The latest data from the US Bureau of Labor Statistics indicated that the Consumer Price Index rose 7.5% year-on-year in January 2022. This was the highest reading since February 1982.
And with analysts expecting a 7.9% year-over-year increase in the inflation index when February data is released on March 10, high inflation isn’t going away anytime soon. This makes it more important than ever for investors to choose inflation-resistant stocks for their portfolio.
Retail Real Estate Investment Trust (REIT) Store Capital ( big 0.49% ) and REIT . hospital Medicinal Properties Fund (MPW -1.21% ) They are two stocks that will continue to grow despite the higher inflation readings.
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1. STORE CAPITAL
STORE Capital buys single-tenant properties from businesses and then leases those properties back to the business. This is called a sale-leaseback transaction. Selling real estate can provide the capital needed for a company to expand its operations or pay off debt, which explains how STORE Capital has grown its portfolio to nearly 2,900 properties.
The benefit of STORE Capital from this triple net lease business model is that tenants are contractually obligated to pay all costs associated with the property they rent. These expenses include maintenance, insurance, taxes and utilities. STORE Capital also receives a basic monthly rent check from tenants.
With STORE Capital’s $10.7 billion real estate portfolio, the company is well diversified in a variety of ways. STORE Capital’s properties are located in 49 US states, with the 10 largest states making up 55.6% of their annual base rent (ABR).
STORE Capital is also spread across different types of industries. The service industry (that is, full-service restaurants and early childhood education centers) made up 64.8% of the ABR last year, retail made up 15.2% of the ABR, and manufacturing contributed the remaining 20% of the ABR. Finally, STORE Capital’s top 10 clients accounted for just 18.4% of ABR last year.
STORE Capital’s appeal does not end with its diversity. The company’s weighted average lease term is 13.4 years, ensuring better revenue visibility. Best of all, 85% of STORE Capital’s rent escalations (for example, rent increases) in the ABR are CPI-related, with another 14% having flat increases. This has played a large role in STORE Capital’s 5.5% annual adjusted funds of operations (AFFO) per share since its initial public offering in 2014.
Investors can get 5.2% market dividend yield from STORE Capital at a reasonable price for its growth potential. The shares are traded with a price to AFFO ratio per share of only 13.4, which makes them one of the best REITs to buy at the moment.
2. Medicinal Properties Fund
The Medical Properties Trust owns 438 health facilities with approximately 46,000 licensed beds in the United States and eight other countries around the world. The company’s reputation and $22.3 billion real estate portfolio make it the primary source of capital for hospitals. But why have hospitals and other healthcare facilities around the world switched to the Medical Properties Trust?
The company pays hospital operators up to 100% of the value of their real estate properties. Proceeds from the sale and leaseback can be used by hospital operators to build additional facilities in new locations, invest in new technology and equipment, and hire new doctors and staff.
In exchange for the capital, Medical Properties Trust tenants sign contracts with initial lease terms of 10-20 years under which they pay all property costs and a basic rent check monthly to the company. These extended lease terms provide the Medicinal Properties Fund a steady stream of growing revenue.
Medical Properties Trust can increase its revenue and AFFO per share from rental escalation. In fact, 99% of a company’s rents come with annual or inflation-based rent increases. Alongside the acquisitions, this explains how Medical Properties Trust was able to post double-digit annual growth AFFO per share during the first two years of the COVID-19 pandemic.
Investors can get a 5.7% in-market dividend yield from the Medical Properties Trust at up to an AFFO of $15 per share, making the stock a compelling buy for income investors.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
