My Top 5 REITs For 2023

2022 proved to be a challenging one for many investors. The broader S&P 500 saw its worst decline since 2008 and the Great Recession, falling nearly 20%. In addition, the bond market saw its worst performance on record as well, leaving both equity and fixed income investors scratching their heads.

Cash was certainly king in 2022, and investors that still have dry powder available, is about to get some great opportunities to buy blue-chip stocks at a very reasonable rate.

At the moment, we are stuck in a bear market where things are likely to get worse before they get better. I ran a poll recently on Twitter asking if investors thought we would dip BELOW our October lows or not. The overwhelming majority (65%) answered YES, that we would see lower lows.

To put this bear market into perspective, here are some statistics.

• Since 1928, the S&P 500 has experienced 26 bear markets
• Average length: 289 days, or 9.5 months
• Assuming a 50-year investing horizon, you can expect to invest through ~14 bear markets

The current bear market was officially confirmed on June 13, 2022, which we are roughly 7 months since that date.

As I mentioned in my article titled, “My Top 10 Dividend Stocks For 2023,” I mentioned how economists and money managers price targets are all over the map for the new year. Here is a look at those price targets.

Given where the markets currently trade and where they are likely headed in the near-term, it is important to maintain not only a reasonable level of cash on hand, but also an updated watchlist.

In today’s piece, we will look at my Top 5 REITs For 2023.

REIT #1 – American Tower (AMT)

American Tower is the premier cell tower REIT on the market today by a wide margin. The company currently sports a market cap of $98 billion.

Over the past 12 months, shares have fallen nearly 25%.

The company has a portfolio of roughly 223,000 communication towers and growing. The demand for mobile data usage continues to grow across the globe.

This day in age the Telecommunication giants of AT&T (T), Verizon (VZ), and T-Mobile (TMUS) are all battling it out, offering huge discounts and subsidizing new phones in order to acquire new customers. Those discounts have put pressure on margins for those companies.

Instead, why not own the infrastructure behind those companies, which they desperately need, which is exactly what American Tower is. They build the cell towers that are leased out to the telecom giants. Some cell towers are occupied by one tenant and some up to three. The more tenants the larger the margins.

5G continues its rollout both here in the U.S. and internationally. 5G provides huge speed increases over the likes of 4G, but the data is limited on how far it can trouble, hence the need for more cell towers.

AMT pays a dividend of $6.24 per share which equates to a dividend yield of 2.9%. The company has increased the dividend for 10 consecutive years now and they have a 5yr DGR of 17%, making AMT a rare dividend growth REIT.

In terms of valuation, shares of AMT currently trade at 21x next year’s AFFO estimates and over the past 5yrs shares have traded closer to 25.6x, suggesting shares are undervalued compared to historical averages.

REIT #2 – Prologis (PLD)

This next REIT, Prologis has been on my buy list for quite awhile, as I first initiated a position after the stock fell in the summer, which currently puts my shares nearly even thus far.

PLD shares over the past 12 months are down nearly 30%, providing a great time to accumulate shares in this premiere logistics REIT.

Prologis has over 4,900 buildings in North & South America, as well as Europe and Asia, giving them a global reach. These buildings make up roughly 1.0 billion square feet of leasable space.

Given that Prologis is a logistics company, it should not come as a surprise that Amazon (AMZN) and FedEx (FDX) are their two largest customers.

If you are a believer that e-commerce will continue to be a growing trend moving forward, especially considering e-commerce sales still only account for less than 15% of total retail sales, then this is a great REIT to consider for your portfolio.

The company is very well managed and they are backed by an A rated balance sheet. Although the rating is high, this did not protect them from the steep fall shares took in 2022, which I believe were way overblown.

First, AMZN came out and announced they had too much warehouse space, which sent shares of PLD tumbling, but PLD has some of the best facilities around, and to date, AMZN has not terminated any of its leases with PLD.

The other event that took place around the same time was the acquisition announcement of Duke Realty, which is a positive add, but the timing and valuation are what concerned investors. We were beginning a free fall in the stock market as a whole, so they may have been able to save some cash by just waiting a few months.

Shares of PLD pay an annual dividend of $3.16 per share which equates to a dividend yield of 2.8%. The company has paid a growing dividend for 9 consecutive years and counting and like AMT, they have also been growing their dividend at a strong clip with a 5yr DGR of 12.4%. In 2022, the company hiked their dividend another 25%.

Shares of PLD currently trade for 24.9x next year’s AFFO earnings compared to a 5-yr average of 28.0x.

