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Last week I attended The Money Show in Orlando where I spoke to many retirees who were seeking reliable sources of income.
As I walked across the exhibit floor, I was amazed to see such a diverse number of companies – some considered dividend stalwarts and others that had the aura of the “selling swampland in Florida” pitch. I went from booth-to-booth and I was taken away by the fear that many retirees must have as they seek out the most reliable sources of income.
While retirement is meant to suggest a happy time to enjoy the "golden years" in life , the fear of losing money is oftentimes the culprit that detracts from a quality lifestyle - retirement satisfaction appears positively correlated with income, net worth, and health.
As the editor of The Forbes Real Estate Investor, I am keenly focused on helping investors reduce risk and sleep well at night. In fact, I created a SWAN (sleep well at night) portfolio specifically to assist investors with building their nest eggs. To qualify as a SWAN, a REIT must have a long track record of paying and growing dividends.
REIT (real estate investment trust) income should be a part of the retirement process and investors should take a closer look at the asset class that offers an outsized dividend yield along with very predictable sources of income.
However, REITs should not be painted by the same brush - just because you are an investor in a REIT does not guarantee that the dividend income will be sustainable. Most all retirees are counting on the income to fund expenses or enjoy their quality of living, a dividend cut could mean be devastating.
Most REITs are publicly traded (although some are private so make sure you know the difference) and this means that they must disclose financial information and report on material risks. This transparency enables investors to analyze and value REIT assets independently. Stock exchange-listed REITs are held to the same standards as other public companies and reporting is governed by the SEC.
I have never seen a REIT that sells swampland but if there were such a company, the prospective investor could find out about it by reviewing company filings and thus avoid being duped by conducting careful due diligence.
In my newsletter, I recently decided to build a new REIT collection called Moat-Worthy REITs For Moms. Included in this basket are 11 REITs, most of which are rated SWAN--that means they offer a high degree of dividend predictability.
Included in the portfolio are four of my favorite picks: Omega Healthcare Investors (OHI), Tanger Factory Outlets (SKT), Simon Property Group (SPG), and Ventas (VTR). He's a recap of my buy recommendations:
Omega Healthcare (OHI) is the largest “pure play” REIT that invests in skilled nursing buildings. As of Q4016, Omega had an operating asset portfolio of 981 facilities with approximately 99,000 operating beds. These facilities were spread across 79 third-party operators and located within 41 states and the United Kingdom.
Omega’s leverage remains exceptionally strong as does its balance sheet – as of Q4016 the company’s net debt to adjusted annualized EBIDTA was 4.7x and the fixed-charge coverage ratio was also 4.7x. The company has $1.2 billion of combined cash and revolver availability to fund future investments and provide capital funds for existing tenant leases.
Omega’s latest earnings were in-line and the adjusted FFO guidance for 2017 was $3.40 to $3.44 per share and the funds available for distribution (or FAD) guidance was $3.10 to $3.14 per share.
Tanger Factory Outlets (SKT) is the only “pure play” REIT that invests in Outlet Centers. The company owns 42 outlet centers in the U.S. and Canada.
As of Q3-16, Tanger's consolidated portfolio was 97.4% occupied, up 20 basis points from 97.2% on September 30, 2015, and up 50 basis points from 96.9% at June 30, 2016. As of Q3-16, Tanger is expecting year-end occupancy to be between 97.5% and 97.7%.
The company's debt to total market capitalization ratio was 30% down from 32% at September 30, 2015. The company continues to maintain a strong interest coverage ratio during the third quarter of 4.48x.
Tanger's Q3-16 AFFO per share was up 5.1% to $0.63 per share or $62.3 million from $0.59 per share or $59.4 million in the third quarter of 2015. On a year-to-date basis, AFFO per share increased 7.3% to $1.76 per share or $177.5 million from a $1.64 per share or $163.3 million for the same period of 2015.
Tanger raised the dividend by 14% in April 2016 and the company has now raised its dividend each of 23 years as becoming a public company in May of 1993 and has also paid a cash dividend for 93 consecutive quarters.
Simon Property Group (SPG) is the largest mall REIT with a portfolio that spans 200 properties worldwide.
The Indianapolis-based REIT has amassed a portfolio of premier class A mall and outlet properties over the last decade and as the CEO, David Simon, boasted on the latest earnings call, “(SPG) has 434 department stores in (the) portfolio, and only one is vacant.”
Simon’s total portfolio Net Operating Income (or NOI) increased 6.7% or more than $380 million for the year and comp NOI increased 3.8% for the quarter and 3.6% for the year. Over the last five years, Simon’s comp NOI has increased an average of 4.4% per year and its annual comp NOI has increased by $1.2 billion since 2012.
Simon enjoys a fortress balance sheet, as one of just three REITs that are rated “A” by credit agencies and 2016 was the first year that the company’s annual fixed charge coverage was over 5x. The company’s current liquidity stands at whopping $7 billion.
Simon paid a record dividend in 2016 of $6.50 per share and the company has achieved a compound annual growth rate of 12% over the last three years. A few days ago Simon announced a dividend of $1.75 per share for the quarter, a year-over-year increase of 9.4%.
Ventas (VTR) is the largest health care REIT and the company owns over 1,200 properties that generate in excess of $3.3 billion of annual revenue.
During the 2016, Ventas grew normalized FFO per share by 5% (the high end of the guidance range) and the company generates revenue by leasing to leading healthcare operators.
Ventas has one of the best dividend growth records in the REIT industry, and it remains an important component of the value proposition. In 2016 Ventas raised its dividend by over 6%.
At year-end, Ventas’ net debt to adjusted EBITDA improved to 5.7x, a 0.4x reduction from year-end 2015 leverage of 6.1x. The company’s fixed charge coverage grew to 4.8x; net debt to gross asset value improved by 4% to 38%; and secured debt to total indebtedness was just 6%.
The company’s Q1- 2017 guidance for income from continuing operations is in the range between $1.72 and $1.78 per fully diluted share and normalized FFO per share is expected to be in the range of $4.12 to $4.18 per year.
Disclosure: I own shares in OHI, SKT, SPG and VTR.
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I’m editor of Forbes Real Estate Investor, coauthor (with Stephanie Krewson-Kelly) of The Intelligent REIT Investor and author of The Trump Factor: Unlocking the Secrets Behind the Trump Empire .
