3 High Yield REITs for the Mom

• I find it to be an amazing statistic that roughly one-quarter of Americans have no retirement savings.
• I was speaking with my mother over the weekend, and she is a prime-time example of a retiree who is pinching pennies.
• She’s like most retirees, she’s looking for income-oriented stocks to help boost her disposable income.

After writing on Seeking Alpha for more than a decade, I sometimes assume that everyone has saved for retirement.

I was recently reading a survey that found “23% of Americans have zero savings for retirement” and “25% of those between the ages of 45 and 54 haven’t started saving.”

I think it’s an astonishing statistic, given that about one-quarter of Americans have no retirement savings, which means they rely entirely on Social Security benefits.

In a recent Yahoo Finance article, Gabrielle Ola explained that “the average monthly profit as of June 2022 is $1,542.22” and that’s also a surprising data point, especially in the current environment in which retirees are working hard to keep up with inflation. are.

I don’t know about you, but considering the fact that I spend so much every month on utilities and fuel for the car, living off $1,500 per month would be extremely difficult.

I was talking with my mother over the weekend, and she is a prime-time example of a retiree stealing money. Fortunately, he accumulated real estate during his working years, and is not in a bad position financially.

Nonetheless, she is like most retirees in that she is looking for income-oriented stocks to help increase her disposable income. She told me that she wants high-yielding stocks that give above average total returns.

Mom is known to be a great cook, so I replied,

“Okay mom, you want to have your cake and eat it too.”

When I hung up, I thought to myself, I’d have to give him a list of three REITs he should buy.

She already owns several REITs, but I could understand her frustration that she was looking to invest her hard earned money in secure high-yield companies.

Not a sucker yield like Global Net Lease (GNL) — now 10.7% (with an AFFO yield of 11.8) — or Annaly Capital (NLY) — now yielding 13.6%, but rather high-quality REITs that should generate consistent and predictable attractiveness. Dividend with value appreciation.

Considering that I’m essentially writing this article for my mom, you can better bet I won’t put her into a value trap. She’s counting on me to recommend the three best high-paying REITs that can also help her sleep soundly at night.

I’m up for work, because I know my mom isn’t the only one counting on me to deliver stuff — I have over 102,000 followers here on Seeking Alpha — so I can’t spoil it.

Stored Capital (STOR): Yields 5.6%

STOR is a net lease REIT that owns 2,965 properties (with 573 clients) in which its largest client has just 3% exposure and the company’s top tenants have a combined 18% exposure.

This simply means that STOR has a very diverse business model with ~11.2 billion AUM (assets under management) and an addressable market of $3.9 trillion (+2 million sites).

I’ve been following STOR since its IPO and I was the first analyst on Seeking Alpha to cover the company (the first article was from September 2014). STOR’s business model is highly predictable based in large part on unit-level profitability (4.7x rent coverage) and solid capital markets discipline.

STOR maintains a nearly 40% leverage and solid debt ratio: 4.1x debt/EBITDA, 3.4x unencumbered assets, and 7.1x debt service coverage. Rated Baa2 (Moody’s), BBB (S&P & Fitch) with internal growth drivers that deliver attractive and consistent shareholder returns: Since 2016 – AFFO CAGR 5.7% and Dividend CAGR 6.1%.

What’s more, STOR has the highest dividend growth rate in the net lease sector (6.1%) and the lowest payout ratio (69%) in this sector. Also, STOR has the second highest weighted average lease term (of 17.1 years) in the region.

As seen above, STOR is attractive with a P/AFFO of 1.9x, while the 4-year average is 16.5x. The dividend yield is 5.6% and is well covered by AFFO (as mentioned, 69%). STOR expects AFFO to grow by 8% in 2022 and analysts’ consensus growth is around 4% over the next two years.

We anticipate the shares to return ~20% over the next 12 months and that certainly includes an attractive yield of 5.9%. With such a diversified portfolio and solid balance sheet, our risk rating for STOR is low, and that’s why this pure lease REIT fits like a glove on my mom’s high-income list.

Healing Properties (MPW): Yield 7.1%

MPW is a healthcare REIT that owns 440 hospitals in the US (60%) and other markets including the UK (20%), Switzerland (6%), Germany (6%), Australia (4%), Spain (1%) . , and other countries.

MPW’s core competency lies in owning and investing in mission-critical hospitals, where the REIT is the second largest owner of hospital beds in the US with approximately 46,000 and a US portfolio of $13.3 billion.

In a recent article I pointed out that “often, hospitals are the sector’s biggest employers, along with which value is created: medical office buildings (MOBs), surgery centers, residential communities, and retail.”

Recognizing that hospital investments are not bulletproof, MPW has managed to diversify its business model to mitigate operator-specific risks, such as even in the event of bankruptcy: rent paid, value of Defense is done, and new tenants are available.

MPW uses a number of master lease structures that guarantee the company the right to “withdraw” all assets in case of default. MPW leases ensure immediate control of properties at the parent level in the rare event of distress. In 2021, interest, depreciation, amortization, rent, and management fee (EBITDARM) was 2.8x property-level earnings before rent coverage…

Over the years, we’ve seen MPW improve its payout ratio, as well as increase its dividend. In the early innings, I was not a fan of the MPW business model, believing that dividend growth was an important part of the value creation process. However, MPW has proven that it can manage assets and create value on a global scale – since 2012 the company has paid $3.2 billion in cash dividends and $5.1 billion in capital (2012–2021). ) is appreciated.

As seen above, MPW shares have become cheaper, as the AFFO multiplier is 11.8x, up from 15.3x over an average of 5 years. The dividend yield is 7.0% and is well covered based on the REIT/BASE payout ratio of 86.3% (as on Q1-22).

Given the increased cost of capital (AFFO yield is 8.5%) growth is projected modest: 2% in 2023 and 2024; However, we find the upside attractive as our 12-month total return is 20%,

Simon Property Group (SPG): Yield 6.5%

SPG is a mall REIT that owns and owns 199 income-generating properties in the US, including 95 malls, 69 premium outlets, 14 mills, 6 lifestyle centers and 15 other retail properties in 37 states and Puerto Rico .

SPG holds a majority non-controlling 80% interest in TRG (Taubman Realty), which in turn has interests in 24 regional, super-regional and outlet malls in the Americas and Asia.

In addition, SPG has international exposure. The REIT has interests in 33 properties in Asia, Europe and Canada, and also owns a 22.4% equity stake in Clapierre SA (OTCPK: KLPEF), one of the leading real estate businesses in France and Europe.

SPG is expert form Managed by David Simon, Herbert Simon’s nephew, a 20+ year SPG veteran. Mr. Simon has been Chairman since -07, CEO since -95, and Director at SPG since -93.

SPG has a strong balance sheet with credit ratings of A3 from Moody’s and A- from S&P, and this is a huge advantage for the company and one of the reasons they dominate the segment with the highest rated portfolio.

Despite this, you can say that while rising rates are currently wreaking havoc across the market, it is important to realize that SPG’s weighted interest rates for loans are still close to record-low levels at this Q1-22 level, And its AFFO payout ratio, or dividend coverage (63.8 percent as per REIT/BASE), is at its best before and after the pandemic.

As seen above, SGP shares are also cheap, trading at a P/AFFO of 9.5x compared to the 5-year average of 15.x. The dividend yield is 6.6%. Once again, we see value here, with our forecast for 12-month total returns of 20% to 25%.

More for mom…

As I told my mother, if your objective is “high income,” you need to own more than 3 REITs. So, going forward, I’ll be writing a monthly “High Yield” column for mom, and I’ll share the likes with you, too.