Real estate investments can be an excellent way for investors to earn returns, generate cash flow, hedge against inflation and diversify an investment portfolio. However, buying physical properties can be costly, difficult and risky for an individual investor. Instead, investors can buy shares of diversified real estate investment trusts, or REITs.
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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. Here are nine of the best REITs to buy in 2023, according to Morningstar analysts:
| Stock | Forward dividend yield | Implied upside over Aug. 8 Close |
| American Tower Corp. (ticker: AMT) | 3.4% | 21.9% |
| Public Storage (PSA) | 4.3% | 15.7% |
| Crown Castle Inc. (CCI) | 6.0% | 31.7% |
| Simon Property Group Inc. (SPG) | 6.4% | 26.1% |
| Welltower Inc. (WELL) | 2.9% | 14.9% |
| Realty Income Corp. (O) | 5.2% | 28.8% |
| Extra Space Storage Inc. (EXR) | 3.2% | 37.5% |
| AvalonBay Communities Inc. (AVB) | 3.6% | 30.0% |
| Equity Residential Properties Trust (EQR) | 4.1% | 34.2% |
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 U.S. tower leasing activity is slowing, but AMT management is confident it can hit its lease growth targets thanks to its master lease agreements, which lock in long-term carrier spending commitments. Dolgin says American Tower’s international strength and data center assets differentiate it from other U.S. tower REITs. Africa and Latin America have been particularly strong markets so far in 2023. Morningstar has a “buy” rating and $225 fair value estimate for AMT stock, which closed at $184.61 on Aug. 8.
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 Public Storage will be hit by weaker self-storage demand in 2023, but societal shifts will continue to fuel industry growth in coming years. Sharma says trends such as urbanization, decluttering, migration and lower home affordability are all tailwinds for self-storage. He says rental growth and occupancy levels will stabilize and normalize in 2023 as pandemic-related demand continues to wane and new supply hits the market. Morningstar has a “buy” rating and $326 fair value estimate for PSA stock, which closed at $281.83 on Aug. 8.
Crown Castle Inc. (CCI)
Crown Castle International is a specialty REIT that owns and operates wireless communications towers. Crown Castle shares are down 21.3% year to date in 2023 through Aug. 8, the worst performance of any stock on this list. Dolgin says Crown Castle’s organic tower leasing growth was slightly better than expected in the second quarter, but fiber leasing and fiber solutions performance continue to struggle. He says organic tower leasing growth should slow in the second half of 2023 but projects 5% to 6% average annual leasing growth in the long term. Morningstar has a “buy” rating and $137 fair value estimate for CCI stock, which closed at $104.04 on Aug. 8.
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 a 6.4% dividend, the highest on this list. Analyst Kevin Brown says Simon reported $54.6 million in net operating income, or NOI, losses from its retail investment portfolio in the most recent quarter, offsetting solid underlying property NOI growth from its portfolio. Brown says Simon has a top U.S. retail real estate portfolio, including Class A traditional regional malls and premium outlets in attractive markets that have tourist appeal. Morningstar has a “buy” rating and $150 fair value estimate for SPG stock, which closed at $119 on Aug. 8.
[SEE: 7 of the Best High-Dividend ETFs.]
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 32.2% year to date through Aug. 8, the best 2023 performance of any stock on this list. Brown says the senior housing market continues to recover, and Welltower reported $2.3 billion in asset acquisition or development deals in the second quarter. He says Welltower’s relationships with senior housing operators provides strategic advantages over other senior housing REITs and gives the company financial flexibility. Morningstar has a “buy” rating and $98 fair value estimate for WELL stock, which closed at $85.29 on Aug. 8.
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. Brown says same-store net operating income was only up 0.2% year over year in the first quarter, but the company’s $1.67 billion in acquisitions in the quarter exceeded expectations. Brown says Realty’s monthly dividend is “one of the most stable sources of income for investors.” While more than 80% of tenants are in retail, he says most are focused on defensive businesses. Morningstar has a “buy” rating and $76 fair value estimate for O stock, which closed at $59 on Aug. 8.
Extra Space Storage Inc. (EXR)
Extra Space Storage is one of the largest publicly traded self-storage REITs. Sharma says Extra Space reported impressive same-store NOI growth in the first quarter, but its profitability took a hit from higher interest expenses. After seven consecutive quarters of double-digit growth, same-store revenue was up just 7.4% in the most recent quarter. Same-store occupancy also dropped 0.6% year over year. Sharma says a growth slowdown in the self-storage market in 2023 is no surprise following two years of outsized growth, but long-term trends remain bullish. Morningstar has a “buy” rating and $177 fair value estimate for EXR stock, which closed at $128.75 on Aug. 8.
AvalonBay Communities Inc. (AVB)
AvalonBay Communities is a multifamily residential REIT that specializes in upscale apartment communities. Brown says same-store revenue growth of 6.3% in the second quarter was offset by 8.2% growth in same-store operating expenses, including a 30.7% increase in utility costs tied to improvements to bulk internet access. Brown remains cautious on the company’s growth prospects, but the company has a track record of creating significant shareholder value by developing its properties. Brown says same-store growth will push funds from operations even higher in 2023. Morningstar has a “buy” rating and $241 fair value estimate for AVB stock, which closed at $185.44 on Aug. 8.
Equity Residential Properties Trust (EQR)
Equity Residential is a multifamily residential REIT that owns and operates a diversified portfolio of apartment properties. Brown says Equity Residential has compiled a portfolio of properties in urban, coastal markets that have favorable demographics and allow for high occupancy rates and strong rent growth. The company has exited southern and inland markets and focused on cities like Los Angeles, San Francisco and San Diego, where job growth, income growth, high single-family housing costs and attractive urban centers create elevated demand for apartments. Morningstar has a “buy” rating and $88 fair value estimate for EQR stock, which closed at $65.57 on Aug. 8.
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9 of the Best REITs to Buy for 2023 originally appeared on usnews.com
Update 08/09/23: This story was previously published at an earlier date and has been updated with new information.
