4 Ultimate REITs for Retirees (2024)

I know I’ve been preaching about the benefits of buying into real estate investment opportunities for a while now. A very long while, in fact.

If you’ve been following me for even a few months, much less a few years or more, you might even be a little (or a lot) immune to me listing off the ways of how worthwhile this asset class can be when put toward your retirement.

If that’s the case, don’t worry. I won’t take offense.

That doesn’t mean I’m going to stop talking about it though. The benefits of real estate – particularly when bought up through real estate investment trusts, or REITs – are too valuable to be quiet about. Plus, planning for retirement should be one of your top financial priorities while you’re working; and maintaining your retirement should be one of your top financial priorities after you’re done with the daily grind.

This is serious stuff.

That’s why I’m more than willing to shake up my own writing by adding in some outside perspective if that’s what it takes to keep you on the straight and narrow. My goal here is to point you toward the kind of future you’ve always envisioned for yourself and for your loved ones.

It’s a goal I don’t take lightly.

To further that imperative objective, let’s temporarily turn to Personal Capital Advisors Corporation, an SEC-registered investment advisor located in Redwood City, California.

Back in 2014, well after the financial crash of 2008, though still several years before anyone had a clue that the American economy would come booming back again with such a vengeance… Personal Capital wrote an article titled, “Why Real Estate Should Be a Part of Your Retirement Strategy.”

Even during a time of relative economic stagnation and low levels of optimism about the future, this business was touting the benefits of real estate investments. With good reason too, since real estate investments are always worth having in your portfolio.

It’s true before retirement and, thanks to their safer-than-most, dividend-paying nature, it’s true post-retirement too. The four REITs I’ll get to shortly are great examples of this.

But first, let’s review why real estate can be such a boon to your retirement.

6 (or More) Reasons to Buy Up and Buy In

All told, the previously mentioned Personal Capital article lists off 10 reasons to own physical property, which I’ve paraphrased below.

1. Owning real estate turns rising inflation into a benefit.
2. It hedges against national and even international risks.
3. It takes your average bull-market profits up a notch – or more.
4. It comes with automatic and significant tax benefits.
5. It’s relatively easy for average adults to wrap their heads around.
6. It takes away (at least some of) the temptation to sell your investment in a panic.
7. It allows you to put inflated dollars toward paying off expected debt.
8. It saves you the hassle of moving every time your landlord annoys you.
9. When renting out, it’s fairly reliable income.
10. It’s something you can pass on to your loved ones.

Now, clearly, some of those reasons don’t apply to the real estate investment trusts we focus on here. They’re specific to actual owners who don’t have to deal with boards and brokers.

But REIT shareholders do still directly or indirectly benefit from Nos. 1, 2, 3, 4, 7 and 9 – more than half the advantages with far less than half the hassle of home ownership or rental property ownership.

You won’t be expected to fix any leaky faucets or settle any tenant disputes in court when you buy into REITs. Instead, when done right, you’ll enjoy consistent quarterly dividends that you can reinvest toward an even more rewarding retirement than you’re already enjoying now.

That’s the beauty of a REIT, with these four standing out especially.

4 Solid REITs for Retirees

Physicians Realty (DOC) is a healthcare REIT that focuses exclusively on medical office buildings (or MOBs). Important factors for assessing MOB quality include health system affiliation, building age and size, occupancy, tenant credit quality and market share, average remaining lease term, client services, and the mix of services in the facility. As of 2018 year end, around 90% of DOC’s space was on campus and/or affiliated with a healthcare system. Its portfolio counts 252 properties in 30 states, over 13.6 million leasable square feet, approximately96% leased, and weighted average remaining lease term of approximately7.9years.

Assets total $4.4 billion, and DOC’s balance sheet is strong. Less than $77 million of debt is maturing over the next four years, all existing mortgages with a weighted average interest rate of 4.1%. The company’s net debt to adjusted EBITDAR is 5.6x, and debt to total capitalization is less than 34%, providing lots of flexibility. The company’s rated BBB- by S&P (and Moody’s equivalent).

