Equinix, Crown Castle, More: 5 REITs to Buy Now

In this low-interest-rate environment, many investors find REITs attractive due to their combination of capital appreciation potential and their meaningful dividend yields (in most instances).

Given that REITs can hit the sweet spot for many investors, Insider Monkey has put together a list of the smart money’s favorite REIT stocks. Without further ado, let’s take a closer look at how American Tower Corp (NYSE:AMT), Crown Castle International Corp (NYSE:CCI), Equinix Inc (NASDAQ:EQIX), Gaming and Leisure Properties Inc (NASDAQ:GLPI), and CyrusOne Inc (NASDAQ:CONE) are being traded among successful hedge funds.

We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).

#5 CyrusOne Inc (NASDAQ:CONE)

– Number of Hedge Fund Shareholders (as of June 30): 35
– Total Value of Hedge Funds’ Holdings (as of June 30): $477.46 million
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 10.80%

Hedge funds were pretty bullish on CyrusOne Inc in the second quarter, an REIT that owns, operates, and develops data center properties. The number of funds in our database with holdings in CyrusOne Inc (NASDAQ:CONE) rose by seven quarter-over-quarter to 35 at the end of June, out of 749 funds which filed 13Fs for the latest reporting period. The REIT’s shares have performed very well in 2016, rising by 34.35% year-to-date as investors buy for the stock’s strong growth prospects in the future (data centers are experiencing secular growth), and for the stock’s annual dividend of $1.52 per share, good for a 3.07% yield. Analysts have an average price target of slightly over $60 per share on the stock, $10.51 above its current price.

#4 Gaming and Leisure Properties Inc (NASDAQ:GLPI)

– Number of Hedge Fund Shareholders (as of June 30): 40
– Total Value of Hedge Funds’ Holdings (as of June 30): $1.01 billion
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 20.00%

Many investors view Gaming and Leisure Properties’ income from its facilities as very stable. Not only do the facility leases run for 35 years, but Gaming and Leisure’s primary tenants, Penn National and Pinnacle Entertainment, don’t have much credit risk. In 2015, Penn National and Pinnacle Entertainment had EBITDA-to-rent ratios of 1.77 and 1.68 respectively. Given that the U.S. economy has strengthened since 2015, their ability to pay their rent has arguably become even more solid.  The increased strength of Gaming and Leisure’s customers makes the company’s annual dividend of $2.40 per share, good for a 7.27% yield, even more attractive. 40 funds that we track owned shares of Gaming and Leisure Properties Inc (NASDAQ:GLPI) as of the most recent 13F reporting period, down by 19 funds quarter-over-quarter.

We’ll check out hedge funds’ three favorite REITs on the next page.

#3 Equinix Inc (NASDAQ:EQIX)

– Number of Hedge Fund Shareholders (as of June 30): 41
– Total Value of Hedge Funds’ Holdings (as of June 30): $2.79 billion
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 10.40%

Like CyrusOne, Equinix is an REIT that provides data center real estate and services to many companies around the world. In early-August, Equinix reported second quarter AFFO of $290.5 million, up by 38% from the previous quarter, and revenue from continuing operations of $900.5 million, a 7% increase from the previous quarter. Guidance for the full 2016 year was strong, with management expecting AFFO of $1.04 billion-to-$1.05 billion (up by 26% year-over-year) and adjusted EBITDA of $1.658 billion-to-$1.668 billion. Given that the company’s dividend cost is less than half of its AFFO for the full year, Equinix’s annual dividend of $7 per share (1.93% dividend yield) is safe. 41 funds were long Equinix Inc (NASDAQ:EQIX) at the end of June, down by two funds from the end of March.

#2 Crown Castle International Corp (NYSE:CCI)

– Number of Hedge Fund Shareholders (as of June 30): 44
– Total Value of Hedge Funds’ Holdings (as of June 30): $2.23 billion
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 6.50%

Crown Castle has a great business. Because real estate for wireless towers is limited, the company can command healthy margins. Because more and more people are expected to use data-intensive video/augmented reality apps, demand for wireless data services will only grow in the future. Due to those factors, Crown Castle management expects its AFFO to grow by almost double the rate of inflation, or 6%-to-7% a year, for the foreseeable future. Throw in Crown Castle’s current annual dividend of $3.54 per share, good for a 3.79% yield, and it’s not surprising that 44 funds that we follow would choose to own the REIT. Jim Simons‘ Renaissance Technologies trimmed its stake in Crown Castle International Corp (NYSE:CCI) by 60% during the second quarter to 833,400 shares.

#1 American Tower Corp (NYSE:AMT)

– Number of Hedge Fund Shareholders (as of June 30): 49
– Total Value of Hedge Funds’ Holdings (as of June 30): $2.96 billion
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 6.10%

With 49 shareholders of the stock among the funds we track at the end of June, up by nine funds from the end of March, American Tower Corp ranked as the smart money’s favorite REIT. Not surprisingly, American Tower is also a favorite among analysts too. Of the 19 analysts that cover the stock, 18 have ‘Buy’-equivalent ratings, while only one has a ‘Hold’ rating. Like Crown Castle, American Tower has a lot of growth ahead of it given the robust anticipated growth for wireless data and other telecom services over the next few years. Charles Akre‘s Akre Capital Management owned more than 6.3 million shares in American Tower Corp (NYSE:AMT) at the end of June.

Disclosure: None