REITs Are Poised to Outperform Stocks Next Year. Here Are 3 Picks.

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A housing development in Charlotte, N.C.

Joe Sohm/

Brace yourselves for an explosive forecast: The U.S. REIT sector could return 10% or so in 2022. Is that stunned silence, or are you nodding off? Either way, stick with me for some analyst picks.

Real estate investment trusts, of course, are companies that own property and can avoid corporate taxes by passing the bulk of their winnings on to shareholders as dividends. As a group, their average long-term returns are…an educated guess. See, REITs were created by Congress in 1960, but the modern REIT era goes back only 30 years to the initial public offering of

Kimco Realty (ticker: KIM), and that’s not enough time to judge how an asset class behaves across different cycles.

The National Association of Real Estate Investment Trusts, or Nareit, says REITs tend to outperform corporate bonds, which I buy, because bonds just sit there, whereas commercial properties are managed by people who can respond to changing conditions. It also says that REIT returns rival those of other stocks, which I don’t buy, because if managing rental property were as profitable as everything else, who would bother operating factories? Let’s put average long-term REIT returns a notch below other stock returns, which is still pretty darn good.

This year, however, REITs have provided a total return for the ages. The FTSE Nareit All REITs index has made 34%, versus 26% for the S&P 500 index. That’s one reason the 10% prediction for 2022, which comes from Richard Hill, who runs REIT coverage for Morgan Stanley, looks bold. Doesn’t the group need a breather? Another reason is that the Federal…


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