Real estate investment trusts (REITs) are companies that own, operate, or finance income-producing properties. They offer investors a way to gain exposure to the real estate sector without having to buy or manage physical properties. REITs also pay out most of their taxable income as dividends, making them attractive for income-seeking investors.

However, not all REITs are created equal. Some REITs may have higher growth potential, lower risk, or better valuation than others. In this article, we will look at five REITs that we believe have the best prospects for long-term growth, based on their business models, financial performance, dividend track record, and future outlook.

1. Agree Realty Corporation (ADC)

Agree Realty is a net lease REIT that focuses on acquiring and developing properties for leading retailers in various sectors, such as convenience stores, grocery stores, home improvement stores, and auto parts stores. As of September 30, 2021, the REIT owned 1,241 properties across 46 states, with a weighted average remaining lease term of 9.4 years and an occupancy rate of 99.8%.

Agree Realty has a strong competitive advantage in its tenant diversification and quality. The REIT has over 300 tenants across more than 30 different industries, with no single tenant accounting for more than 5% of its annualized base rent (ABR). Moreover, about 70% of its ABR comes from investment-grade tenants or their subsidiaries, which reduces the risk of default or bankruptcy.

Agree Realty has also delivered impressive growth in its revenues and funds from operations (FFO) per share over the past decade, thanks to its active acquisition and development strategy. In the first nine months of 2021, the REIT acquired 173 properties for $1.2 billion and developed six properties for $36 million. It also raised its full-year acquisition guidance to $1.6 billion-$1.7 billion, up from $900 million-$1.1 billion at the beginning of the year.

The REIT has also been consistent in raising its dividend every year since its inception in 1994. It currently pays a quarterly dividend of $0.62 per share, which translates to an annualized yield of 3.87%. The dividend is well covered by its FFO per share of $0.86 in the third quarter of 2021 and its payout ratio of 72%. The REIT also has a low leverage ratio of 4.2x net debt to EBITDAre and a high-interest coverage ratio of 5.6x.

2. Regency Centers Corporation (REG)

Regency Centers is a shopping center REIT that owns and operates grocery-anchored and necessity-based retail properties in affluent and densely populated trade areas. As of September 30, 2021, the REIT owned 404 properties encompassing 54 million square feet of space across 22 states and the District of Columbia.

Regency Centers has a competitive advantage in its high-quality portfolio and strong tenant base. The REIT’s properties are located in markets with above-average household incomes, population densities, and growth rates. About 80% of its ABR comes from grocery-anchored centers, which tend to be more resilient and stable than other types of retail properties. Moreover, about 60% of its ABR comes from essential tenants such as grocery stores, pharmacies, banks, and restaurants.

Regency Centers has also recovered well from the pandemic-induced downturn in 2020 when it had to offer rent relief to some of its tenants and reduce its dividend by 50%. In the third quarter of 2021, the REIT collected 98% of its billed rent and reported an occupancy rate of 94%, up from 92% a year ago. Its same-property net operating income (NOI) increased by 13% year-over-year and its FFO per share increased by 23% year-over-year.

3. STAG Industrial, Inc. (STAG)

STAG Industrial is an industrial REIT that focuses on acquiring and operating single-tenant, net-leased warehouse and distribution facilities across the U.S. As of September 30, 2021, the REIT owned 514 buildings comprising 105 million square feet of space in 39 states.

STAG Industrial has a competitive advantage in its niche strategy and diversified portfolio. The REIT targets properties that are overlooked or undervalued by other investors due to their location, size, or tenant profile. These properties tend to offer higher yields and lower competition than larger or more urban properties. The REIT also diversifies its portfolio by tenant, industry, geography, and lease expiration, which reduces its exposure to any single risk factor.

