Despite continued strength in overall U.S. employment figures and decelerating inflation, the prospect of an impending recession continues to weigh on investors. Once again, the yield curve has inverted, with the two-year Treasury rate coming in at 4.31% as of Dec. 9, compared to 3.55% for the 10-year Treasury rate. Historically, an inverted yield curve has been interpreted by market participants as a leading indicator of recession.
Investors looking for a defensive, income-generating investment to prepare for these conditions can turn to real estate investment trusts, or REITs. In particular, REITs that operate in the health care or infrastructure sectors might be more durable thanks to the evergreen nature of their tenants. Here are the seven best REITs to buy that should remain resilient through a recession:
American Tower Corp. (AMT)
Infrastructure REITs like those serving the telecommunications sector are generally less cyclical compared to retail or office REITs. These REITs tend to possess the defensive qualities of the telecom sector, namely a lower beta, a measure of volatility relative to the market. A good pick here is AMT, which has a beta of just 0.54, indicating it gyrates about half as much in either direction as the broader S&P 500 does. Currently, AMT boasts over 220,000 sites across the world and has a strong presence in the 5G space. In November 2021, AMT acquired CoreSite Realty, which helped the company expand its data center holdings. Currently, the company pays a dividend yield of 2.8%.
Crown Castle Inc. (CCI)
With a market cap of about $61 billion, CCI is smaller than AMT, but it is by no means a minor company. As one of AMT's competitors, CCI currently owns, operates and leases more than 40,000 cell towers and 80,000 miles of fiber-optic cable across the U.S. The company recently reported its third-quarter results for 2022, with highlights including a 7.9% year-over-year increase in revenue, a 12% year-over-year increase in funds from operations, or FFO, and a 48% year-over-year increase in its FFO margin. FFO measures the net cash a REIT generates and is an important measure of a REIT's overall operating performance. CCI also pays a strong dividend yield of 4.5%.
Ventas Inc. (VTR)
Health care companies tend to benefit from inelastic demand. Even during a recession, health care spending remains relatively stable, which helps sector earnings remain consistent. For a health care REIT play, investors can buy VTR, which owns and operates a portfolio of more than 1,200 health care facilities in the U.S., Canada and the U.K. This portfolio includes medical office buildings, nursing homes, rehabilitation centers, laboratories and research centers, among other property types. COVID-19 hit its nursing home segment, but Ventas has since recovered. Third-quarter earnings for 2022 saw FFO of 76 cents per share and net operating income growth of 13% in its senior housing operating portfolio. The company's dividend yield currently stands at 4%.
Welltower Inc. (WELL)
An alternative to VTR is WELL, which also holds a portfolio of health care-related properties. WELL's current holdings include seniors housing, post-acute care facilities and outpatient centers across the U.S., Canada and the U.K. Like many of the previous stocks, WELL recently reported quarterly earnings, increasing its FFO per share to 84 cents, up from 80 cents a year prior. The company attributed this to improvements in occupancy for its senior housing portfolio, which helped generate more revenue. On Nov. 7, WELL also signed a joint venture, or JV, agreement with Integra Health, with the intention of transitioning 147 of its senior care skilled nursing assets from Welltower to the JV.
WELL currently pays a dividend yield of 3.7%.
Physicians Realty Trust (DOC)
Investors who don't mind mid-cap stocks can consider DOC, which has a market capitalization of $3.6 billion. This health care REIT develops, manages and leases properties primarily to physicians and hospitals, notably medical office buildings. For its third-quarter 2022 earnings, DOC reported a 14.1% year-over-year increase in revenue and net income per share of 28 cents, up from 10 cents in the same period the year prior. The company's last notable acquisition was in December 2021 when it bought 14 Class-A medical office buildings from Landmark Healthcare Facilities.
DOC currently has a 6.2% dividend yield.
Healthcare Realty Trust Inc. (HR)
HR is another mid-cap health care REIT with a current market capitalization of $7.5 billion. Starting with just 21 health care facilities in 1993, HR's portfolio expanded over the years to encompass over 728 properties, primarily composed of multitenant medical offices and outpatient properties. The company's latest third-quarter earnings report for 2022 reported FFO of 39 cents per share, the acquisition of nine medical office buildings for $95 million, and 393,000 square feet of new and expansion lease activity. In June 2022, HR also completed a merger with Healthcare Trust of America Inc., which increased its market presence significantly. HR pays a dividend yield of 6.3%.
Prologis Inc. (PLD)
With a market capitalization of $108 billion, PLD ranks among the largest REITs traded on U.S. exchanges. This industrial REIT is a big player in the global supply chain and logistics industry. PLD currently owns or operates over 984 million square feet of logistics facilities space that it leases largely to business-to-business shipping or retail and online shopping fulfillment companies. Some of Prologis' biggest tenants and customers include Amazon.com Inc. (AMZN) and FedEx Corp. (FDX).
Few industrial REITs can compete with PLD's economy of scale and portfolio size. Over the trailing 10 years, PLD has returned an annualized 16.6%, beating the S&P 500's return of 13.2%. Currently, the company pays a dividend yield of 2.7%.
