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. REITs are public companies that own large portfolios of real estate and pay dividends to shareholders. There are 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 from Oct. 11 close |
| American Tower Corp. (ticker: AMT) | 4.1% | 35.9% |
| Ventas Inc. (VTR) | 4.2% | 67% |
| Public Storage (PSA) | 4.4% | 14.9% |
| Welltower Inc. (WELL) | 2.8% | 20% |
| Crown Castle Inc. (CCI) | 6.6% | 44.9% |
| Simon Property Group Inc. (SPG) | 7% | 39.4% |
| Realty Income Corp. (O) | 6% | 49.2% |
| Extra Space Storage Inc. (EXR) | 2% | 35% |
| AvalonBay Communities Inc. (AVB) | 3.7% | 31.3% |
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 wireless tower stocks are oversold relative to fair value estimates, suggesting the 2023 pricing weakness is a long-term buying opportunity. Dolgin says American Tower’s strategy of diversifying its portfolio internationally positions it best among the top-three U.S. tower companies. He says headwinds in the India market have likely peaked, and Africa and India’s long-term network expansion should be durable international growth drivers. Morningstar has a “buy” rating and $225 fair value estimate for AMT stock, which closed at $165.62 on Oct. 11.
Ventas Inc. (VTR)
Ventas is a health care REIT that specializes in health care facilities, including specialty care facilities, housing for seniors, medical office buildings and hospitals. Analyst Kevin Brown says the Affordable Care Act has supported health care real estate demand and catalyzed the industry’s increased focus on higher-quality care and lower-cost facilities. Brown says Ventas should benefit from favorable long-term demographic shifts as the baby boomer generation ages. Americans ages 80 or older spend more than four times the national average per capita on health care. Morningstar has a “buy” rating and $72 fair value estimate for VTR stock, which closed at $43.11 on Oct. 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 higher interest rates and stress in some commercial real estate markets has dragged down the price of U.S. REITs by about 30% overall since their 2021 peak levels, but the pullback has created attractive entry points for patient, long-term investors. Sharma says self-storage is considered a recession-resistant industry, and societal trends such as downsizing, moving and adding space will continue to fuel industry growth. Morningstar has a “buy” rating and $317 fair value estimate for PSA stock, which closed at $275.78 on Oct. 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 34% including dividends through Oct. 11 this year, the best 2023 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 Welltower has a portfolio of high-quality assets, industry-leading net operating income growth and relationships with top operators in senior housing, skilled nursing and medical office buildings. Morningstar has a “buy” rating and $103 fair value estimate for WELL stock, which closed at $85.81 on Oct. 11.
Crown Castle Inc. (CCI)
Crown Castle is a specialty REIT that owns and operates wireless communications towers. Crown Castle shares are down 27.3% through Oct. 11 including dividends, the worst performance of any stock on this list. Dolgin says Crown Castle has a differentiated strategy that involves focusing exclusively on the U.S. and investing aggressively in fiber and small cell communications sites. While Dolgin isn’t particularly bullish on small cells, he says Crown Castle’s legacy tower business is excellent and its shares are attractively valued at today’s prices. Morningstar has a “buy” rating and $137 fair value estimate for CCI stock, which closed at $94.54 on Oct. 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 7% dividend, the highest on this list. Brown says Simon has one of the top retail property portfolios in the U.S. The company focuses on class A traditional regional malls and premium outlets in densely populated, high-income markets that have travel appeal to both domestic and international shoppers. He says many of these properties provide unique shopping experiences that are difficult to replicate elsewhere. Morningstar has a “buy” rating and $151 fair value estimate for SPG stock, which closed at $108.33 on Oct. 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 REIT in the U.S., meaning tenants cover real estate taxes, maintenance and building insurance. Realty Income also has a 6% dividend yield and makes monthly dividend payments, making it an attractive income source for investors. Brown says Realty Income’s tenants are focused in defensive segments, and the triple-net lease structure reduces investor risk. Morningstar has a “buy” rating and $76 fair value estimate for O stock, which closed at $50.95 on Oct. 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, Extra Space has a profitable insurance business and a strategic third-party management business. Sharma says the company’s combination of owned property and third-party management has enabled Extra Space to expand its geographic footprint and improve its data sophistication while minimizing its capital investment. Sharma says self-storage fundamentals will normalize in the medium term, and top players like Extra Space will continue to gain more share of the fragmented market. Morningstar has a “buy” rating and $165 fair value estimate for EXR stock, which closed at $122.25 on Oct. 11.
AvalonBay Communities Inc. (AVB)
AvalonBay Communities is a multifamily residential REIT that specializes in upscale apartment communities. Brown says AvalonBay’s focus on attractive, suburban coastal markets with favorable demographics, including New England, New York and Southern California, will help the company maintain elevated occupancy rates and generate impressive rent growth. He says these types of markets benefit from job growth, income growth and decreasing homeownership rates. AvalonBay also regularly divests non-core assets and uses the proceeds to invest in its development pipeline or make strategic acquisitions. Morningstar has a “buy” rating and $233 fair value estimate for AVB stock, which closed at $177.42 on Oct. 11.
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9 of the Best REITs to Buy for 2023 originally appeared on usnews.com
Update 10/12/23: This story was previously published at an earlier date and has been updated with new information.
