12 Top REIT Stocks For The Next 12 Months

Research shows that sector selection is the single most important factor in REIT investing. As Hoya Capital states:

Over the last decade, the average year saw a 40% average spread between the best and worst-performing real estate sectors. Importantly, the evidence suggests that higher-growth sectors have been persistently undervalued within the REIT sector while lower-growth sectors have been overvalued, as measured by the trailing 3-Year FFO growth.

So if we are seeking outperformance, from a FROG-hunting perspective, it behooves us to first identify the REIT sectors that are likely to outperform. (FROG stands for “Fast Rate Of Growth”). Last year was the first time my own Top 10 list slightly underperformed the market. This was primarily because I did not take sector selection adequately into account. Hopefully, this has made me a better investor, as I have taken a hard look at sectors this year, with the help of Hoya Capital Income Builder.

FROG hunting is a somewhat contrarian approach that seeks to maximize total return, rather than Yield, by seeking to maximize share price Gain. It has established a pretty strong track record for competing successfully with respected benchmarks and well-known professional investors, outperforming the VNQ in 3 of the last 4 years.

In a previous article, I identified 7 REIT sectors likely to outperform in 2022, by looking at:

• Trailing 3-year and 5-year FFO (Funds From Operations) growth rate,
• pent-up demand,
• macroeconomic factors like inflation and interest rate increases, and
• average consensus FFO growth forecasts per sector.

For some of those sectors, the top pick is pretty obvious. But for others, it takes careful winnowing. So in previous articles, I have identified the top REIT in Storage, Manufactured Housing, Apartments, and Industrials.

In this article, I synthesize all these analyses to arrive at my best guess at the Top 12 REITs for the next 12 months.

Here are the 7 sectors most likely to outperform, along with the top REIT in each sector.

REIT Sector	Top Company	Modeled Return
Cannabis	Innovative Industrial Properties (REIT)	71.05
Self-Storage	Life Storage Inc. (LSI)	32.86
Industrial	EastGroup Properties (EGP)	29.93
Single Family Rental	Invitation Homes (INVH)	28.32
Casino	VICI Properties Inc. (VICI)	16.49
Manufactured Housing	Sun Communities Inc. (SUI)	19.38
Apartment	Camden Property Trust (CPT)	24.40

Modeled Return is an informal metric I have developed, that allows me to compare an individual REIT to the Vanguard Real Estate ETF (VNQ). Modeled Return does not attempt to predict a company’s total return for the coming 12 months. However, the farther a REIT’s Modeled Return exceeds that of the VNQ, the better chance that REIT has of outperforming the REIT market in the coming year. The Modeled Return for the VNQ is 13.67.

All the companies listed in the table above qualify for the Top 12 list, because they all exceed the VNQ in Modeled Return. But there are also 6 other standout REITs in these same sectors, with outsized Modeled Returns, that meet all the criteria for FROG status, so they must also be included.

REIT Sector	FROG Company	Modeled Return
Industrial	Prologis (PLD)	33.61
Industrial	Rexford Industrial Realty (REXR)	31.22
Industrial	Terreno Realty (TRNO)	27.45
Single Family Rental	American Homes 4 Rent (AMH)	26.84
Self-Storage	CubeSmart (CUBE)	26.68
Industrial	STAG Industrial (STAG)	21.73

Source: Previous article by author

This give us 13 companies. To trim to 12, I will just omit STAG Industrial, because it has the lowest Modeled Return. Besides, I already have four Industrials on the list.

The following is a brief profile on each company chosen.

1. Innovative Industrial Properties (IIPR)

This company is the reigning king of the FROGs for each of the past 3 years. IIPR provides financing to cash-strapped legal marijuana growers, primarily through a purchase and lease-back program that generates double-digit cap rates.

Company	Liq. Ratio	FFO Growth	TCFO Growth	Modeled Return
IIPR	3.56	155.96%	127.34%	71.05

As long as marijuana remains illegal at the federal level, banks and other traditional sources of financing will remain leery of lending to growers. IIPR’s success has begun to draw competitors, but as top dog and first mover, IIPR has a huge competitive edge over these small newcomers. As more and more states legalize marijuana, this company will have more and more opportunities. The addressable market is huge, and it is still early innings. Brad Thomas recently said of IIPR:

Our two-year price target for IIPR is $382.20. That translates into around 50% growth per year . . .

