Real estate has been one of the best-performing stock market sectors this year. Overall, real estate investment trusts (REITs) have produced a more than 21% total return through the end of June. That's well ahead of the S&P 500's roughly 14% return through the first half.
While REITs have been red-hot this year, the sector still has plenty of room to run as commercial real estate recovers from the impact of the pandemic and benefits from some structural tailwinds.
One of those drivers is the Sun Belt migration trend, which accelerated during the pandemic. Three REITs well-positioned for that megatrend are Cousins Properties (NYSE: CUZ), Camden Property (NYSE: CPT), and Invitation Homes (NYSE: INVH). That positioning is what makes them stand out as great REITs to buy this July.
Heating back up
Cousins Properties is an office REIT focused on several fast-growing Sun Belt markets. The region benefits from the people and businesses migrating south to take advantage of its affordability and better business climate. That migration is driving demand for office space, especially for Class A properties. Cousins is at the intersection of both trends because it focuses on owning Class A real estate in most of the fastest-growing Sun Belt markets.
While there's some uncertainty about office demand in a post-pandemic world, given the increase in remote and hybrid work, that should be less of an issue in the Sun Belt region than in higher-cost coastal gateway cities. CEO Colin Connolly noted in the first quarter that: "leading indicators in our Sun Belt markets are showing encouraging signs of acceleration. Specifically, leasing activity has meaningfully increased as more companies announce plans to return to the office."
That improvement should enable the company to secure new leases for its existing space while helping it move forward with additional development projects. The company recently completed two projects and has four more under construction and a massive land bank to continue building.
That gives it lots of room to grow as more companies relocate and expand in the Sun Belt region. This upside could enable Cousins to produce strong total returns in the coming years.
Focused on rapidly expanding markets
Camden Property is a residential REIT focused on owning apartments in the fastest-growing markets, primarily in the Sun Belt region. The company owns properties in 14 of the 20 markets with the highest projected population and employment growth over the next few years. That should enable the REIT to benefit from high occupancy levels and above-average rental growth rates.
Camden's focus on expanding markets also positions it to continue developing new multifamily communities. The company is currently investing nearly $1.2 billion to build 3,364 apartment homes in 11 communities. Meanwhile, it has five more development projects in the pipeline that could see it construct an additional 1,630 homes for $610 million.
That combination of development projects and rising rental rates should enable Camden to deliver healthy income growth in the coming years, which should drive strong total returns.
Homing in on a key trend
Invitation Homes is a residential REIT focused on owning single-family rentals (SFRs) in fast-growing markets. The company currently has more than 80,000 homes in its portfolio, with 95% of its revenue coming from high-growth markets along the West Coast and in the Sun Belt region. That focus on these markets enables Invitation to benefit from strong home price appreciation and above-average rental growth rates.
Demand for SFRs has accelerated due to the pandemic as people seek out more space and work remotely. In addition, younger generations prefer the flexibility of renting over owning, leading Invitation Homes to ramp up its investments.
The company plans to purchase $1 billion of homes this year to meet this demand. Add that growth to the upside from rising rental rates and home prices, and Invitation Homes appears poised to produce strong total returns in the coming years.
Lots of growth still ahead for these REITs
While REITs are off to a strong start this year, the sector still has lots of growth ahead, especially for those focused on the rapidly expanding Sun Belt region. That plays right into the hands of Cousins, Camden, and Invitation Homes. Their focus on this rapidly growing region positions them to produce above-average total returns, making them look like compelling buys this July.