Some real estate investment trusts, or REITs, are very well known. Large-cap REITs like American Tower, Simon Property Group, and Public Storage are three examples of REITs that most U.S. investors are at least somewhat familiar with.
However, there are plenty of publicly traded REITs that fly under the radar, and this is where some of the most exciting growth opportunities lie. Here are two in particular that could be big winners in 2022 and beyond as the world gradually returns to normal.
An office REIT that isn't like the others
Small-cap office REIT Empire State Realty Trust (NYSE: ESRT) is the largest stock holding in my own portfolio, so it seems fitting to start with that.
Empire State Realty Trust owns the iconic Empire State Building as well as another dozen or so office properties in Manhattan and the New York City area. The bulk of its space is office in nature, and about 10% is retail in nature. In addition, the company also owns the observatory on top of the Empire State Building, which is the most unique part of the business relative to other office REITs.
To put it mildly, in normal times, the observatory is a cash machine. In 2019, the observatory made up 18% of Empire State's revenue, despite being just a tiny fraction of the company's total square footage. However, the pandemic effectively put this revenue stream on pause, with revenue falling by 77% in 2020 (and most of the revenue it did generate was before the pandemic hit).
Observatory revenue has been steadily ramping up in 2021, and should continue to rebound, especially with international travel set to resume in November. The company anticipates a return to pre-pandemic levels by the end of 2022. With iconic and desirable office assets, and a (recently renovated) observatory that could be a big reopening winner, this is one REIT to watch as we head into 2022.
A play on the reopening and digital transformation
The COVID-19 pandemic separated many stocks into two distinct baskets. The "stay-at-home" stocks were those that clearly benefited from things like remote work and distance learning, while "reopening stocks" were those whose businesses would be big winners if the pandemic died down and the world could return to normal.
There's a solid case to be made that Outfront Media (NYSE: OUT) fits into both baskets. If you aren't familiar, Outfront Media is a REIT that specializes in out-of-home advertising, owning and operating billboards, transit system advertising space, and other forms of advertisements people see when they're out and about.
Not surprisingly, this business did not do well in the pandemic. People couldn't go to work, go shopping, or travel, so why would companies spend money on outdoor advertising? However, the reopening could be a big catalyst for Outfront Media -- travel is starting to ramp up, most businesses are planning at least a part-time return to the office, and consumers are flush with cash right now, which could tempt advertisers to spend heavily to get their messages out there.
Not only is Outfront Media a great reopening play, but the company is also still in the relatively early stages of going digital with its advertising space, which is why I say it could be an excellent digital transformation play as well as a reopening stock. Digital ad revenue represents just 24% of Outfront's total, but this is up from 16% a year ago. Digital billboards and transit ads bring in far more revenue than their static counterparts, so this could also be a major revenue growth catalyst in the years ahead.
The Millionacres bottom line
To be perfectly clear, these REITs aren't going to double or triple overnight. That's not what REITs are for. But what they could do is produce years of market-beating returns with a relatively low level of risk in your portfolio. Both have excellent management, strong growth opportunities, and lots to gain from the reopening. These REITs could be worth a closer look if you aren't familiar with them.