This has been a rough year for the real estate investment trusts. While the S&P 500 index is showing returns of nearly 20% in 2023, many of the top REIT exchange-traded funds are barely holding their own. There are plenty of REITs to avoid these days.

REITs own and manage income-generating real estate properties, everything from apartment buildings to shopping malls and warehouses. REITs were a good portfolio diversification tool, especially during low interest rate periods.

However, today’s interest rates are high at 7.5% for the average 30-year mortgage, meaning there are an increasing number of REITs to avoid.

Those charges add hundreds of dollars monthly to mortgage payments, putting home ownership out of range for many would-be buyers. It’s affecting office buildings, apartment buildings and other properties that companies finance.

Not even a REIT’s normally generous dividend can make up for the losses. A REIT typically provides a reliable income source by distributing 90% of profits as regular payouts.

The Portfolio Grader is our tool to identify some of the REITs to avoid on Wall Street today. You would be better off with lumps of coal in your stocking than some of these names.

Realty Income (O)

The first name on the list is Reality Income (NYSE:O), a massive REIT with a market capitalization of more than $38 billion. Realty Income has over 13,000 properties in every U.S. state, the U.K., Spain, Italy, Ireland and Puerto Rico.

The company specializes in owning free-standing, single-tenant commercial properties. Grocery stores make up 11.4% of its holdings, followed by convenience stores (10.6%), dollar stores (7.2%), drugstores (5.9%) and home improvement (5.3%).

In October, it announced a $9.3 billion all-cash deal to acquire Spirit Realty Capital (NYSE:SRC), which owns over 2,000 single-tenant properties.

While Realty Income pays a monthly dividend yield of over 5%, the stock price is down 15% this year. It makes more sense to own Treasury bonds than to get a 5% dividend and lose 15% on the stock price, which is why O stock gets a “D” rating in the Portfolio Grader and a plae on this list of REITs to avoid.

Agree Realty (ADC)

Agree Realty (NYSE:ADC) is a retail REIT based in Michigan. It has over 2,000 properties that are leased to fast-food restaurants, groceries, pharmacies, used car lots and automotive parts retailers.

Agree is also a monthly dividend stock with a dividend yield of 5%. But the stock price is down 17% this year as commercial retailers are dealing with rising interest rates, combined with customers’ increasing willingness to shop online instead of in a brick-and-mortar store. That’s what makes this one of the REITs to avoid in the retail space.

Revenue in the third quarter was $136.7 million, up from $110 million a year ago. But tellingly, operating expenses are up more than 30% year over year. Total operating expenses increased from $55.6 million to $73.7 million. Net income per share did fall from 47 cents per share a year ago to 41 cents in the third quarter of 2023.

With higher operating expenses and lower net income per share, ADC stock gets a D rating in the Portfolio Grader.

Innovative Industrial Properties (IIPR)

Innovative Industrial Properties (NYSE:IIPR) is a REIT that operates in the cannabis space. Its portfolio includes facilities that are leased to state-licensed cannabis operators.

Cannabis stocks surged in 2021 because of expectations of federal marijuana decriminalization.

But it didn’t happen. The Covid-19 pandemic was a higher priority for Congress, as was the faltering economy, higher interest rates and Russia’s invasion of Ukraine. Federal decriminalization of marijuana took a back seat. The window closed.

True, states are increasingly legalizing marijuana use for recreational users. So far, 24 states and the District of Columbia regulate marijuana for recreational use. The industry isn’t growing as fast as expected, and cannabis companies are feeling the pressure.

Innovative Industrial Properties has a portfolio of 108 properties in 19 states. Revenue of $77.82 million in the third quarter was up roughly 10% from a year ago.

IIPR pays a dividend yield of 9%, but the stock price is down 21% in 2023. It gets a “D” rating in the Portfolio Grader.

VICI Properties (VICI)

VICI Properties (NYSE:VICI) is a REIT that owns destination resorts, casinos and other hospitality properties. It gets 45% of its revenue from Las Vegas because it has major holdings on the Las Vegas Strip.

VICI has 92 properties, including 56 gaming properties in the U.S. and Canada. It recently completed its acquisition of the Rocky Gap Casino Resort and also bought four gaming properties in Alberta, Canada. Those deals helped push revenue up 20% in the third quarter to $904.3 million.

Add to that VICI’s solid dividend yield of nearly 6%, and you would think it’s a strong dividend stock. But like other REITs, VICI stock is sagging. It’s down nearly 10% this year – and that’s after posting an 8% gain in November.

With high interest rates, REITs are a shaky investment – even in Las Vegas. VICI gets a “D” rating in the Portfolio Grader.

CTO Realty Growth (CTO)

CTO Realty Growth (NYSE:CTO) is a Florida-based REIT that owns retail properties. The company owns 16 multi-tenant properties and seven single-tenant properties, with a total square feet of 4.11 million.

It also has a $38.1 million investment in another REIT, Alpine Income Property Trust (NYSE:PINE), an equity that’s dropped 15% in 2023.

CTO (as well as Alpine) are facing the same headwinds as other REITs on this list. So while revenue in the third quarter was up from $17.69 million a year ago to $25.18 million this year, earnings per share fell from 20 cents to 7 cents. The stock price is down 7 percent, which casts a pall on the 9% dividend yield.

CTO gets a “D” rating in the Portfolio Grader.

Crown Castle (CCI)

Crown Castle (NYSE:CCI) is a telecom REIT. Instead of owning office buildings or retail shops, CCI owns over 40,000 cell towers. It also has 85,000 miles of fiberoptic cable and 120,000 on-air or under-contract small cell nodes.

But telecom REITs aren’t a good investment this year, either. Telecom companies have slowed their rollout of 5G updates, which means REITs like Crown Castle will see slower growth.

On top of that, telecom stocks are facing a lot of potential liability over lead-covered cables.

Activist investor Elliott Investment Management has a $2 billion stake in Crown Castle and is pushing for changes, including restructuring the company’s board of directors. A proxy fight may be brewing.

CCI stock is down 14% this year. It gets a “D” rating in the Portfolio Grader.

Extra Space Storage (EXR)

Extra Space Storage (NYSE:EXR) is a REIT that acts as a storage operator. It has over 3,500 locations in the U.S. for people who have too much stuff in their homes, or need to store items after downsizing or shutting down a business.

In July, it closed its merger with Life Storage, which increased Extra Space Storage’s portfolio by nearly 1,200 locations.

The stock price is down 12% this year, although it’s rebounded since the company reported third-quarter earnings. Revenue was $748 million, up from $498.9 million a year ago. However the company incurred $54 million in charges from the Life Cycle merger, and EPS dropped from $1.65 per share a year ago to 96 cents per share in the third quarter of 2023.

Not even storage spaces are immune to the headwinds facing REITs in this environment. EXR stock has a “D” rating in the Portfolio Grader.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.