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, which are public companies that own large portfolios of real estate. Many of them also pay sizable dividends. There are many different types of REITs, providing investors access to residential, commercial and specialty real estate.
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Here are nine of the best REITs to buy in 2023, according to Morningstar analysts:
| Stock | Forward dividend yield | Implied upside over Sept. 11 close |
| American Tower Corp. (ticker: AMT) | 3.5% | 24.8% |
| Ventas Inc. (VTR) | 4.3% | 58.1% |
| Public Storage (PSA) | 4.4% | 19.2% |
| Simon Property Group Inc. (SPG) | 6.6% | 30.7% |
| Crown Castle Inc. (CCI) | 6.4% | 39% |
| Welltower Inc. (WELL) | 3% | 17% |
| Realty Income Corp. (O) | 5.6% | 37.8% |
| Extra Space Storage Inc. (EXR) | 1.9% | 39.6% |
| AvalonBay Communities Inc. (AVB) | 3.7% | 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 is slowing, but American Tower remains confident it can hit its leasing targets in the next few years thanks to master lease agreements, or MLAs. These contracts come with locked-in carrier spending commitments, creating long-term financial visibility. However, Dolgin says American Tower’s international business and data centers, which combined make up more than half the company’s revenue, are performing very well. Morningstar has a “buy” rating and $225 fair value estimate for AMT stock, which closed at $180.28 on Sept. 11.
Ventas Inc. (VTR)
Ventas is a health care REIT that specializes in health care facilities, including specialty care facilities, senior housing, medical office buildings and hospitals. Analyst Kevin Brown says higher operating margins and improving rate growth are helping senior housing’s ongoing recovery from its pandemic downturn. Brown says the Affordable Care Act has been a tailwind for top health care real estate operators, and baby boomers entering their senior years are supporting demand. In fact, the 80-and-older population is expected to double over the next decade. Morningstar has a “buy” rating and $68 fair value estimate for VTR stock, which closed at $43.02 on Sept. 11.
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 continue to weigh on Public Storage’s growth numbers in 2023, but trends such as downsizing, moving, changing households, adding space, growing adoption rates, decluttering, urbanization, growing populations, migration and falling home prices will help support self-storage occupancy and rates. In addition, the self-storage industry is relatively insulated from economic downturns because customers need storage during difficult life events. Morningstar has a “buy” rating and $326 fair value estimate for PSA stock, which closed at $273.59 on Sept. 11.
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 6.6% dividend, the highest on this list. Brown says Simon has one of the top portfolios of mall assets in the U.S., focused largely on class A traditional regional malls and premium outlets in densely populated, high-income markets. Not only are these retail markets relatively healthy, they often provide unique shopping experiences and have travel appeal for domestic and international tourist shoppers. Morningstar has a “buy” rating and $150 fair value estimate for SPG stock, which closed at $114.74 on Sept. 11.
[READ: 15 Best Dividend Stocks to Buy Now]
Crown Castle Inc. (CCI)
Crown Castle is a specialty REIT that owns and operates wireless communications towers. Crown Castle shares are down 25.5% this year including dividends, the worst performance of any stock on this list. Dolgin says Crown Castle’s organic tower leasing growth was slightly better than anticipated in the second quarter, but the company was still forced to cut its guidance due to lighter carrier spending. Fiber leasing and fiber solutions came in below expectations, but Dolgin says the stock’s 2023 weakness has provided an attractive entry point. Morningstar has a “buy” rating and $137 fair value estimate for CCI stock, which closed at $98.53 on Sept. 11.
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 30.7% this year including dividends, the best performance of any stock on this list. Welltower secured new agreements to acquire or develop $2.3 billion in assets in the second quarter. Brown says the company’s 80.2% same-store senior housing occupancy in the second quarter exceeded his expectations. Rental rates also increased 7.5% from a year ago. Morningstar has a “buy” rating and $98 fair value estimate for WELL stock, which closed at $83.74 on Sept. 11.
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. It is the largest triple-net-leased REIT in the U.S., meaning tenants pay all the property expenses, including real estate taxes, maintenance and building insurance. Realty Income also has a 5.6% dividend yield and makes monthly dividend payments, making it an attractive income source for investors. Brown says most of the company’s retail tenants are focused on defensive market segments, such as service-oriented businesses. Morningstar has a “buy” rating and $76 fair value estimate for O stock, which closed at $55.17 on Sept. 11.
Extra Space Storage Inc. (EXR)
Extra Space Storage is one of the largest publicly traded self-storage REITs. In addition to its self-storage facilities, Sharma says Extra Space has a profitable insurance business and a strategic third-party management business. This unique business structure has allowed the company to improve its operating efficiency, increase its data sophistication and build a valuable brand in densely populated, high-income urban markets. While Sharma says self-storage fundamentals will likely normalize from historically high growth rates in 2021 and 2022, it will remain an attractive industry for long-term investors. Morningstar has a “buy” rating and $177 fair value estimate for EXR stock, which closed at $126.79 on Sept. 11.
AvalonBay Communities Inc. (AVB)
AvalonBay Communities is a multifamily residential REIT that specializes in upscale apartment communities. Brown says AvalonBay’s attractive coastal markets, such as New York and New England, have allowed the company to maintain high occupancy rates and strong rent growth. He says these markets have appealing traits for upscale apartment properties, including job growth, falling homeownership rates, income growth, and urban centers that attract young renters. Brown says the one-year duration of the typical apartment lease has allowed AvalonBay to raise rates to keep up with inflation. Morningstar has a “buy” rating and $241 fair value estimate for AVB stock, which closed at $179.53 on Sept. 11.
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9 of the Best REITs to Buy for 2023 originally appeared on usnews.com
Update 09/12/23: This story was previously published at an earlier date and has been updated with new information.
