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So, you have $1,000 you want to invest somewhere that will stand up to inflation? A great way to leverage that opportunity is to think about the long term, about how you can grow that money through this inflationary cycle and those yet to come.
Identifying great companies and then sticking with them is the key to building wealth through this economic cycle and any other, and real estate investing has a lot to offer. This is where real estate investment trusts (REITs) come in.
Most REITs own and operate income-producing properties and pass the vast majority of their taxable income and tax liability on to shareholders. They’re a great vehicle for tapping into the profit potential of all kinds of real estate and can often hedge against inflation by raising the rent on their properties, especially if they have a tenant base that’s pretty inflation-resistant itself.
Here are three examples in three different industry segments, each of which would be a good choice for someone wanting to invest $1,000 and let it sit and generate passive income and capital appreciation for years to come.
Alexandria Real Estate Equities
Alexandria Real Estate Equities (NYSE:ARE) is a major owner and operator of lab and related office space in the thriving life-sciences research and development communities in markets such as Boston, San Diego, San Francisco, New York City, North Carolina’s Research Triangle, and Bethesda, Maryland.
While it’s a member of the office sector, this REIT’s clients are businesses that don’t readily lend themselves to remote work. For instance, Alexandria’s lineup of 700 or so tenants includes a who’s who of big pharma, including the two leading COVID vaccine makers, Pfizer and Moderna. The latter, in fact, will have Alexandria as the landlord for its new corporate and research and development (R&D) headquarters in Cambridge, Massachusetts.
Alexandria’s clients tend to be well-heeled, so they can pay the rent even as it rises. Income also will be rising in coming years as the company brings on about 25 million square feet of new rentable space in various stages of development. That will be on top of the 64 million square feet of income-generating space the REIT already has.
The ability to pass on rising costs is key to an operation’s ability to fight inflation. Net-lease retail REITs fit that bill particularly well by requiring the tenant to pay for taxes, insurance, and maintenance costs even as they rise. Combine that with a rock-solid list of tenants in essential businesses and a long record of consistently rising shareholder payouts, and you get Realty Income (NYSE:O) — one of the most solid members of the REIT world.
Realty Income has more than 650 tenants spread across its 11,000 or so properties throughout the U.S., with a sprinkling in the U.K. and Spain to boot. Its biggest clients include Dollar General, Dollar Tree-Family Dollar, 7-Eleven, Walgreens and FedEx.
These are the kinds of companies that are loathe to change locations and typically sign long-term leases with rent escalations built in. And that helps ensure Realty Income can continue to build on its record of paying dividends every month, without exception, for more than 50 years.
Prologis (NYSE:PLD) is the largest of the industrial REITs, providing critical logistics and warehouse space to about 5,800 tenants through its portfolio of approximately 1 billion square feet of wholly or partly owned properties in high-growth markets in 19 countries.
Amazon, Home Depot, and FedEx head up that list of major tenants occupying what Prologis describes as two major areas of focus: business-to-business and retail/online fulfillment. The logistics facilities those businesses require are now at a premium due to COVID-19 driving e-commerce demand and global supply chain disruptions that are, in turn, creating a new emphasis on “just in case” warehouse space closer to home for major enterprises of nearly every type.
Prologis Chairman and Chief Executive Officer Hamid Moghadam made headlines last fall when he said that America’s warehouse space was basically sold out. His company’s just-released fourth-quarter 2021 report says Prologis properties were 98.2% leased at year-end and, in Moghadam’s words, “Demand for our 1 billion square foot global portfolio shows no signs of slowing and we are positioned ideally to meet our customers’ most critical real estate needs.”
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