2. Prologis (PLD)

The queen of the industrial REITs, this truly global logistics behemoth dwarfs all other industrials, with a market cap of $108 billion.

Company	Liq. Ratio	FFO Growth	TCFO Growth	Modeled Return
PLD	2.33	24.52%	19.00%	33.61

Despite its enormous size, PLD is still growing at double digit rates in FFO and TCFO (Total Cash From Operations), and with a worldwide shortage of industrial warehouse space, and supply chain issues driving the demand for more, Prologis is positioned to continue its dominant performance.

3. Life Storage Inc. (LSI)

The surest bet in the Self-Storage sector, Sunbelt-concentrated Life Storage Inc. has distinguished itself from the flock in 4 important ways, through:

• Online, touchless self-service rentals,
• its Warehouse Anywhere program, cashing in on the e-commerce boom by enabling companies to use its storage space as warehouses for inventory,
• third-party management of 258 properties, which grows revenue without adding to the debt load and helps identify properties for acquisition, and
• joint ventures in 102 properties, which brings added revenues through fee collection and lowers acquisition risk.

Company	FFO Grow	TCFO Grow	Liq. Ratio	Modeled Return
(LSI)	13.36	13.32	2.28	32.86

This innovative company maintains a stellar balance sheet, and operates in numerous fast-growing secondary markets.

4. Rexford Industrial Realty (REXR)

Owning more than 60% of the REIT-owned industrial real estate near the Ports of Los Angeles and Long Beach, REXR dominates the lucrative Southern California market.

Company	FFO Grow	TCFO Grow	Liq. Ratio	Modeled Return
(REXR)	30.12	32.87	3.14	31.22

Rexford serves a highly-diversified base of 1500 tenants, and sits just above the market cap sweet spot, at $11.2 billion. With leasing spreads exceeding 20%, and no relief in sight in the next few years, this company enjoys pricing power others only dream of.

5. EastGroup Properties (EGP)

EGP owns and operates multi-tenant, warehouse facilities totaling a little over 50 million square feet, in 9 states. This company focuses on multi-tenant, shallow bay distribution properties in major Sunbelt markets. It seeks out infill sites in supply-constrained submarkets, in choice last-mile e-commerce locations, around transportation facilities in high-growth areas.

Company	FFO Grow	TCFO Grow	Liq. Ratio	Modeled Return
EGP	13.36	20.01	1.91	29.93

EastGroup gravitates toward smaller facilities of under 120,000 square feet, for which the new supply pipeline is even smaller. At $8.3 billion, the company ended 2021 near the upper end of the market cap sweet spot, the ideal size for total return.

6. Terreno Realty (TRNO)

TRNO owns and operates industrial facilities focused in six Tier 1 coastal U.S. markets. The company is led by CEO W. Blake Baird, who led the transformation of a shopping center REIT called AMB Property Corp into the global powerhouse Prologis.

Company	FFO Grow	TCFO Grow	Liq. Ratio	Modeled Return
TRNO	20.42	21.66	3.43	27.45

The company emphasizes functional, flexible infill locations in highly populated areas, that have high-quality transportation infrastructure for rapid distribution of goods. Positioning their warehouses where demand is high and supply is limited or shrinking gives the company considerable pricing power.

7. Invitation Homes (NYSE:INVH)

The top dog and first mover in the Single Family Rental sector, Dallas-based INVH owns some 80,000 homes, concentrated in sunbelt and western markets, positioned near high quality schools, shopping, and medical facilities that young families seek. INVH focuses on markets with net job growth, in infill locations, where new development cannot create oversupply. INVH enjoys a 98% occupancy rate.

Company	FFO Grow	TCFO Grow	Liq. Ratio	Modeled Return
INVH	15.43	41.11	2.08	28.32

Millennials are coming of age, forming families, and moving out of apartments. Some prefer to rent. Others cannot afford the down payment on a house yet. INVH’s average tenant household income is 5 times the company’s average rent, allowing plenty of opportunity for household capital formation.

