Rising interest rates have proven challenging for the real estate industry over the past couple of years. It has made it more expensive for companies to borrow money to fund new developments and acquisitions. Meanwhile, higher rates have weighed on the value of income-producing real estate investments. That has increased their yields to compensate investors for their higher-risk profiles compared to lower-risk options like bonds and bank CDs.

This headwind could start fading next year. Many expect the Federal Reserve to begin cutting interest rates. That could lift the weight on shares of real estate investment trusts (REITs). This catalyst makes leading REITs Realty Income (O -0.17%), Mid-America Apartment Communities (MAA 1.60%), and VICI Properties (VICI -0.28%) stand out as stocks that investors will want to scoop up this December.

Set up for a strong 2024

Shares of Realty Income have slumped about 15% this year. That has helped push its dividend yield up to 5.7%.

The decline in its stock price and the increase in interest rates have pushed up its cost of capital. That's making it more challenging to finance property acquisitions that are accretive to its adjusted funds from operations (FFO) per share.

However, the company found a creative solution to that problem. It recently agreed to acquire rival REIT Spirit Realty in an all-stock deal. It's paying $9.3 billion, which includes assuming Spirit's low-cost debt. While it's using its stock, it's buying an even more beaten-down REIT. Because of that, Realty Income expects the deal to boost its adjusted FFO per share by more than 2.5% next year. Meanwhile, the combined company will produce an estimated $800 million in annual excess free cash flow after paying dividends. That gives Realty Income meaningful no-cost funding to make additional property investments.

Because of that, Realty Income believes it can grow its adjusted FFO by 4% to 5% next year without tapping the capital markets. It could grow even faster if interest rates fall. That would reduce the cost of issuing new debt and should boost its stock price, lowering its cost of capital. These factors put it in an excellent position to produce double-digit total returns next year.

A rent and investment reacceleration is ahead

Shares of apartment REIT MAA have tumbled 20% this year. That has driven its dividend yield up to 4.5%.

The apartment owner is battling headwinds from higher costs (interest rates and inflation) and increased supply. However, rents continue growing. That helped drive solid net-income growth of over 6% this year. Meanwhile, the company expects the supply issue to fade later next year as the market absorbs a wave of new apartments coming online. That should drive even higher rent growth.

Lower interest rates next year would put MAA in an even better position to capitalize on new growth opportunities. It already has a strong balance sheet, which is allowing it to fund its development and redevelopment pipeline. It currently has five multifamily development projects under construction that should come online in 2024 and 2025. Meanwhile, it expects to begin four to six new developments over the next two years. It could also use its financial flexibility to make acquisitions, including buying more land for future developments. Along with accelerating rent growth, these investments would boost the company's earnings, enabling it to continue increasing its dividend.

The shopping spree should continue

VICI Properties stock has fallen around 10% this year. That has pushed its dividend yield up to 5.6%.

The REIT focused on experiential real estate has been growing fast. Its adjusted FFO was up by 10.7% per share in the third quarter, driven by recent investments. It has acquired several casino properties in the past year. In addition, it's helping fund the development of several non-gaming experiential properties through income-producing mortgage loans and preferred equity investments.

VICI has maintained a strong balance sheet, which has enabled it to continue making new investments. It recently agreed to buy 38 bowling entertainment properties from Bowlero in a $432.9 million deal. That transaction comes with an embedded growth opportunity of acquiring additional properties from Bowlero in the future. Even with that deal, VICI has the financial flexibility to continue making new investments in 2024. It would be in an even stronger position to make deals if interest rates fell, which would also likely boost its share price. Future deals should enable the REIT to continue growing its dividend.

Income with upside in 2024 and beyond

REITs like Realty Income, MAA, and VICI Properties have all been under pressure this year. That's pushed up their dividend yields to even more attractive levels. Because of that, investors who buy shares this month can lock in higher income streams next year. Add in their upside potential, and they look like very compelling buys in December.