Real estate investors have many choices, as there are more than 200 real estate investment trusts (REITs) in the FTSE Nareit All REITs Index. Most likely won't want to own them all -- unless they opt for a broad-based REIT ETF -- because that would water down their returns. Instead, they need to be selective and choose those that can produce the best total returns, which is the dividend plus share price appreciation.
Three REITs with a history of producing outsized total returns are American Tower (NYSE: AMT), Equinix (NASDAQ: EQIX), and Medical Properties Trust (NYSE: MPW). With plenty of upside still ahead, this is a trio real estate investors should consider putting in their portfolios.
A decade of mobile-powered growth ahead
American Tower is an infrastructure REIT focused on communications towers. The company currently owns 181,000 sites around the world, including about 41,000 in its namesake country. It leases space on these towers to mobile carriers under long-term contracts, enabling it to generate steady income to pay a dividend.
The REIT has expanded at a brisk pace over the past decade by acquiring and building communications sites. That's helped grow its consolidated AFFO per share by a 14.2% compound annual rate and allowed it to increase its dividend at a more than 20% yearly pace since 2012. It's also enabled the REIT to generate superior total returns of nearly 460% over the last 10 years, obliterating the S&P 500's more than 250% total return.
That fast-paced growth should continue for at least the next decade. One factor driving that view is the rapid growth in mobile data, which will require more infrastructure, including additional macro towers and 5G-related small cells. Because of that, the REIT should have no problem growing its AFFO and 1.9%-yielding dividend at above-average rates for years to come.
Equinix is a data center REIT currently operating 214 data centers across 26 countries. The REIT leases space in these facilities to more than 9,500 customers.
Like American Tower, Equinix has rapidly grown its AFFO over the past several years by building and buying more data centers. Since converting to a REIT in 2013, its AFFO has surged 215%. That's given it the power to boost its dividend -- which currently yields 1.3% -- by 52% since 2015. Those dual growth drivers have powered a monster 1,270% total return over the last decade, which has obliterated the S&P 500's total return. There's a high probability that the REIT can continue producing strong total returns, given the expected growth in data consumption.
Healthy growth for years to come
Medical Properties Trust is a healthcare REIT focused on owning hospital properties. The company currently owns 390 facilities in nine countries. It leases these properties to hospital operators under long-term net lease contracts, which provide steady income to support its 5.8%-yielding dividend.
The REIT has expanded rapidly over the past decade, growing its gross assets at a 30% compound annual rate. That's driven a healthy rise in its normalized FFO of 8% per year during that time frame. This expansion has paid big dividends for investors as the REIT has increased its shareholder payout in each of the last seven years and delivered market-smashing total returns since its IPO in 2005 (454% versus 286% for the S&P 500).
That healthy growth should continue for the foreseeable future. Driving that view is the massive addressable market for acquisitions in the hospital real estate sector. In Medical Properties' estimation, there is between $500 billion and $750 billion of operator-owned hospital real estate worldwide, representing a huge opportunity for a company with $17.3 billion of gross assets. Meanwhile, given demographic trends, it's opportunity set should continue rising. Because of that, the REIT should have no problem continuing to acquire and develop hospitals, which means it should be able to keep growing its dividend and generating attractive total shareholder returns.
Massive growth markets
The data and healthcare sectors are growing fast. Because of that, they need more real estate to support their expansion. That should supply a steady stream of development and acquisition opportunities for REITs focused on those sectors like American Tower, Equinix, and Medical Properties Trust, which should enable that trio to continue growing their dividends and producing market-beating total returns. That high upside potential is why investors will want these REITs in their portfolios.