8. CubeSmart (CUBE)

CUBE has 545 eye-catching self-storage locations, totaling just under 39 million square feet. The occupancy rate is 96.1%, and reported phenomenal same-store NOI growth of 21.1% YoY in Q3 2021.

Company	FFO Grow	TCFO Grow	Liq. Ratio	Modeled Return
CUBE	10.42	11.87	1.66	26.68

The company maintains a rock-solid balance sheet, and is one of the rare REITs that combines FROG-like growth with above-average dividend Yield.

9. Camden Property Trust (CPT)

This 40-year-old company owns and operates 172 apartment complexes in 9 states, enjoying 97% occupancy. The average tenant household income is 5 times the company’s average apartment rent, so the tenants can well afford to live there. Camden’s properties are wonderfully Sunbelt-located in 14 of the 17 top population growth markets in the U.S., and 13 of the top 20 for employment growth.

Company	FFO Growth	TCFO Growth	Liq. Ratio	Modeled Return
CPT	5.31	7.52	2.02	24.40

Apartment REITs are benefitting from the ongoing housing shortage and the demographics of the Millennial cohort, and CPT is the best company in the sector from a FROG hunter’s standpoint. Camden is also a great place to work, making Fortune’s list of 100 Best Companies to Work For in America 14 years in a row, currently ranking #8.

10. American Homes 4 Rent (AMH)

Based in Calabasas, California, AMH owns over 56,000 homes in 37 U.S. markets, with a high concentration in desirable neighborhoods in the Sunbelt, and enjoys a 97% occupancy rate. With double-digit spreads on new leases and 17% growth in core FFO, AMH is the industry leader in quality build-for-rent housing, with some 3000 new homes built in 2021. AMH leverages relationships with national builders to discover other newly-built homes for acquisition.

Company	FFO Grow	TCFO Grow	Liq. Ratio	Modeled Return
AMH	14.27	14.52	2.28	26.84

AMH is the only SFR REIT operating in Austin, the nation’s most crowded single family housing market. The company also has 479 units in Boise, which has the highest rent growth in the country, and is well-positioned in other growing markets like Memphis, Tennessee and Greensboro, North Carolina.

11. Sun Communities (SUI)

Headquartered in Southfield, Michigan, SUI owns and operates a portfolio of 584 properties across 38 U.S. states and in Ontario, Canada. Their manufactured housing communities, which constitute just over half their asset mix, enjoyed 98.9% occupancy as of Q3 2021. SUI has a presence in every Sunbelt state except New Mexico. CEO Gary Shiffman has a strong reputation for increasing NOI on acquired assets after purchase.

Company	FFO Grow	TCFO Grow	Liq. Ratio	Modeled Return
SUI	23.70	35.69	2.25	19.38

Since 2015, SUI has acquired 9 marina portfolios, at a cost of about $1.47 billion. Marinas constitute almost 20% of SUI’s asset mix. This expansion has been opportune, as boat sales have boomed since the onset of the pandemic, driving demand for dock space. This has created waiting lists, and rent can only go up.

Similarly, SUI’s expansion into RV’s has been well-timed, accounting for 30% of their assets. RVing is fast becoming the vacation mode of choice for Americans, and many are choosing to live in RV’s full-time, due to the housing shortage.

12. VICI Properties (VICI)

VICI owns 43 properties in 15 U.S. states, including hotels and casinos with 58,000 hotel rooms, 63,000 gaming units, and 3.8 million square feet of casino space. One of only three REITs in this sector a year ago, in August VICI acquired rival MGM Growth Properties (MGP) and its 7 premier Las Vegas resorts.

Company	FFO Grow	TCFO Grow	Liq. Ratio	Modeled Return
VICI	23.06	58.52	3.19	16.49

A bona fide FROG, VICI is another of those rare companies that offers both rapid growth and above-average Yield, at 5.1%.

So there you have it. There are some outstanding REITs – such as Essential Properties Realty Trust (EPRT), Medical Properties Trust (MPW), Alexandria Real Estate Equities (ARE), Crown Castle International (CCI), Tanger Factory Outlet Centers (SKT), and Digital Realty (DLR) – that did not make the list, because they are not in sectors expected to outperform. But the future is uncertain and anything can happen. Otherwise, investing would be easy and boring.