Real estate investments can be an excellent way 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 and often pay sizable dividends. There are many 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 Nov. 10 close |
| Prologis Inc. (ticker: PLD) | 3.3% | 18.6% |
| American Tower Corp. (AMT) | 3.5% | 22.4% |
| Ventas Inc. (VTR) | 4.2% | 69.2% |
| Welltower Inc. (WELL) | 2.8% | 20.6% |
| Public Storage (PSA) | 4.9% | 29.5% |
| Simon Property Group Inc. (SPG) | 6.6% | 30.9% |
| Crown Castle Inc. (CCI) | 6.6% | 35.9% |
| Realty Income Corp. (O) | 6.1% | 51.8% |
| Extra Space Storage Inc. (EXR) | 2.1% | 38.5% |
Prologis Inc. (PLD)
Prologis is an industrial REIT that specializes in logistics real estate. Analyst Suryansh Sharma says Prologis’ third-quarter earnings numbers were solid and its sharp drop in funds from operations, or FFO, was largely due to lumpy strategic capital segment performance. Sharma says investors should mostly ignore the strategic capital segment and focus on Prologis’ underlying industrial portfolio, which generated 20% year-over-year FFO growth in the quarter. Sharma says Prologis’ extremely high re-leasing spreads should help ensure strong net operating income growth over the next several years. Morningstar has a “buy” rating and $124 fair value estimate for PLD stock, which closed at $104.55 on Nov. 10.
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 Tower is generating great results and is taking a conservative financial approach heading into 2024. Dolgin says American Tower’s core tower-leasing business has positive momentum, and the company’s cost-cutting measures have seemingly delivered a durable margin boost. While peak 2022 5G investment levels likely won’t return anytime soon, Dolgin says the company’s outlook isn’t nearly as dire as the stock’s current valuation suggests. Morningstar has a “buy” rating and $225 fair value estimate for AMT stock, which closed at $183.79 on Nov. 10.
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 large sequential occupancy gain Ventas reported in its senior housing portfolio in the third quarter is encouraging, and senior housing rental rates also increased 6.2% year over year in the quarter. Same-store revenue growth was 7.5% in the quarter. Brown predicts Ventas can continue its positive momentum and return to 2019 occupancy levels by 2025. Morningstar has a “buy” rating and $72 fair value estimate for VTR stock, which closed at $42.56 on Nov. 10.
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 up 31.2% year to date through Nov. 10, the best 2023 performance of any stock on this list. Welltower closed $1.4 billion in acquisitions in the third quarter and another $922 million in acquisitions prior to its earnings call. Brown says the recovery in the senior housing market continues to fuel Welltower’s same-store occupancy growth, which improved 1.2% sequentially to 81.7% last quarter. Morningstar has a “buy” rating and $103 fair value estimate for WELL stock, which closed at $85.37 on Nov. 10.
[READ: 8 Best Real Estate Stocks to Buy.]
Public Storage (PSA)
Public Storage is a specialty REIT that is the largest owner of self-storage facilities in the U.S. Sharma says the post-pandemic boom in self-storage demand is finally starting to slow, but Public Storage still managed to grow same-store revenue by 2.5% annually in the third quarter. Same-store occupancy in the quarter was 93.4%, down 1.1% from a year ago. Sharma says self-storage stocks are generally considered recession resistant, making Public Storage an excellent defensive investment in an uncertain economic environment. Morningstar has a “buy” rating and $317 fair value estimate for PSA stock, which closed at $244.78 on Nov. 10.
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, tied for the highest on this list. Brown says the partial sale of Simon’s stake in SPARC Group, which reduced Simon’s ownership stake to 33%, provided an impressive return for investors. In the third quarter, Simon’s occupancy increased 0.5% sequentially to 95.2%. Brown says Simon’s strategy of monetizing retail investments and using the proceeds to buy back stock should create significant shareholder value. Morningstar has a “buy” rating and $151 fair value estimate for SPG stock, which closed at $115.33 on Nov. 10.
Crown Castle Inc. (CCI)
Crown Castle is a specialty REIT that owns and operates wireless communications towers. Crown Castle shares are down 29.5% year to date in 2023, the worst performance of any stock on this list. Dolgin says Crown Castle’s soft 2024 guidance is deceiving because the guidance projections do not account for unique 2023 tailwinds creating difficult comparisons, including a lump-sum payment from T-Mobile US Inc. (TMUS). Dolgin says small cell leasing appears to be turning a corner and says Crown Castle shares are “significantly undervalued” at current levels. Morningstar has a “buy” rating and $130 fair value estimate for CCI stock, which closed at $95.64 on Nov. 10.
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 pay all the property expenses, including real estate taxes, maintenance and building insurance. Realty Income has a 6.1% dividend yield and makes monthly dividend payments, making it an attractive income source. Brown says the company’s planned all-stock merger with Spirit Realty Capital Inc. (SRC) will help reduce general and administrative costs by $30 million. Morningstar has a “buy” rating and $76 fair value estimate for O stock, which closed at $50.06 on Nov. 10.
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. Rising interest rates are hurting Extra Space, given about 30% of the company’s total debt is variable-rate debt. In addition, Sharma says investors should expect self-storage growth to remain muted over the next several quarters. However, Extra Space’s stock is attractively valued at current levels, and self-storage stocks have historically been recession-resistant, defensive investments. Morningstar has a “buy” rating and $165 fair value estimate for EXR stock, which closed at $119.11 on Nov. 10.
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9 of the Best REITs to Buy Now originally appeared on usnews.com
Update 11/13/23: This story was previously published at an earlier date and has been updated with new information.
