Full length shot of a handsome senior man sitting and stretching his legs on the beach during the day
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There are real estate investment trusts, or REITs, that are great to own while you build toward a worthwhile retirement.
And then there are real estate investment trusts that are great to own while you’re actually in retirement.
This article? It’s about the latter topic – an important topic to talk about, to be sure. Make no mistake about it.
Retirement is amazing for so many reasons (or so I’m told), starting with the fact that you’re not quite so attached to your alarm clock as you used to be. There’s no waking up at 7:00 in the morning… 6:00 in the morning… or earlier.
Not unless you want to see the sun rise, anyway. If you’re a morning person, then, by all means, be my guest.
It’s just that, if you’re not a morning person, never have been, and never want to be… You no longer have to go against nature. Nobody’s going to fire you if you sleep in late. Every. Single. Day.
Regardless, far away from the grind, you finally have time to truly stop and smell the roses. To notice the little things. To enjoy a few more fishing trips or great books or whatever your hobby might be.
All of that? That’s the great side of being a retiree.
Of course, nothing in this world is ever completely perfect. There’s always going to be two sides to the coin, even when it comes to something as highly anticipated as retirement.
That drawback? Well, if you’re already in retirement or if you’ve thought it through beyond mere daydreaming about all the extra fish you can catch or books you can read… you know the answer very well. You’ve probably already said it out loud and everything.
It’s the lack of a steady paycheck that makes retirement a little less ideal than you’d prefer.
Now, as much as I might wish otherwise, I can’t promise you a complete and total replacement in that regard. But I can tell you that REITs can be a great source of income for retirees.
And that’s especially true of the REITs we’re going to cover down below.
Like Peanut Butter and Jelly
If you’ve been following me for a few months, you already know that the acronym for real estate investment trusts – REIT – fits oh-so easily into the word “retirement.” Check it out below and see for yourself:
REtIremenT
For that matter, the first four letters are all correct, just a bit out of order:
RETIrement
And that’s not the only way that REITs and retirement seem perfect for each other, just like peanut butter and jelly. Even if you’re not impressed with, or convinced by, the wordplay up above…
There’s also the fact that these investment vehicles can and do step in to take the place of a paycheck.
Before you “go there,” yes. I fully recognize that these paycheck replacements don’t hit your bank account every two weeks. And when they do arrive, they’re probably not as big as your pre-retirement paychecks were.
However, the right REITs can give you that extra income “oomph!” you want and need to sleep well at night.
You might not have a mortgage to pay off anymore. The same probably goes for kids in the house to feed or college tuition to provide for. Those expenses are long-since taken care of.
But there are still expenses, such as:
- Food and drink for you and your spouse
- Running water
- Proper heating and cooling
- Some savings to cover any undesirable incidents around the house, whether those incidents involve broken appliances or, God forbid, broken bones.
It’s just nice, not to mention safe, to have some income coming in after all. Which is why you’ll want to look at the following retirement-specific REITs.
They’re well-worth considering whether they’re right for you.
These REITs Were Made for Retirement
As a dedicated REIT analyst, it’s my job to sift through the high-dividend universe to uncover the real REIT gems.
Of course, I must always pay close attention to dividend safety to make sure that my recommendations don’t become sucker yields.
In this article I decided to highlight two of my top-picks suitable for retirees.
We recently upgraded shares in Taubman Centers (TCO) to a Strong Buy. What sparked the promotion was the fact that Mr. Market is not recognizing shares in this high-end mall REIT for its luxurious business model. Taubman’s portfolio of 27 malls and outlets generate sales per square foot of over $900, the highest in the mall sector and this means that the company has higher rent-negotiating power.
Also, Taubman recently announced it was selling a 50% interest in four of its Asian malls (to Blackstone Group), a measure that seems strategic given the $325 million in net value created.
Taubman’s dividend yield is 6.2% and the P/FFO multiple (REIT version of P/E) is 11.9x. We find this valuation attractive, especially given the pullback witnessed from most all retail REITs. However, Taubman’s trophy mall collection is impressive and we believe there are catalysts in place for the company to deliver super-charged returns in excess of 25% (over 12-14 months).
The other pick is Weingarten Realty (WRI), a Houston-based shopping center REIT. Since 2015 the company has sold over 20 Power Centers out of 61 property sales that have longer-term cash flow volatility. This means the company has reduced weak tenant and replaced the rent checks with higher-quality tenants (with an emphasis on necessity-based companies).
What I find most attractive about Weingarten is the fact that the company has transformed the balance sheet (zero outstanding under the $500M revolving credit line) and could invest $400 million in net acquisitions and maintain Net Debt to EBITDARe below 6.25x. Over the 9 years (2010 – 2018) the company has sold $2.9 Billion and acquired $1.3 Billion of property.
Weingarten now yields 6.2% with a P/FFO multiple of 13.3x. The dividend is well-covered (79% payout ratio based on FFO) and we also upgraded the company to a Strong Buy, with a forecast of 25% annualized returns.
I own shares in TCO and WRI.