Real estate investment trusts (REITs) can be a great way to diversify a portfolio during a market correction. These companies invest directly in real estate and real estate securities. They provide exposure to an industry that operates independently from the stock market, which in turn acts as a hedge against market volatility.
Invitation Homes (INVH -1.27%) and Public Storage (PSA -2.19%) are two stand-out REITs to own during a market correction because they provide exposure to booming real estate industries and are backed by strong long-term demand. Here's a closer look at these leading REITs and why they should be on your buy radar right now.
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1. Invitation Homes
Residential rental housing is one of the most stable asset classes in real estate because no matter what the market is doing, people will always need a place to live.
Today's housing shortage, which is fueling record home-price growth, is further solidifying the long-term demand for rental housing as homes become less and less affordable for the average American. This, in addition to new migration patterns with a preference for warmer-weather states in the South, has created unprecedented demand for single-family rental housing.
Which is great news for Invitation Homes, a residential REIT that specializes in the ownership, development, and leasing of single-family rental homes in the Sun Belt. Leasing momentum is seeing double-digit growth month over month, with February 2022 having a blended rate growth of 11%.
Vacancy rates are shockingly low, with only 1.8% of the company's 80,000-plus homes unoccupied in February. It has no major debt maturities due until 2025; a fair debt ratio of 6.2 times its earnings before taxes, interest, depreciation, and amortization (EBITDA); and $1.6 billion in liquidity.
The long-term need for housing and extraordinary demand for single-family rentals in its respective markets make Invitation Homes a clear buy in today's market correction.
2. Public Storage
Aside from being the top-performing REIT sector for the past 10 years, self-storage thrives during challenging economic conditions. And that makes Public Storage, the world's largest self-storage REIT and third-largest REIT by market capitalization, a super-attractive buy during a market downturn. With close to 2,500 facilities in the United States and parts of Europe, its market exposure is unparalleled when compared to other self-storage REITs.
Increased demand relating to the pandemic helped boost rental rates while lowering vacancy rates. Funds from operation (FFO) and net operating income (NOI), two important metrics for determining the profitability of a REIT, grew by 21.9% and 15%, respectively, over the past year.
This alone is great news for Public Storage and its shareholders, but the company also has made major moves to help fuel its future, using its excess cash to expand its footprint. In total, it added 232 facilities for a record spend of $5.1 billion. Last year's buying rampage will certainly help drive growth in 2022, but the company is also in a super-strong position to withstand a downturn, having a low debt-to-EBITDA ratio of 4 and $734 million in cash and cash equivalents.
While no company or asset class is 100% resistant to a market correction, these two REITs should be able to ride out the volatility and other tests from market uncertainty. Their strong historical performance, exposure to high-demand markets, stable financial positions, and ability to hedge against challenges like inflation make them long-term winners.
