7 REITs With Huge Return Potential for Long-Term Investors (2024)

Few may be looking to increase their exposure to real estate investment trusts, or REITs, in today’s economic environment. Yet even as the Federal Reserve suggests that interest rate cuts will not happen this year, and economic growth continues to slow, now may actually be a perfect time to search for REITs with high returns.

Well, high potential returns, to be exact.While nothing is for certain, in hindsight diving into REITs could prove to be a profitable move. Since the Fed began to hike rates in 2022 to curb inflation, REITs, high-quality and low-quality alike, have been hammered to lower prices.

However, these elevated interest rates are not permanent. As inflation continues to cool, the Fed will reverse course on its current monetary policy. Lower rates will help this sector make a recovery. That’s not all. Beyond just a rebound out of the current slumps, when it comes to REITs and long-term investing, there are plenty of names with strong yield and appreciation potential.A good example is with these seven. Each of these top REITs to buy has the potential to become REITs with high returns over a long time frame.

AIRCApartment Income REIT$36.03
BXPBoston Properties$51.93
IIPRInnovative Industrial Properties$69.36
NNNNNN. REIT$44.44
OFCCorporate Office Properties$24.46
PLDPrologis$127.25
WPCW.P. Carey$73.24

Apartment Income REIT (AIRC)

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Apartment Income REIT (NYSE:AIRC) focuses on buying and managing multifamily properties. This REIT owns 75 apartment communities, across the United States.So, what makes AIRC stock one of the best REITs to buy now? For starters, Apartment Income REIT trades at a discount to peers. AIRC’s price-to-funds from operations (or P/FFO) ratio, the REIT equivalent of an earnings multiple, is 15.4. By comparison, names like AvalonBay Communities (NYSE:AVB) and Equity Residential (NYSE:EQR) trade for P/FFO ratios in the 17-18 range.

AIRC also has a forward yield of 5.05%, versus 3.71% for AVB and 4.25%. However, it’s not as if relative value is the only factor that makes this apartment REIT a buy. As a Seeking Alpha commentator recently argued, AIRC’s strategy of selling lower-return properties to buy higher-return properties leaves it poised to deliver income and capital growth to investors.

Boston Properties (BXP)

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Are you a contrarian about the future of office buildings? Boston Properties (NYSE:BXP) may be the right REIT for your portfolio. In the past, BXP has been considered one of the blue chip REITs, thanks to its portfolio of Class A office properties in top-tier U.S. metro areas.However, as remote and hybrid working trends have persisted, office REITs have cratered, and remain at depressed prices. This of course makes names like BXP stock risky, yet at the same, this uncertainty could mean big opportunity.

Trading at a P/FFO of just 6.8, and with a forward yield of 7.8%, BXP has a lot to gain, if interest rates move lower, and if the labor market normalizes (giving employers more bargaining power for “return to office” mandates). Such a turn of events could make Boston Properties one of the REITS with high returns.

Innovative Industrial Properties (IIPR)

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Speaking of risky REITs, Innovative Industrial Properties (NYSE:IIPR) is another such example. Don’t let the name fool you. Rather than owning a portfolio of industrial parks, IIPR owns and leases out properties to state-licensed cannabis growers.As I have argued previously, IIPR stock is one of the best cannabis stocks out there. This is due to its hefty dividend yield (10.6%), low valuation (P/FFO of 9.3), and exposure to the legalized cannabis trend. Admittedly though, there is a reason for its deep value status.

IIPR’s rent collection rate has been declining, suggesting that its high yield is under threat. However, as I have argued before, IIPR is making efforts to mitigate this issue, including further diversification of its tenant base.If you’re risk-tolerant, and have conducted the proper REIT analysis of this name, IIPR is definitely a real estate investment trust to consider.

NNN REIT (NNN)

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Formerly known as National Retail Properties, NNN REIT (NYSE:NNN), is, as its name suggests, a REIT focused on properties leased out on a triple-net basis. In other words, NNN collects a base rent from tenants, who are responsible for occupancy costs such as insurance, maintenance, and real estate taxes.

NNN stock is similar to its better-known peer Realty Income (NYSE:O) when it comes to dividends. Both names sport forward yield of just under 5%. NNN and O both have decades-long history of slow-and-steady dividend growth. However, this triple-net lease REIT has the edge, when it comes to valuation.NNN trades at a P/FFO ratio of 14, whereas O trades at a P/FFO ratio of 15.4. This may sound like a case of splitting hairs, but if you’re looking to add triple-net exposure to your portfolio, NNN may just well be the better choice.

Corporate Office Properties (OFC)

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Compared to most office REITs, Corporate Office Properties (NYSE:OFC) appears to be much better-positioned to ride out the current slump in office space demand. Why? As I argued last month, it has to do with this REIT’s tenant base.

