Real estate investment trusts (REITs) have been wealth-creating machines throughout the years. As a group, they've outperformed stocks over the long term. A handful of REITs have really stood out for their ability to produce market-crushing total returns, enriching their investors in the process.
Three REITs that look like they could produce elite returns in the coming years are Crown Castle International (NYSE: CCI), Digital Realty Trust (NYSE: DLR), and National Storage Affiliates Trust (NYSE: NSA). Here's why they stand out in the sector.
Another decade of growth ahead
Infrastructure REIT Crown Castle has done an excellent job creating wealth for its investors over the years. Since converting to a REIT in 2014, the communications infrastructure operator has produced an average annual total return of 14.7%, outpacing the S&P 500's 13% average annual total returns during that time frame. That turned a $10,000 investment at its conversion into more than $26,000 today.
Crown Castle should have plenty of power to continue enriching its investors in the coming years. The REIT believes it can grow its AFFO per share at a 7% to 8% annual rate for at least the next decade as it supports the rollout of 5G in the U.S. That should enable it to grow its 3.5%-yielding dividend at around that same rate. That steadily rising income stream should allow Crown Castle to continue creating wealth for its investors.
A data-driven wealth creator
Data center REIT Digital Realty Trust has created enormous wealth for investors since its initial public offering in 2004. It's produced an average annual total return of 20.8% during that time frame, nearly double that of the S&P 500. As a result, it has turned a $10,000 investment at its IPO into almost $215,000.
One of the keys to Digital Realty's success has been its ability to grow its core FFO and dividend at above-average rates over the years. The company has increased its dividend for 15 straight years, growing it at an 11% compound annual rate while expanding its core FFO at an even faster 12% compound yearly rate through a series of acquisitions and data center developments. Given the explosive growth of data, Digital Realty should be able to continue expanding its portfolio, FFO, and 3.4% yield, giving it the power to maintain its wealth-creating ways.
A unique consolidation strategy
Self-storage REITs have been some of the best wealth creators in the sector. That's certainly true of National Storage Affiliates. Since its IPO in 2015, the REIT has generated an average annual total return of 25%, nearly double that of the S&P 500. That means it has quickly turned $10,000 invested at its IPO into $35,840.
Fueling those outsized returns has been the REITs unique expansion program. Instead of developing and acquiring self-storage properties under a national brand, National Storage Affiliates allows regional operators to maintain their identity and control through its PROs (Participating Regional Operators) program. The structure reduces the REIT's risks while enabling it to participate in the upside created by those operators. The program also gives it a competitive advantage over rivals because it can bring self-storage operators that aren't yet ready to sell under its affiliation program.
Given the highly fragmented industry, National Storage Affiliates has significant expansion potential as it continues to consolidate the sector. As it does, the REIT should be able to continue growing its FFO and 3.8%-yielding dividend, both key to its ability to generate outsized total returns.
Well-positioned to continue creating wealth
Crown Castle, Digital Realty Trust, and National Storage Affiliates have done an excellent job enriching investors over the years. While that past success is no guarantee they will continue creating wealth in the future, all three have one of the key ingredients: significant expansion potential. They also all focus on real estate subsectors ripe for continued growth, which could provide them with the power to continue producing outsized total returns.