Investing

The Only 3 REITs You Need to Own In Your Lifetime

Chris MacDonald

Published: December 10, 2024 10:15 am

Investing in real estate investment trusts (REITs) is an excellent option for long-term investors looking to create meaningful passive income streams in retirement. These funds are typically invested in broadly diversified portfolios of real estate, typically focused on one specific sector (residential, office, commercial, industrial, etc.) and also typically pay out around 90% (or more) of their earnings to investors via dividends. Thus, as far as yield-producing investments are concerned, REITs are about the closest thing in the stock market to other fixed income securities. For dividend investors, that makes these investment vehicles top options to consider.

That said, REITs can vary widely in terms of quality and on a number of fundamental metrics. For one, these funds are often focused on one particular area of the real estate market. So, as mentioned, investors may gain exposure to real estate in one part of the market (office, for example) they may not like, while also holding exposure to other real estate sectors (like industrial real estate) that may be more attractive. Picking and choosing between funds based on asset class is an important factor when considering these equities.

Additionally, the cash flow durability of many of these properties (which can be measured a number of ways, but includes lease length and tenant quality) can vary widely. Knowing who’s leasing these properties is about as important as any other factor, and can contribute to the premium (or discount) the market assigns to these REITs in comparison to each other.

In my view, the following three REITs are among the best-in-class options for investors to consider right now. These REITs do vary in the yields they provide and the real estate exposure investors receive, so individual preferences may dictate which best suits your portfolio.

Key Points About This Article:

• Real Estate Investment Trusts (REITs) are top investing vehicles for passive and active investors looking to add more yield to their portfolios.
• These funds vary significantly in terms of their asset portfolios and yields, but are excellent options for investors with different investing goals.
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Realty Income (O)

Realty Income Corporation (NYSE:O) is a retail-focused REIT many investors consider not only for the quality of its portfolio of assets, but also the fund’s monthly distributions. Realty Income boasts a decades-long track record of paying out monthly dividends to investors, and has raised its distributions very consistently over time as the company’s net income grows. 

Given the particular asset class Realty Income operates in, investors benefit from long-term leases and rather consistent cash flows. And as the company diversifies its portfolio by recently expanding into eight new countries (mainly in Europe), there’s additional geographic diversification investors benefit from when investing in this particular REIT.

Fundamentally, Realty Income continues to show strong revenue and earnings growth, with the company’s Q3 2024 earnings report highlighted revenue growth of 27% year-over-year, exceeding forecasts by $10 million. Perhaps more notably, the company raised 2024 investment guidance to $3.5 billion with Realty Income’s AFFO now projected to come in at a range of $4.17-$4.21 per share, a 4.8% increase.

Grocery and convenience stores make up approximately 20% of Realty Income’s leases, though the company’s focus has been expanding into gaming and industrial clients as well. Overall, this is a well-diversified retail real estate option, so for investors looking for a consistent 5.6% dividend yield (paid monthly), this is a top option to consider.

SL Green Realty (SLG)

SL Green Realty (NYSE:SLG) is a leading commercial real estate investment trust, focused on owning primarily Manhattan real estate. Investors looking for a quality company with high-quality assets (the trust recently acquired the iconic 500 Park Avenue building for ($130 million) may certainly consider this REIT for more than just its 4% dividend yield. 

Now, office real estate in general has been hit hard due to a range of factors over this past cycle. The pandemic provided a massive shift in how office space has been utilized, though Manhattan real estate is seeing a resurgence of occupancy other regions of the country aren’t. And factoring in the quality of this particular REIT’s real estate portfolio, which encompasses roughly 3 million square feet of some of the best real estate in all of New York, there’s a reason why this particular office-focused REIT has performed better than others.

Notably, SLG stock recently hit a 52-week high at $80.4 in November 6, amounting to a surge of nearly 150% on a year-to-date basis. This is a stock that’s certainly moving in the right direction, as strong leasing activity and strategic growth continue to fuel investor confidence and analyst upgrades. If this momentum continues, this is certainly a REIT that could garner more attention from investors, particularly if interest rates do decline as expected and occupancy rates continue to climb. 

ACRES Commercial Realty (ACR)

ACRES Commercial Realty (NYSE:ACR) is another top commercial real estate focused REIT. The company engages in originating, managing, and holding commercial real estate loans and equity investments, so it’s less of an operator as SL Green would be, but it’s more of a financing play on the commercial real estate sector.

I think ACR is one of the more intriguing options in the real estate space for investors looking to take advantage of the lending environment. If we do see a pickup in economic activity, and commercial real estate returns closer to the status quo we saw prior to the pandemic, this is a stock that could see outsized benefits from this normalization.

The REIT’s diversified portfolio includes a range of assets such as multifamily, student housing, hospitality, and offices in prime U.S. markets. With a portfolio of both assets and loans to this sector, ACRES is uniquely positioned for upside in an improving economic environment.

Importantly, ACRES recently reported a transition into the black, driven by 8.8% annual revenue growth. This allowed the company to repurchase $1.7 million in shares, leaving $2.3 million for buybacks left on the books.

As ACRES plans new loan reinvestments with a mid-to-high teens ROE, investors stand to benefit. I think this particular REIT is perhaps the riskiest on this list, but has the most upside for those very bullish on a resurgence of interest in the commercial real estate sector.