2022 was a challenging year for investors, with the S&P 500 experiencing its worst decline since the 2008 recession. Cash became king as both equity and fixed income markets struggled. However, with dry powder available, there are great opportunities to buy blue-chip stocks at reasonable rates.
In this article, we will focus on my Top 5 REITs for 2023. Despite the bear market we find ourselves in, these REITs offer promising prospects and potential for growth. Let's dive in!
REIT #1 - American Tower (AMT)
American Tower is the leading cell tower REIT in the market today, with a market cap of $98 billion. Its shares have seen a decline of nearly 25% in the past 12 months.
The company boasts a portfolio of about 223,000 communication towers, meeting the growing demand for mobile data usage worldwide. As telecommunication giants like AT&T, Verizon, and T-Mobile battle it out, American Tower provides the infrastructure they desperately need. By owning the cell towers leased by these telecom giants, American Tower offers excellent investment opportunities.
5G technology is rolling out globally, and with it comes the need for more cell towers. American Tower is well-positioned to benefit from this growth. The company pays a dividend of $6.24 per share, with a dividend yield of 2.9%, and has been increasing its dividend for 10 consecutive years.
Considering the undervalued shares, with a current valuation of 21x next year's AFFO estimates compared to the historical average of 25.6x, American Tower appears to be an attractive investment.
REIT #2 - Prologis (PLD)
Prologis, a premier logistics REIT, has been on my radar for a while. Over the past 12 months, its shares have experienced a decline of nearly 30%, providing an excellent opportunity to accumulate shares in this sector.
Prologis owns over 4,900 buildings across North & South America, Europe, and Asia, with a portfolio encompassing approximately 1.0 billion square feet of leasable space. With e-commerce continuing to grow, especially as it still accounts for less than 15% of total retail sales, Prologis is well-positioned to benefit from this trend.
The company's top customers are none other than Amazon and FedEx, indicating the strong partnerships it has formed. Prologis has a solid balance sheet and has been increasing its dividend for 9 consecutive years, with a 5-year dividend growth rate of 12.4%.
Shares of Prologis pay an annual dividend of $3.16 per share, translating to a dividend yield of 2.8%. The current valuation of 24.9x next year's AFFO earnings suggests an undervaluation compared to the 5-year average of 28.0x.
REIT #3 - CubeSmart (CUBE)
In the self-storage sector, CubeSmart stands out as the third-largest self-storage REIT. With a market cap of $8.9 billion, it trails behind Public Storage and Extra Space Storage. However, it has faced challenges, with shares falling by 28% in the past year.
The self-storage sector provides a safe haven for investors due to its consistency. CubeSmart is expected to continue growing alongside the increasing demand for self-storage units. As people accumulate possessions during times of economic growth or downsize during economic downturns, the need for self-storage remains.
CubeSmart simplifies the renting process through its digital app, making it convenient and driving growth. The company pays an annual dividend of $1.96 per share, yielding an attractive 5.0%. It has increased its dividend for 12 consecutive years, with a 5-year dividend growth rate of 10%.
Shares of CubeSmart currently trade at 15.5x next year's AFFO earnings, below the 5-year average of 20x, making it a compelling investment opportunity.
REIT #4 - VICI Properties (VICI)
VICI Properties, a top gaming and hospitality REIT, is the largest landlord on the Las Vegas Strip. Its shares have gained 11% since my initial investment on January 13, 2022.
As the Las Vegas Strip's landlord, VICI owns properties such as Caesars Palace, the Venetian, New York New York, Mandalay Bay, and more. These properties contribute around 45% of the company's rental income. VICI continues to expand its portfolio and footprint, positioning itself for further growth.
Operating in a space with high barriers to entry, VICI benefits from a strong tenant base. Even during the depths of the pandemic, the company collected 100% of its rents. VICI pays an annual dividend of $1.56 per share, with a dividend yield of 4.9%, and has increased its dividend every year since going public.
Valued at 15.4x next year's AFFO projections, below the 3-year average of 16.5x, VICI appears to be an appealing investment opportunity.
REIT #5 - AvalonBay Communities (AVB)
AvalonBay Communities is the second-largest apartment REIT, with a market cap of $23 billion. Its shares have seen a decline of 35% in the past 12 months, offering investors an attractive entry point.
The company owns over 80,000 apartment units in prime locations such as New York, New England, Northern California, Southern California, and Seattle. With inflation driving rent increases, AvalonBay's latest earnings results reflected strong growth. Same-store rental revenue grew by 11.8% year over year, with 9.5% of that growth coming from higher lease rates.
Despite the pressure on the real estate sector due to housing shortages, rising interest rates, and dwindling buying power, AvalonBay is well-positioned to navigate these challenges. The company pays an annual dividend of $6.36 per share, offering a dividend yield of 3.9%.
Trading at a forward valuation of 16.8x, below the 5-year average of 21.6x, AvalonBay represents an appealing investment opportunity.
Investor Takeaway
REITs can be an excellent addition to any investment portfolio, providing stable dividends and potential for growth. Amidst uncertain market conditions, focusing on high-quality REITs with proven management and liquidity is crucial.
All five of the REITs mentioned above offer stability, growth potential, and attractive dividends. American Tower, Prologis, CubeSmart, VICI Properties, and AvalonBay Communities are leaders in their respective industries, making them appealing to investors.
So, what are your thoughts on these REITs? Share your opinions in the comments below.
Happy New Year!