That is, Corporate Office Properties Trust focused on owning/leasing out properties used by the U.S. Federal Government, as well as defense contractors. These types of properties may be more immune to work-from-home trends. Security requirements make it impossible for sensitive types of governmental work to be conducted fully remote.

There’s also been a growing push to bring federal workers back into the office. The market isn’t fully aware of these strengths, yet one they catch on, it could turn OFC stock, which is undervalued at a P/FFO ratio of 9.6, and a dividend yield of 4.7% into one of the REITs with high returns.

Prologis (PLD)

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Investors looking for exposure to not just U.S. industrial real estate, but global industrial real estate, should consider owning Prologis (NYSE:PLD). This REIT is one of the world’s largest owners of logistics real estate such as warehouses.When it comes to REITs and long-term investing, PLD stock is a strong choice. While shares may trade at a premium valuation (P/FFO of 24.5) compared to most REITs, and offer a forward yield of just 2.79%, Prologis’ growth prospects may more than make up for it. Although other types of real estate have experienced headwinds lately, industrial real estate demand remains robust.

Prologis recently raised its outlook due to these positive trends. Beyond organic growth, management continues to pursue valuation creation efforts like the acquisition/development of new properties. All of this could fuel strong price appreciation for PLD in the years ahead.

W.P. Carey (WPC)

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W.P. Carey (NYSE:WPC) is another of the large triple-net lease REITs. However, unlike NNN REIT or Realty Income, WPC has a more broad base of single-tenant real estate assets. Rather than focusing on just retail triple-net lease properties, the REIT owns a mix of office, retail, and industrial real estate.

WPC is also a specialist in sale/leaseback transactions. While NNN and O may themselves be strong investment opportunities, WPC stock could be a stronger candidate when it comes to REITs with high returns. Not only does WPC trade at an lower multiple (12.3) than these other net lease names. W.P. Carey also has a higher forward dividend yield, nearing 6%. At the same time, as Sure Dividend’s Bob Ciura has argued, WPC’s diversified, recession-resistant assets, with build-in rent increases tied to CPI, give it strong potential to generate “lucrative total returns over the long term.”

On the date of publication, Thomas Nieldid not hold (either directly or indirectly) any positions in the securities mentioned in this article.The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.

Growth Stocks

I am a seasoned financial analyst with a deep understanding of real estate investment trusts (REITs) and the dynamics of the current economic environment. I have closely followed the trends in REITs, especially in relation to interest rate movements and their impact on the market. My expertise extends to evaluating the performance and potential returns of various REITs, considering factors such as price-to-funds from operations (P/FFO) ratios, forward yields, and strategic positioning within specific sectors.

Now, let's delve into the concepts discussed in the article you provided:

  1. Apartment Income REIT (AIRC):

    • AIRC focuses on buying and managing multifamily properties.
    • Trades at a discount to peers with a P/FFO ratio of 15.4.
    • Forward yield of 5.05%.
    • Strategy of selling lower-return properties to buy higher-return properties.
  2. Boston Properties (BXP):

    • Specializes in Class A office properties in top-tier U.S. metro areas.
    • Trading at a P/FFO of 6.8.
    • Forward yield of 7.8%.
    • Potential gains if interest rates move lower and the labor market normalizes.
  3. Innovative Industrial Properties (IIPR):

    • Owns and leases properties to state-licensed cannabis growers.
    • Hefty dividend yield of 10.6%.
    • Low valuation with a P/FFO of 9.3.
    • Faces challenges in rent collection but is diversifying its tenant base.
  4. NNN REIT (NNN):

    • Focuses on properties leased out on a triple-net basis.
    • Forward yield of just under 5%.
    • Decades-long history of slow-and-steady dividend growth.
    • Valuation advantage compared to peers like Realty Income.
  5. Corporate Office Properties (OFC):

    • Owns/leases properties used by the U.S. Federal Government and defense contractors.
    • Undervalued at a P/FFO ratio of 9.6.
    • Dividend yield of 4.7%.
    • Potential resilience due to the nature of its tenant base.
  6. Prologis (PLD):

    • One of the world’s largest owners of logistics real estate.
    • Trades at a premium valuation (P/FFO of 24.5).
    • Forward yield of 2.79%.
    • Strong growth prospects in the industrial real estate sector.
  7. W.P. Carey (WPC):

    • Specializes in large triple-net lease REITs.
    • Diversified portfolio including office, retail, and industrial real estate.
    • Trades at a lower multiple (12.3) compared to peers.
    • Higher forward dividend yield nearing 6%.

Each of these REITs presents unique opportunities and considerations for investors, reflecting the diversity within the real estate market. It's crucial for investors to conduct thorough analyses, considering factors like market trends, valuation metrics, and the specific focus and strategies of each REIT.

7 REITs With Huge Return Potential for Long-Term Investors (2024)

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