Real estate investments can be an excellent way to earn returns, generate cash flow, hedge against inflation and diversify a portfolio. However, buying physical properties can be costly, difficult and risky for an individual investor. Instead, you can buy shares of diversified real estate investment trusts, or REITs.
REITs are public companies that own large portfolios of real estate, and many of them also pay sizable dividends. There are many different types of REITs, providing investors access to residential, commercial and specialty real estate.
[Sign up for stock news with our Invested newsletter.]
Here are nine of the best REITs to buy in 2023, according to Morningstar analysts:
| REIT | Forward dividend yield | Implied upside over June 15 closing price |
| American Tower Corp. (ticker: AMT) | 3.3% | 15.8% |
| Public Storage (PSA) | 4.2% | 13.3% |
| Crown Castle Inc. (CCI) | 5.5% | 19.8% |
| Simon Property Group Inc. (SPG) | 6.7% | 35.2% |
| Realty Income Corp. (O) | 5.0% | 24.1% |
| Welltower Inc. (WELL) | 3.0% | 22.3% |
| Digital Realty Trust Inc. (DLR) | 4.6% | 28.1% |
| AvalonBay Communities Inc. (AVB) | 3.5% | 26.5% |
| Equity Residential (EQR) | 4.0% | 32.6% |
American Tower Corp. (AMT)
American Tower is a specialty REIT that operates the world’s largest independent portfolio of wireless communications and broadcast towers. Analyst Matthew Dolgin says American Towers’ U.S. business has been particularly strong in early 2023. In the first quarter, the company reported its best consolidated organic towers billings growth since 2017. Dolgin says margins are expanding, and American Tower is his top pick among U.S. tower stocks for long-term investors
. In addition, he says the company’s strategy to diversify globally differentiates it from U.S. competitors. Morningstar has a “buy” rating and $225 fair value estimate for AMT stock, which closed at $194.27 on June 15.
Public Storage (PSA)
Public Storage is a specialty REIT that is the largest owner of self-storage facilities in the U.S. Analyst Suryansh Sharma says weaker self-storage demand will be a headwind for Public Storage in 2023, but the self-storage industry has historically been recession resistant and could be resilient if U.S. economic growth slows further. In addition, longer-term trends such as urbanization, decluttering, population growth and lower home affordability are all positives for Public Storage demand. Sharma says Public Storage will likely continue to gain market share. Morningstar has a “buy” rating and $326 fair value estimate for PSA stock, which closed at $287.64 on June 15.
Crown Castle Inc. (CCI)
Crown Castle is a specialty REIT that owns and operates wireless communications towers. Crown Castle shares are down 13.8% year to date through June 15. Dolgin says wireless carriers spent a record amount of money upgrading networks in 2022, but that spending slowed in the first quarter of 2023. He says Crown Castle’s fiber segment growth has been disappointing. However, the company has maintained its full-year guidance, and recent share price weakness is a buying opportunity for long-term investors. Morningstar has a “buy” rating and $140 fair value estimate for CCI stock, which closed at $116.89 on June 15.
Simon Property Group Inc. (SPG)
Simon Property is a retail REIT that specializes in regional malls, outlet centers and community and lifestyle centers. The stock pays the highest dividend on this list. Analyst Kevin Brown says Simon reported solid property net operating income, or NOI, in the first quarter, but also reported its first quarter of retail investment losses in the past several years. Fortunately, management said first-quarter investment losses were already included in the company’s 2023 guidance, and Brown remains bullish on the company’s high-quality portfolio of class A mall properties. Morningstar has a “buy” rating and $150 fair value estimate for SPG stock, which closed at $110.92 on June 15.
[READ: How This 25-Year-Old Makes $500k a Year With His Newsletter Business]
Realty Income Corp. (O)
Realty Income is a retail REIT that owns, develops and manages U.S. retail real estate with a focus on single-tenant buildings. Realty reported just 0.2% same-store NOI growth in the first quarter, but Brown says the company’s $1.67 billion in acquisitions in the quarter exceeded expectations. He says the spread between Realty’s acquisition cap rate and its cost of financing the deals creates significant value for investors, and he says recent debt issuance suggests another quarter of aggressive acquisitions ahead. Morningstar has a “buy” rating and $76 fair value estimate for O stock, which closed at $61.23 on June 15.
Welltower Inc. (WELL)
Welltower is a health care REIT that invests in health care facilities, including senior housing, specialty care facilities and medical office buildings. The REIT is already up 22.3% this year through June 15. Brown says a recovery in the senior housing market drove another quarter of impressive 10% NOI growth for Welltower in the first quarter. He says Welltower acquired $529 million worth of high-quality assets in the quarter, and the company should continue to generate value via external growth. Morningstar has a “buy” rating and $98 fair value estimate for WELL stock, which closed at $80.15 on June 15.
Digital Realty Trust Inc. (DLR)
Digital Realty Trust is a specialized REIT that provides data center and other IT solutions. Dolgin says Digital Realty’s leasing numbers weakened in the first quarter, but it reported its strongest pricing in years. He says the company’s smaller co-location and interconnectivity deployments are the most impressive part of its business. Nearly half of Digital Realty’s leases have annual escalators tied to inflation, and Dolgin says he expects strong pricing power to continue. He says Digital will remain a leading provider of power, space and connection needs. Morningstar has a “buy” rating and $135 fair value estimate for DLR stock, which closed at $105.39 on June 15.
AvalonBay Communities Inc. (AVB)
AvalonBay Communities is a multifamily residential REIT that specializes in upscale apartment communities. The U.S. housing market experienced a better-than-expected spring selling season, but analyst Brian Bernard anticipates total housing starts — a measure of new construction activity — will decline 17% in 2023. AvalonBay’s focus is on urban and suburban coastal markets, where Bernard says decreasing homeownership rates coupled with job and income growth allow for elevated rent pricing and high occupancy rates. He expects revenue growth will decelerate in 2023 but says same-store sales growth will continue to push AvalonBay’s funds from operations, or FFO, higher. Morningstar has a “buy” rating and $241 price target for AVB stock, which closed at $190.53 on June 15.
Equity Residential (EQR)
Equity Residential is a multifamily residential REIT that owns and operates a diversified portfolio of apartment properties. Brown says Equity has adjusted its portfolio over the past 10 years to focus on high-quality, urban, coastal markets, which have high occupancy rates and strong rent growth trends. The company has divested assets in the inland and southern markets and used the proceeds to invest in acquisitions and its development pipeline, a strategy which Brown says has generated impressive growth and set Equity Residential up for continued FFO growth. Morningstar has a “buy” rating and $88 fair value estimate for EQR stock, which closed at $66.35 on June 15.
More from U.S. News
5 of the Best Travel Stocks to Buy for Travel Season
Recession 2023: What to Watch and How to Prepare
Artificial Intelligence Stocks: The 10 Best AI Companies
9 of the Best REITs to Buy for 2023 originally appeared on usnews.com
Update 06/16/23: This story was previously published at an earlier date and has been updated with new information.