REIT #3 – CubeSmart (CUBE)

Now let’s move to the self-storage sector with CubeSmart. CubeSmart is the third largest self-storage REIT, with a market cap of $8.9 billion, trailing the likes of Public Storage (PSA) and Extra Space Storage (EXR).

On the year, this sector has been hit hard, with all three of these self storage REITs ending the year down more than 20%. CUBE shares fell 28% over the past 12 months.

The self-storage sector tends to be a safe-haven for investors given the consistency of the space. The self-storage sector is expected to continue to grow in the coming years.

Here in America, we love to buy things. In fact, many people are hoarders, at least in my family. When times are great, we buy too much crap and need a self-storage unit to hold things. When times get tough, people often downsize their homes, but still want to keep many things, so they need a self-storage unit.

CubeSmart has made it very simple to rent a space from them all with the use of their digital app, and with ease and convenience, comes growth.

Shares of CUBE pay an annual dividend of $1.96/share which equates to a high yield of 5.0%. The company has been increasing its dividend for 12 consecutive years and has a 5yr Dividend Growth rate of 10%.

In terms of valuation, shares of CUBE currently trade at 15.5x next year’s AFFO earnings compared to a 5-yr avg of 20x.

REIT #4 – VICI Properties (VICI)

VICI Properties has been a favorite of mine for some time, as they are a top gaming and hospitality REIT and the largest landlord on the Las Vegas Strip.

I first initiated a position in shares of VICI on January 13, 2022, and have enjoyed 11% gains in the stock, not counting dividends.

VICI is newer to the public markets, having only been public for a little more than five years. However, after seeing some great articles from my friend Brad Thomas I became more intrigued and started digging into the company myself.

As I mentioned, the company is the largest landlord on the Las Vegas strip with some great properties such as, Caesars Palace, the Venetian, New York New York, Mandalay Bay, and many others.

The Las Vegas strip properties account for roughly 45% of the company’s rental income. The company continues to expand and grow its portfolio and footprint every year.

In 2022, shares of VICI were up nearly 7%, which is solid considering the year the greater stock market had, but I still believe this REIT is still in its early stages of growth.

VICI operates in a space with a very high barrier of entry and they do so with some of the highest quality operators around. The strength of the company’s tenants was evident during the depths of the pandemic, when VICI continued to collect 100% of its rents due, something that should continue even as we head into a recession.

VICI shares currently pay an annual dividend of $1.56, which equates to a dividend yield of 4.9%. The company has increased their dividend every year since they have been a public company. Over the past three years, VICI has increased the dividend at an average annual rate of 9%.

Although VICI shares were up in 2022, shares still do not look too expensive at current levels. VICI trades at 15.4x next year’s AFFO projections and over the past three years they have traded at an average valuation of 16.5x.

REIT #5 – AvalonBay Communities (AVB)

To close, let’s look at the second largest apartment REIT on the market currently which is AvalonBay Communities. The company currently has a market cap of $23 billion. AVB and Equity Residential (EQR) share the top spot in the apartment sector.

Over the past 12 months, shares of AVB have fallen 35%, providing a great entry point for this blue-chip apartment REIT with a strong portfolio of properties.

The company owns more than 80,000 apartment units in prime locations such as:

• New York
• New England
• Northern California
• Southern California
• Seattle

Inflation has not only driven prices of food higher, but rents have increased as well, and the company’s latest earnings results fully reflected that. During the third quarter, same-store rental revenue grew 11.8% year over year. Looking further into that, 9.5% of that growth came from higher lease rates from the prior year.

Management still believes there is plenty of tailwinds as rental increases continue to play out across various regions.

However, the Real Estate sector as a whole continues to be under heavy pressure due to housing shortages, rising interest rates, and dwindling buying power. This could add further pressure to apartment REITs, but it also provides opportunity for these highly liquid companies to continue to expand their portfolio at discounted prices.

AVB currently pays an annual dividend of $6.36 per share which equates to a dividend yield of 3.9%.

Looking at valuation, this blue-chip REIT trades at a forward valuation of just 16.8x, which is well below their 5yr avg of 21.6x.

Investor Takeaway

REITs can sometimes get a bad wrap, especially in times of slower economic growth or during periods of rising interest rates like we see right now.

However, history has proven that REITs have been a top performing asset class for a number of decades. The key right now is to focus on quality. REITs that have a proven management team and liquidity to take advantage of these times.

All five of these REITs are high-quality REITs, many of them leaders in their respective industry. All of these REITs have great portfolios that will continue to fund stable dividends for investors, many of them being high yield dividends.

Would love to hear your take on these REITs down in the comments section below.

Happy New Year!