return
Safehold (NYSE: SAFE) Ground Leases 115.0%
Universal Health Realty (NYSE: UHT) Healthcare 95.9%
Hannon Armstrong Sustainable Infrastructure Capital (NYSE: HASI) Infrastructure 74.3%
Equinix (NYSE: EQIX) Data Centers 67.9%
Independence Realty Trust (NYSE: IRT) Apartments 61.1%
Rexford Industrial (NYSE: REXR) Industrial 60.0%
Terreno Realty (NYSE: TRNO) Industrial 59.8%
Easterly Government Properties (NYSE: DEA) Government Properties 59.2%
Outfront Media (NYSE: OUT) Billboards 57.2%
Prologis (NYSE: PLD) Industrial 56.6%

Data source: TD Ameritrade. Total returns include stock price gains and dividends paid.

Key takeaways

There are a few common themes on the list. For one thing, several of the best performers are leaders in niche markets, including ground-lease REIT Safehold, which more than doubled investors' money. If you aren't familiar, a ground lease is a situation where a tenant owns the physical building but leases the land it's built on. Easterly Government Properties (government buildings) and Outfront Media (billboards) are also examples of niche REITs that have done very well in their respective fields.

You'll also notice some categories with major demographic or economic tailwinds. The surge in connected devices and cloud computing has caused the need for data centers to spike, and sector leader Equinix has been a big beneficiary. Rising wages and low unemployment have been a positive catalyst for apartment properties, especially in high-growth markets in the Southeast and Midwest like those Independence Realty Trust operates in.

And last but not least, the surge in e-commerce has created a growing need for warehouses, distribution centers, and other industrial properties, which is why there are three industrial REITs among the top 10.

Finally, it's also important to notice what types of REITs are not on the list. You won't find any retail REITs here, which shouldn't be a big surprise given the continued turmoil facing the brick-and-mortar retail industry in 2019.

You also won't find any hotel REITs on the list. Now, some hotel REITs did well, but recession fears (hotels are a very cyclical business) prevented any from having a wildly successful year. Office REITs are also notably absent. The office real estate market is also facing challenges right now -- specifically in regard to the vast amount of inventory that has been absorbed by the co-working industry.

What will 2020 hold?

Nobody has a crystal ball that can tell us what the stock market or real estate sector will do, and the performance of individual REIT subsectors is highly dependent on certain variables that we have no way to accurately predict. For example, if the economy strengthens more than expected, it could be a major catalyst for cyclical REITs, such as hotels. Conversely, if a recession hits, we could see a lot of defensive property types (offices, self-storage, etc.) on next year's top 10 list.

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Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Equinix. The Motley Fool has a disclosure policy.