The past year has been a tough one for real estate investment trusts (REITs), with total returns (price + dividends) for the equity REIT sector outpacing the broader S&P 500. But double-digit declines over the last year could set the stage for some of the best REITs to rally in 2023.
Investment managers specializing in REIT stocks (opens in new tab) anticipate macro-conditions will remain challenging in the new year due to high interest rates, inflation and recession fears. Still, it’s important to note that operating performances remain strong, creating the catalyst for a REIT recovery next year as fears abate and more certainty returns to capital markets.
REITs are likely to generate attractive income growth next year if the Federal Reserve can tame inflation and avoid a deep recession. Assuming this scenario, real estate investment trusts would be able to capitalize on demand for leasing space that exceeds new supply, which has been constrained by steeply rising material and labor costs. This supply-demand imbalance will give REITs strong rental pricing power for many property types.
Investment managers also think that the best REITs to buy in the coming year are those continuing to benefit from secular tailwinds. These include self-storage, apartment, alternative housing, cell tower and industrial space operators. Net-lease REITs are also attractive because of their long-term leases that generate durable cash flows in every economic climate.
With this in mind, here are the nine best REITs to buy (and hold) in 2023. The names featured here all have strong defensive characteristics and exceptional pricing power. They are well-prepared for rising interest rates thanks to their effective cost controls and balance sheet management.
What’s more, these are some of the best dividend stocks, with payouts that are well-covered by FFO (funds from operations, a key REIT earnings metric). Many of these names