REITs, or real estate investment trusts, are an investment category predicted to "generate attractive income growth next year if the Federal Reserve can tame inflation and avoid a deep recession," according to Kiplinger. In other words, if conditions pan out, REITs could recover in 2023 after a tough last year.
That doesn't necessarily mean it's smooth-sailing ahead — investment managers who specialize in REIT stocks are expecting challenges — but it still could be an investment worth considering for your portfolio. In fact, Kiplinger states that the "double-digit declines over the last year could set the stage for some of the best REITs to rally in 2023." So, here's a look at what experts predict those might be.
First, what is a REIT?
A real estate investment trust (REIT) is a company that owns, operates, or finances real estate that generates income, such as hotels, apartments, malls, or office buildings. By investing in an REIT, an investor can own a share of the real estate investment, and thus earn dividends while adding diversity to their portfolio.
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Like stocks, REITs are publicly traded. Investors can buy and sell REITs, writes Forbes, which makes them highly liquid, unlike physical real estate investments. Often, an REIT will specialize in certain types of real estate, though some may hold various property types.
What are some REITs to keep an eye on?
Kiplinger is among the many places that keep tabs on the best REITs to buy and hold at a given time. In its latest list, compiled for 2023, Kiplinger sought out REITs that "have strong defensive characteristics and exceptional pricing power," and that are also "well-prepared for rising interest rates thanks to their effective cost controls and balance sheet management."
Here's a look at four of its top selections that other publications have also flagged as REITs to watch this year:
Sun Communities: An owner and operator of RV parks, marinas, and manufactured housing, Sun Communities was among the REITs highlighted to buy and hold this year. According to Kiplinger, Sun Communities made the list "because it benefits from compelling supply-demand fundamentals for manufactured housing." The company has had an influx of applications this year, and tenants rarely move out of its communities. Further, Sun Communities has added tens of thousands of expansion and development sites in the last decade. Given this demand and the company's success so far, The Motley Fool argues that this "points toward more smooth sailing ahead for this unique residential REIT."
Public Storage: Public Storage is a leader in self-storage, an industry Kiplinger describes as "the REIT world's most recession-resistant segment." Public Storage is currently squashing the competition while still achieving impressive growth, with Investopedia naming it among the fastest-growing REITS. On top of that, Kiplinger notes that it has "an A2 credit rating and one of the best balance sheets in the REIT industry." All of these factors led Kiplinger to conclude: "Public Storage has plenty of dry powder to support dividend growth."
Prologis: According to Kiplinger, Prologis "is one of the best REITs to buy given its exceptional track record for creating value for investors." Prologis is the owner of logistics real estate across the globe, including the U.S., Asia, and Europe, with an estimated 2.5% of global GDP moving through its distribution centers, per Kiplinger. U.S. News & World Report also flagged this REIT, noting its "strong, sustained growth."
American Tower: American Tower is the largest of the big three cell tower REITs, according to The Motley Fool. In recent years, the company has made big revenue gains and big cuts to its debt. Recent acquisitions have also "significantly bolstered its data center portfolio," says U.S. News & World Report, which also favors the REIT. Analysts see a big future for America Tower, too: "This REIT's dividends have increased 20% annually since 2012, and analysts forecast 18% annual growth through 2025," Kiplinger reports.
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She has previously served as the managing editor for investing and savings content at LendingTree, an editor at SmartAsset and a staff writer for The Week. This article is in part based on information first published on The Week's sister site, Kiplinger.com
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.
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