2 hot real estate stocks that are on track for major growth
OWith the market teetering toward corrective territory, this may not seem like the perfect time to buy, but market declines are actually a great time to snap up hot stocks at discounted prices. Real estate investment trusts (REITs) — a special type of dividend-paying stock that invests in real estate and real estate securities — are down notably year-to-date, even as the real estate market remains strong.
American Homes 4 Rental (NYSE:AMH) and communities of the sun (NYSE: SUI) are two prime examples of REITs with deflated stock prices, although both companies are on track for significant growth. Here’s a look at each company and why they’re so hot in today’s market.
American Homes 4 Rental
American Homes 4 Rent owns and leases over 57,000 single family rental homes in 22 states, primarily in the Sun Belt. Unlike other single-family rental investment companies, American Homes 4 Rent primarily focuses on developing built-for-rental communities, having strategic partnerships with multiple developers and home builders to create resort-like communities for its tenants. . This approach helps the company provide highly attractive rental housing to middle and upper income earners in suburban communities surrounding major metropolitan markets.
The single-family rental market has long been seen as a stable investment, but record demand fueled by the desire for more space and privacy in the wake of the pandemic is bolstering its position as an asset class on fire. Over the past year, rental income has increased by 11.2% for the full year, net operating income has increased by 13.5% and funds from operations (FFO), a important measure used to assess the profitability of a REIT, increased by 17%. The portfolio’s occupancy rate is 95.2% and rental receipts have increased as its tenants recover from the initial pandemic crisis.
The company has 2,054 homes under active development and expects to add approximately 3,000 to 3,900 properties to its portfolio in 2022, which will certainly help fuel another strong year. But coupled with today’s demand and rising rental rates, it’s on a solid growth trajectory.
communities of the sun
Sun Communities is a residential REIT specializing in the ownership, development, sale and rental of marina docks, RV resorts and manufactured homes in resort communities. Revenues from RV resorts and marinas have increased significantly over the past few years as the pandemic continues to keep people closer to home.
In 2021, revenue for the full year increased 62.5% year over year, while net operating income (NOI) increased 188% and funds from operations ( FFO) increased by 27%. The company also benefits from the supply of more affordable housing for tenants and potential buyers in its complexes. As the housing market continues to tighten, increasing numbers of potential buyers and renters are being squeezed out of the market, making accommodations like mobile homes an attractive housing option.
The company is in the process of completing the acquisition of Park Holidays UK, which will expand its overseas portfolio and add over 15,000 new motorhomes and campervans, further fueling its growth in the years to come. Personally, I am invested in Sun Communities and plan to buy more of these stocks as prices continue to fall.
Discount Shopping in Today’s Volatile Market
Both companies deflated stock prices, but not because of their recent performance or growth prospects. While there is always the possibility of unforeseen events, I believe they are well positioned to weather and weather many of the uncertainties facing the economy today. The use of short-term leases that allow operators to raise rents to fight inflation is one of the greatest strengths of residential REITs – plus, people will always need a place to live. Beyond that, taking a long-term approach to investing in either of these hot stocks will lead to maximum growth.
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Liz Brumer-Smith is the owner of Sun Communities. The Motley Fool owns and recommends Sun Communities. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.