We forecast DOC to grow its Funds Available for Distribution (FAD) by 5% this year, with 2% growth in net operating income (NOI), $300 million in acquisitions, and re-leasing the recently-vacated El Paso hospital. DOC has strong internal and external drivers that should provide 4% to 5% annual growth through next year. Shares trade at $18.19 with a dividend yield of 5.1%. We maintain a Buy.

W.P. Carey (WPC) is one of the largest diversified net lease REITs, with a portfolio of high-quality, operationally-critical commercial real estate, leased long-term to creditworthy tenants in 1,163 properties in the U.S. and Northern and Western Europe. In the U.S., the company has only modest exposure to retail (less subject to downturns). At the end of 2018, 63% of the ABR (annual base rent) came from U.S. properties and 35% from Europe. Industrial properties including warehouses represented 44% ABR, office properties 26%, and retail assets 18% (with the vast majority in Europe).

W.P. Carey is committed to an unsecured debt strategy, with a conservatively managed balance sheet to ensure ample liquidity (just over $1.6 billion). The company ended 2018 with debt to gross assets at 42.8%, and net debt to EBITDA at 5.8x. Debt maturities are well-laddered, with just $74 million of debt maturing in 2019, and limited floating rate debt (relative to the overall balance sheet).

For more than 45 years (and 21 internationally), the company has demonstrated a successful track record of investing and operating through multiple economic cycles - continuing to grow, and improving the quality of its diversified portfolio - and since going public in 1998, delivering yearly dividend increases to investors. Shares trade at $75.55 with a dividend yield of 5.4%, and we maintain a Buy recommendation.

Simon Property (SPG) is a best-in-class mall REIT - its 26^thyear as a public company - with full or partial ownership in 235 Class A malls in North America, Europe, and Asia – covering more than 190 million square feet of retail space. Nearly 50% of NOI comes from traditional, diversified U.S. malls, nearly all in dense, thriving, affluent cities - mostly in Florida, California, and Texas; 42% NOI is from Simon’s Premium Outlets and Mills; and 10% from international properties gives U.S. investors safe diversification.

Simon’s cost of capital is just 3.5% (courtesy of one of just two “A” credit ratings). The company has access to revolving credit facilities with over $7 billion in remaining liquidity from short-term credit markets.

Income investors look at fundamentals to gauge the health of a business - and Simon’s are excellent: 2018 FFO of $4.3 billion, $12.13 per diluted share, an increase of 8.2% year-over-year (high-end of peer group). Q4-18 FFO increased 3.5% year-over-year; average sales per square foot was a record $661, 5.3% more than the prior year period; and Mall and Premium Outlet occupancy ended 2018 at 95.9%, up 40 basis points from Q3, and 30 basis points more than the prior year period. It’s easy to see Simon’s strong business results - and with current market pricing, it’s a Strong Buy. Shares trade at $182.97. The dividend yields 4.5%.

Iron Mountain (IRM) is a misunderstood “Other” category REIT, with a strategy much larger than just storing boxes. The highly diversified business model tallies 80% of profits from Storage and 20% from Services – through information management, digital transformation, secure storage, secure destruction, data centers, cloud services, and art storage and logistics – serving over 225,000 customers worldwide. The company’s real estate network totals more than 90 million square feet, across more than 1,450 facilities, in approximately 50 countries. And amidst steady organic revenue growth, IRM enjoys a mere 2% customer turnover in a given year - meaning 50% of the boxes stored 15 years ago still remain.

Operations drive the value of the company, passing increases onto customers and decreasing any impacts of rising interest rates. Iron Mountain’s “core” business is Records & Information Management (45% of revenue), along with Secure Shredding (10.1%), Data Management (8.7%), and Data Centers (5.8%).

The company also has higher leverage than most peers: the lease adjusted leverage ratio at the end of 2018 was 5.6x. Also in 2018, Iron Mountain generated 16% AFFO growth, which helped reduce the dividend payout ratio to 78%. We believe IRM could generate above-average returns this year - in double digits. Shares trade at $35.17 with a dividend yield of 6.9%. We are maintaining a BUY.

I own shares in IRM, SPG, WPC, and DOC.