Trader Peter Tuchman works on the floor of the New York Stock Exchange, Friday, Dec. 28, 2018.... [+] Stocks are opening higher Friday as U.S. markets try to maintain the momentum from a late-day rally on Thursday. (AP Photo/Richard Drew)
ASSOCIATED PRESS
Well it’s a new year (happy, happy!), and with it, some readers attracted by my headline, have “Retirement” in their sights, or currently experiencing that sought-after phase of life - where day-to-day routine, sometimes drudgery, sometimes exhilarating, turns to… something uniquely new and different.
I’ll leave it to other columnists and venues to recap the expected, smart advice about getting your expenses budgeted out, and making sure you have enough hobbies, chance to spend quality time with family and friends, travel more, volunteer for causes near to your heart, and make sure you have “plenty to do” - in that glorious period of life.
For now, I want to illuminate the financial aspect of “near, or in” retirement: investments, and more so, REITs - and using them to your retirement advantage. Readers already familiar with Real Estate Investment Trusts know that REITs are simple to own, simple to understand, and produce a premier benefit: income… steady, even above-market, and with growing dividends.
In my monthly newsletter, Forbes Real Estate Investor, I cover the industry, and assess over 150 publicly-traded REITs. (Our January issue’s now available, and for a full-year subscription, just click here.)
When I say, “here are 3 Great REITs for Retirement,” I realize that “just 3” does not a portfolio make. But with an overall mix of stocks, ETFs, mutual funds, bonds, and other investments, sensibly asset-allocated… these 3 REITs could add the necessary kick, and much-needed support to your portfolio and future cash flow.
Now, those 3 great picks:
Great Retirement REIT #1: W.P. Carey (WPC) has been in business over 45 years, is one of the largest owners of net lease properties, and ranks among the top 25 REITs in the MSCI US REIT Index. WPC’s enterprise value is approximately $17 billion of “mission critical” commercial real estate including 1,186 properties covering approximately 133 million square feet.
Its portfolio of high-quality single-tenant industrial, warehouse, office and retail properties is subject to long-term leases with built-in rent escalators. Assets are primarily in the U.S., with 30% exposure in Northern and Western Europe; and well-diversified by tenant, property type, geographic location and tenant industry.
In 2018, WPC returned .80% The company just increased its dividend last month, and we believe share prices remain attractive based on the P/AFFO multiple of 12.1x and dividend yield of 6.31%. We maintain a BUY.
Great Retirement REIT #2: Ventas, Inc. (VTR) is a diversified healthcare REIT with an excellent portfolio mix of around 1,200 assets in nearly every healthcare sub-sector, with only modest (1%) exposure to skilled nursing. With locations in the U.S., Canada, and United Kingdom, Ventas has successfully built a solid strategic vision, with foresight, innovation, proactive capital allocation decisions, and rigorous execution, with a stable, expert team.
In good measure, the company’s results are being driven by the “silver tsunami” aging population. With the positive trend of lower new starts in 2019, together with accelerating demand, Ventas expects supply/demand fundamentals to offer a powerful senior housing upside, over time. Already, their best-in-class senior housing portfolio is second to none.
Ventas has sector-leading financial strength and flexibility, evidenced by fixed charge coverage of 4.6x, a net-debt-to-EBITDA ratio of 5.4x, and less than 12% of total debt maturing in the next three years. VTR has a fortress balance sheet, including nearly $3 billion in “war chest” liquidity; highly defensive revenue generators, and discounted valuation. The company returned 2.9% in 2018. Shares trade at 14.4x P/FFO and the dividend yields 5.41%. We maintain a STRONG BUY.
Great Retirement REIT #3: Digital Realty(DLR) has returned -2.9% through 2018 and we maintain an “Overweight” rating on the Data Center sector, as pricing and returns have generally stabilized across major markets, and secular drivers providing a strong tailwind for data centers should continue for years to come.
Digital Realty has nearly 200 data centers totaling 32 million square-feet in top tier global metros across the U.S., Europe, and Asia/Pacific. The largest single market is in Northern Virginia, where its initial Ashburn campus and ACC campus (acquired in the DuPont Fabros merger), total 370 megawatts (MW). Digital Realty's third 243-acre site can support 390MW of data center development. Currently, close to 100MW of capacity is underway.
Digital Realty already has the largest global data center portfolio - but not resting on its laurels, DLR is expanding into Latin America, and future-proofing the company's ability to service hyperscale customers within its largest domestic market. Their global scale and balance sheet are helping to create a larger moat over time. DLR’s dividend yields 3.79%. We maintain a BUY.
Those 3 are terrific picks to help support a long-running retirement. Congratulations!!
Don’t miss the other choices in the REIT space, with 7 model portfolios, including a “New Money” portfolio, and list of recommended monthly-paying REITs. Subscribe here, to Forbes Real Estate Investor!
Disclosure: I own shares in WPC, VTR and DLR.