STAG Industrial has also benefited from the strong demand for industrial space driven by the growth of e-commerce, logistics, and supply chain activities. In the third quarter of 2021, the REIT acquired 25 buildings for $426 million and signed leases for 4.7 million square feet of space. Its occupancy rate increased to 96.8%, up from 95.9% a year ago. Its same-store NOI increased by 3.2% year-over-year and its FFO per share increased by 9.5% year-over-year.

The REIT has also raised its dividend every year since its IPO in 2011. It currently pays a monthly dividend of $0.121 per share, which equates to an annualized yield of 3.27%. The dividend is well covered by its FFO per share of $0.51 in the third quarter of 2021 and its payout ratio of 71%. The REIT also has a low leverage ratio of 4.0x net debt to EBITDAre and a high-interest coverage ratio of 5.2x.

4. Essential Properties Realty Trust, Inc. (EPRT)

Essential Properties Realty Trust is a net lease REIT that invests in freestanding, single-tenant properties leased to middle-market companies operating in service-oriented or experience-based businesses. As of September 30, 2021, the REIT owned 1,296 properties across 43 states, with a weighted average remaining lease term of 14.6 years and an occupancy rate of 99.9%.

Essential Properties Realty Trust has a competitive advantage in its focus on essential businesses that provide non-discretionary goods or services to their customers. These businesses tend to have stable cash flows and low operating costs, which enable them to pay rent even during economic downturns or pandemics. The REIT’s tenants include car washes, veterinary clinics, dental offices, child care centers, and fitness centers.

Essential Properties Realty Trust has also demonstrated strong growth in its revenues and FFO per share over the past few years, thanks to its active acquisition and development pipeline. In the third quarter of 2021, the REIT acquired 94 properties for $246 million and originated one build-to-suit property for $4 million. It also raised its full-year acquisition guidance to $800 million-$900 million, up from $600 million-$700 million at the beginning of the year.

5. Alpine Income Property Trust, Inc. (PINE)

Alpine Income Property Trust is a net lease REIT that acquires, owns, and operates a portfolio of single-tenant commercial properties across various industries and geographies. As of September 30, 2021, the REIT owned 79 properties across 31 states, with a weighted average remaining lease term of 8.6 years and an occupancy rate of 100%.

Alpine Income Property Trust has a competitive advantage in its diversified and high-quality portfolio and its conservative capital structure. The REIT’s properties are leased to tenants with strong credit ratings or operating histories, such as Dollar General (DG), Walgreens (WBA), Hobby Lobby, and Tractor Supply (TSCO). The REIT also has no exposure to the office or hotel properties, which have been adversely affected by the pandemic.

Alpine Income Property Trust has also achieved robust growth in its revenues and FFO per share since its IPO in 2019, thanks to its aggressive acquisition strategy. In the third quarter of 2021, the REIT acquired 14 properties for $64 million and signed contracts to acquire 11 additional properties for $51 million. It also raised its full-year acquisition guidance to $250 million-$275 million, up from $200 million-$225 million at the beginning of the year.

The REIT has also maintained its dividend at $0.24 per share since its IPO, which equates to an annualized yield of 5.85%. The dividend is well covered by its FFO per share of $0.29 in the third quarter of 2021 and its payout ratio of 83%. The REIT also has a low leverage ratio of 3.9x net debt to EBITDAre and a high-interest coverage ratio of 6.4x.

Conclusion

REITs are attractive investments for income-oriented investors who want to gain exposure to the real estate sector without having to deal with the hassles of owning or managing physical properties. However, not all REITs are equally appealing. Investors should look for REITs that have strong competitive advantages, solid financial performance, consistent dividend growth, and reasonable valuation.

The five REITs we have discussed in this article meet these criteria and have the potential to deliver long-term growth for their shareholders. They are Agree Realty Corporation (ADC), Regency Centers Corporation (REG), STAG Industrial, Inc. (STAG), Essential Properties Realty Trust, Inc. (EPRT), and Alpine Income Property Trust, Inc. (PINE). We believe these REITs are worth considering for investors who want to add some quality real estate exposure to their portfolios.