Real estate investment trusts, or REITs, are thought of as "boring" stocks by many real estate investors. However, their long-term growth potential can be quite exciting. Here are three excellent examples of REITs that used combinations of smart investment strategies, good management, and the power of time to deliver phenomenal returns to their investors.
Realty Income (NYSE: O) is a net-lease REIT that primarily owns single-tenant retail properties, with more than 6,600 properties in all 50 states, Puerto Rico, and the U.K. The company has certainly come a long way since it was founded in 1969 and acquired its first property (a Taco Bell) in 1970.
Now, you and I couldn't have invested in Realty Income in the beginning. The first shot that everyday investors had to add the company to their portfolio came in 1994, when Realty Income's shares were listed on the NYSE. In the 27 years since, shareholders have been rewarded with a total return of 4,250% (about 15% annualized), meaning that a $1,000 investment at the IPO would have turned into $43,500 today.
To give you a hint of what's still to come, Realty Income is the least impressive long-term performer of the three stocks in this article.
Welltower (NYSE: WELL) is the largest REIT focused on healthcare, and its publicly traded roots go all the way back to the early 1970s, when predecessor company Health Care Fund was founded with just two skilled nursing facilities in its portfolio.
The growth over the years has been impressive. In the mid 1980s, the company changed its name to Health Care REIT and had reached an asset value of $182 million. It expanded internationally for the first time in 1998, and by 2005 had a $3 billion portfolio of properties. And by 2015, when the name was changed to Welltower, the company was approaching a cumulative $30 billion of real estate investments.
If you had the foresight to invest in Welltower in its very early days, you would have been handsomely rewarded. A $1,000 investment in Welltower in the 1970s when it first went public would be worth more than $180,000 today if you had reinvested your dividends along the way.
When it comes to self-storage REITs, Public Storage (NYSE: PSA) is the dominant leader, larger than its next few competitors combined. But it didn't start out that way. Founded in 1972 as a corporation (not a REIT), it founded a REIT called Storage Equities in 1980 as a vehicle to purchase self-storage properties, while Public Storage played the role of a manager and collected management fee income. In 1995, the operations were combined into a single entity and structured as a REIT, retaining the Public Storage name.
Today, Public Storage has nearly 2,500 storage facilities and is one of the largest REITs of any kind in the world. However, investors who bought shares of its Storage Equities REIT subsidiary all the way back in 1980 and reinvested their dividends along the way are sitting on a staggering 13,380% total return, meaning that a $1,000 investment would now be worth more than $130,000.
What are the next big winners?
To be sure, at the time these return calculations started, all three of these REITs were much smaller companies than they are today, so I wouldn't exactly expect hundred-bagger returns from any of these three over the next 20 or 30 years. However, these are perfect examples of the long-term compounding power of real estate assets, and I'd be willing to bet that there are young REITs in the market today that will deliver these kinds of returns for investors who buy shares and hold for the long haul.