Real estate investment trust expert Brad Thomas — editor of the industry-leading Forbes Real Estate Investor — covers over 200 REITs and for this special report has compiled a list of his 10 best SWANs — or "sleep well at night” — ideas to own in 2019.
For me, as a commercial real estate analyst, a SWAN is a publicly traded REIT stock — with strong dividends and growing dividends; a company with a unique position in the marketplace; with a “moat” around their business “castle” to help fend off attacks and intruders; with a strong balance sheet; a company that operates with integrity, and does what they say, and cleans up any missteps, quickly and decisively.
By law, factors that qualify a company as a REIT include the requirement to have the bulk of its assets and income connected to real estate investments and distributing at least 90 percent of its taxable income to shareholders, annually, in the form of dividends.
I like that requirement. And it has me on the continual quest to pick great companies that deliver those stable and predictable dividends quarterly (and sometimes monthly), and then, hopefully buy them when they’re on sale (as a value investor), and therefore, yes, “sleep well at night.”
I’ve scanned more than 200 publicly-traded REITs… and crafted my list of the 10 Best “Sleep Well At Night” REITs to Own in 2019 (of course, don’t just take my word on it – do your due diligence, including their impressive dividend reliability, growth, and current yields):
Ventas, Inc. (VTR) is a diversified healthcare REIT with an excellent portfolio mix of around 1,200 assets in the U.S., Canada, and United Kingdom, in nearly every healthcare sub-sector, with only modest (1%) exposure to skilled nursing. The company has a fortress balance sheet, including a war chest of liquidity — nearly $3 billion - and worthy of a credit upgrade (from BBB+ to A-).
Kimco Realty (KIM) is a shopping center REIT of 450 properties across 78 million square feet of leasable space, primarily in the top 20 U.S. markets, which provide 80% of ABR (annual base rent), and those markets project a population growth of 6.3 million within the next 5 years. Kimco also owns 9.74% of private grocer, Albertsons which expects over $1 billion in free cash flow over the coming year and could help support a 2019 IPO.
W.P. Carey (WPC) has been in business over 45 years and is one of the largest owners of net lease properties, ranking among the top 25 REITs in the MSCI US REIT Index, with an enterprise value of approximately $17 billion in “mission critical” commercial real estate, totaling 1,186 properties, over approximately 133 million square feet. 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.
See also: Top Picks 2019: TPI Composites (TPIC)
Tanger Outlets (SKT), headquartered in Greensboro, North Carolina, operates and owns (or has an ownership interest in) 44 upscale outlet shopping centers in 22 states coast to coast, and in Canada, over approximately 15.3 million square feet, leased to over 3,100 stores (more than 530 different brand name companies, and no department stores). Tanger has over 37 years of experience in the outlet industry, with annual traffic of more than 189 million shoppers.
American Campus (ACC) is the largest owner, manager and developer of high-quality student housing communities in the U.S. At the end of Q3-18, the company owned or managed 202 properties with approximately 131,900 beds, and with this year’s sale of EdR (formerly Education Realty Trust) to privately-held Greystar, ACC is the only publicly-traded "pure play" campus housing REIT.
Public Storage (PSA) built its first self-storage facility in 1972 and today operates thousands of unique and diverse company-owned locations in the U.S. and Europe, totaling more than 142 million net rentable square feet of real estate - among the largest landlords in the world. The size and scope of PSA’s operations enable the company to achieve high operating margins and low administrative costs relative to revenues.
Physicians Realty Trust (DOC) focuses on the Medical Office Buildings (or MOB) healthcare sector, with a Q3-18 portfolio of $4.3 billion worth of 250 healthcare properties across 30 states, comprising approximately 13.5 million square feet, and about 96.0% leased. Eight of DOC’s top ten tenants have an investment grade rating; and nearly 90% of the company’s portfolio is located on campus with a hospital or other healthcare facility… or strategically located and affiliated with a hospital or other healthcare facility.
STAG Industrial (STAG) — which stands for “Single Tenant Acquisition Group” — targets industrial properties, with 381 free-standing buildings in 37 states, with approximately 75.4 million in rentable square feet. Operating in secondary (Class B) markets, STAG enjoys low capital expenditures and lower tenant improvement costs. In December, the company received an investment grade rating from Moody’s (Baa3/Stable outlook), and maintains an investment grade rating from Fitch (BBB/Stable). STAG delivers a monthly dividend.
Simon Property Group (SPG) owns, develops, and manages premier shopping, dining, entertainment and mixed-use destinations with a best-in-class tenant roster at 207 properties in 37 states and Puerto Rico, along with ownership interests in 19 outlets in Japan, South Korea, Canada, Malaysia, and Mexico; and eight properties in Europe, plus one in Canada. Simon's debt ratings are among the best unsecured debt ratings in the REIT industry, which underscores its balance sheet strength; current liquidity is $7 billion.
CyrusOne (CONE) specializes in enterprise-class, carrier-neutral data center properties, providing “mission-critical” data center facilities that protect and ensure continued operation of IT infrastructure for approximately 1,000 customers, including more than 200 Fortune 1000 companies, via more than 45 data centers worldwide. Revenue backlog at Q3-18 end was $89 million, setting up the company for continued strong growth into the new year (with analyst estimates of 10% in 2019 and 2020), and supporting its dividend growth record, going forward.
(For full disclosure, Brad Thomas is long SPG, VTR, SKT, ACC, DOC, STAG, WPC, CONE, and KIM.)
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