Worried About Inflation? Consider Investing in These 3 REITs

Worried About Inflation? Consider Investing in These 3 REITs

Key Points

Inflation is higher than it has been in 30 years and will chip away at investor returns.

REITs that specialize in industries that do well when prices rise — or aren’t hobbled by rising prices — can help shield investors from inflation.

According to the U.S. Bureau of Labor Statistics, the inflation rate of 7.5% over the past 12 months is the highest it has been over any 12-month period since 1982. That means that if your investments went up less than 7.5% over the past year, your portfolio lost purchasing power.

And there’s little sign of inflation slowing down. The supply chain still has issues, the money supply is still growing, and now war fears are impacting investor sentiment. It may be time to add some defensive stocks to your portfolio.

One of the best way to play defense against inflation is with real estate investment trusts ( REITs ), which acquire and lease real estate. In exchange for paying out at least 90% of net income to shareholders, REITs don’t have to pay corporate income taxes. During inflationary periods, not only can REITs benefit from rising real estate prices, but their dividends give investors some extra income.

Let’s take a look at three REITs worth a spot on investors’ watch lists: Equity Residential ( NYSE:EQR ), Medical Properties Trust ( NYSE:MPW ), and Gladstone Land ( NASDAQ:LAND ). 1. Equity Residential

Home prices have led the way as consumer inflation jumped over the last year. The median sale price for an existing home rose 17% in 2021. . Though increased interest rates may slow down inflation in home prices, it’s unlikely that they will fall far anytime soon. If people are priced out of the homebuying market, that plays right into Equity Residential’s hands as it owns and leases multifamily buildings, i.e., apartment complexes.

It focuses on affluent markets and owns 307 properties housing 79,322 units. The higher home prices get, the more likely it is that people have to rent apartments. And as more and more businesses move back to full-time in-office work, more people will be renting apartments rather than buying a house in the suburbs, as many were doing when the pandemic first started pushing people out of offices.

The REIT recently sold $1.02 billion of property with an average age of 30 years in places like California and moved the money into newer properties in places like Austin, Texas; and Denver, where it plans to rent to more affluent people. It’s also taking advantage of interest rates while they’re still low to commence construction of close to $2 billion of new developments in those same markets. Its move to focus on different geographies and newer properties will support the business in the long run, once increased demand from inflation dries up.

Equity Residential has been a favorite of many investors for years because of its chairman, Sam Zell, who is a legend in the real estate arena and has created billions of dollars of value over the years. Right now, his company looks like it will enjoy a tailwind from rising home prices, and it pays investors a 2.8% dividend yield. 2. Medical Properties Trust

Healthcare is often touted as a recession-resistant industry; no matter what’s happening to the economy, it’s something people need. You can go further and say that people will keep paying for healthcare and that means healthcare providers will be able to keep paying their landlords, and the landlords will be able to raise rents.

Medical Properties Trust is a REIT that focuses on medical properties. It owns 438 hospitals and clinics in nine countries and 32 states. It is already one of the biggest owners of hospitals in the world and still has plenty of room to run with an asset base of around $22 billion, with $12 billion of that added in just the last three years.

The REIT charges a base rent to hospital operators and leaves management up to them. It has a weighted average interest rate on its debt of just over 3%, and 84% of that is locked into fixed rates. That means as interest rates are increased in an effort to combat inflation, Medical Properties won’t have to deal with a sudden rise in debt payments.

Additionally, the REIT builds in significant rent escalations to its lease contracts. While other REITs could be stuck with long-term fixed leases and rising expenses, Medical Properties already has revenue growth built in to its contracts.

The company grew funds from operations (FFO) 11% […]

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