2 Real Estate Stocks That Are Built to Survive Inflation

prices rose 8.6% year-over-year in May 2022, which was more than the 8.3% analyst estimate for the period. And it was also the highest year-over-year increase since December 1981.

This is precisely why investors need to pick resilient stocks that can withstand and endure accelerating inflation. Companies with hard assets like real estate investment trusts (REITs) are often excellent picks. Here are two REITs that will still be standing after the elevated inflation subsides.

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1. Crown Castle International

Owning more than 40,000 cell towers, 115,000 small cell nodes, and 80,000 route miles of fiber makes Crown Castle International (NYSE: CCI) the biggest pure-play communications REIT in the US The company’s infrastructure is used by major wireless carriers to provide mobile data to customers.

Individuals in the US are becoming more reliant on their smartphones with each passing year. The rise of video streaming and online shopping has caused total US mobile data consumption to explode from 0.4 trillion megabytes (MB) in 2010 to 42.2 trillion MB in 2020. Emerging technologies like virtual reality are only going to send mobile data consumption even higher.

Crown Castle’s assets are mission-critical to its tenants, which explains how the REIT can secure initial contract terms of 10 years. What’s more, these contracts come with built-in annual lease escalators of 1.5% to 3%. This alone isn’t enough to beat current inflation rates. But, thanks to the company’s steady investments and growing demand for its infrastructure, Crown Castle should be able to deliver high-single-digit growth, particularly in regard to annual adjusted funds from operations (AFFO) per share.

The stock provides investors with a safe 3.2% dividend yield. Given Crown Castle’s 7% to 8% annual dividend growth target, the stock is an attractive blend of both current and future income. Even better, investors can pick up shares of Crown Castle at a forward price-to-AFFO-per-share ratio of 23.2 — a sensible valuation given the stock’s quality and bright future.

2. W.P. Carey

WP Carey (NYSE: WPC) owns a portfolio of 1,336 net-lease properties (meaning the tenant pays a monthly base rent check to WP Carey and covers all expenses relating to its leased properties) located throughout the US and Europe. The property types within its portfolio include industrial, warehouse, office, retail, and self-storage.

Besides WP Carey’s diversification, the company’s other key strength lies within its tenant contracts. The company’s weighted average lease term is 10.8 years, which builds in rent revenue stability for the REIT. But the best thing about WP Carey’s contracts has to do with annual lease escalators that are tied to inflation. 99% of leases in the company’s real estate portfolio have contractual rent increases, about 60% of which are linked to inflation and the Consumer Price Index. This helps WP Carey to keep up in high-inflation environments.

The stock has produced double-digit annual total returns over the past decade. And with an addressable market of commercial real estate in the US and Europe worth trillions of dollars, WP Carey should be able to continue generating strong returns moving forward. Best of all, investors can snatch up the stock’s whopping 4.9% dividend yield at a reasonable forward price-to-AFFO-per-share ratio of 16.4.

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Kody Kester has positions in Crown Castle International and WP Carey. The Motley Fool has positions in and recommends Crown Castle International. 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.

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