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All Contents © 2020The Kiplinger Washington Editors
By Lisa Springer, Contributing Writer
| February 17, 2019
One of the essential first lessons that investors learn is diversifying a portfolio reduces risk. That’s because different assets often react differently to the same event. A downturn in one asset when interest rates rise, for example, may be counter-balanced by an upswing in another. By holding diverse assets, a portfolio becomes less sensitive to market swings.
Diversification is recommended not only across asset classes, but across geographies. This is especially true for real estate, since the value of a property is largely determined by the local economy. A real estate investment trust (REIT) that performs poorly in the U.S. may generate good overall results from the performance of its European and Asian assets.
Investors could be taking on unnecessary risk by limiting their holdings to US-centric REITs. Many large U.S. REITs recognize this threat and are diversifying their holdings across geographies. Global expansion not only trims geographic risk, but benefits overall performance by giving these REITs a foothold in faster-growing economies of Asia and Latin America, where an expanding middle class is fueling the creation of wealth.
Here are 12 mega-sized REITs – many with rising dividends – that also offer diverse international exposure and generous yields. We’ve also included an extra real-estate play that’s not organized as a REIT but is worthy nonetheless.
Data is as of Feb. 15. Dividend yields are calculated by annualizing the most recent quarterly payout and dividing by the share price.
Market value: $56.7 billion
Dividend yield: 4.5%
Simon Property Group (SPG, $183.36) owns or has interests in 234 retail properties and 191 million square feet of leasable space across North America, Europe and Asia. However, the REIT also has European exposure via its 21% equity stake in French real estate investment trust Klepierre (KLPEF), which owns shopping centers in 16 European countries.
With portfolio occupancy at 95.5% as of its most recently reported quarter, Simon is able to generate organic growth by raising rents when leases expire. In addition, the REIT produces high returns from its worldwide development activities. Simon has major development projects underway in larger cities within Canada, Mexico, Spain and the U.K.
Over the past five years, Simon’s dividends have risen by an average of 10.4% annually, with the company typically hiking the payout more than once a year. The last increase was a 2.5% bump in early February to $2.04 per share.
Moreover, investors would have realized a 20.5% average annual total return from owning SPG share over the past decade, easily beating the S&P 500’s 15.2% total return in the same time period.
Simon currently is rated “Buy” or “Strong Buy” by 17 of the 22 analysts covering the stock; it has no “Sell” calls at the moment.
Market value: $12.1 billion
Dividend yield: 5.5%
W.P. Carey (WPC, $75.20) has compiled a track record of 20 consecutive years of dividend growth while building a portfolio of 1,186 properties, widely diversified across geography and property type. Industrial properties (split into “Industrial” and “Warehouse”) are a core focus at 43.8% of the portfolio and have helped the REIT participate in the growth of e-commerce.
W.P. Carey regularly invests abroad and has assets in 13 European countries as well as Canada and Mexico. The REIT has a strong presence in Germany, one of the world’s largest and strongest economies, and is expanding in the U.K. where Brexit fears have reduced property prices.
WPC’s quarterly payout has grown by an average of just 3.4% annually over the past five years, though investors should note that the REIT does bump that dividend higher each and every quarter.
The REIT completed a merger with Corporate Property Associates 17, a non-traded REIT it advised in a deal valued at $6 billion, in October. At the time, the merger boosted W.P. Carey’s enterprise value to approximately $17 billion, and was expected to simplify the business and improve portfolio metrics by extending lease terms and further diversifying the industry and tenant mix.
Market value: $29.8 billion
Welltower (WELL, $77.61), as one of the nation’s largest health-care REITs, benefits from an aging U.S. population that is driving rising health-care spending. The REIT owns 1,676 health-care properties, mainly senior and assisted living facilities, that serve 321,000 residents.
Welltower partners with national health-care systems like ProMedica, Ascension, HCR Manor Care and Evolution Health to grow its network. The REIT recently formed a joint venture with ProMedica, the country’s 15th largest health-care provider, for a 15-year master lease agreement that is the first of its kind between a REIT and a health-care system.
A growing senior population outside the U.S. is creating expansion opportunities for Welltower in Canada and the U.K. The REIT owns 111 health-care facilities in the U.K., clustered around London, Manchester and Birmingham, and 151 facilities in Canada mostly grouped around the country’s seven largest cities. The senior population is growing five times faster than the general population in the U.K. and 10 times faster than the general population in Canada.
While Welltower offers a nice yield of 4.5%, its dividend growth did stop in 2018 after eight years of uninterrupted growth. Its five-year average dividend expansion is just about 2.6% annually.
But things look on track for 2019. In its recently released fourth-quarter report, the company reaffirmed 2019 funds from operations (FFO, an important metric of REIT profitability) guidance of $4.10 to $4.25 per share, and improved its view on 2019 net income, to $2.70 to $2.85 per share.
Market value: $23.7 billion
Dividend yield: 3.5%
Digital Realty Trust (DLR, $115.03) is one of the world’s largest data-center REITs. It owns 198 data centers representing 33 million square feet of leasable space and operates in 32 metropolitan areas across 12 countries.
The REIT benefits from multinational companies deploying cloud solutions worldwide to manage their IT needs. It’s well-positioned for the second cloud wave that will come from demand for artificial intelligence, the Internet of Things, autonomous vehicles and virtual reality.
Working with global customers such as Facebook (FB), Oracle (ORCL) and International Business Machines (IBM) requires sites worldwide. Digital Realty maintains a London data-center campus and dozens of data centers in Europe and Asia.
This fast-growing REIT has posted 13 consecutive years of dividend increases and annual dividend growth averaging 12% since 2005. That should be able to continue, as DLR boasts a manageable 66% adjusted FFO payout ratio that sits on the lower end of its historical range.
Market value: $1.4 billion
Dividend yield: 11.2%
Global Net Lease (GNL, $19.06) owns a diversified portfolio of single-tenant office, industrial and retail properties. The REIT leases these properties to investment-grade tenants such as FedEx (FDX), Merck (MRK), the IRS and Deutsche Bank (DB) under long-term leases.
Slightly more than 50% of the REIT’s portfolio is in the U.S. Global Net Lease also operates in seven European countries, with large asset allocations in the U.K. (20%), Germany (8%) and the Netherlands (6%).
Global Net Lease has embarked on an acquisition spree in 2018, acquiring nearly $183 million of new properties during the first six months. Including these acquisitions, the current portfolio consists of 336 properties covering 26.2 million square feet of leasable space.
The REIT began paying monthly dividends in mid-2015 and has held its payout steady at 17.7 cents per month.
Market value: $78.3 billion
Dividend yield: 1.9%
American Tower (AMT, $177.82) leases real estate for cell towers and other communication structures to wireless services providers, broadcast companies and government agencies and municipalities. The REIT owns approximately 170,000 communication sites globally, including nearly 41,000 tower sites in the U.S. and more than 129,000 international sites across 16 countries ranging from Germany to Chile to Uganda.
Demand for mobile data is exploding worldwide. 5G buildouts and lower-cost smartphones are forecast to drive 37% annual growth in data usage demand in the U.S. through 2023, 30% to 40% annual growth in Europe and Latin America and 31% a year in the rest of the world. American Tower plans to capitalize on these trends by expanding its networks across Europe, Central and South America, Africa and India.
The REIT has delivered 16.1% annual growth in AFFO per share over the past decade and better than 20% annual dividend growth since 2012.
During the June 2018 quarter, the company acquired 10,000 new sites in India through its partnership with local provider Idea Cellular. India’s carrier business is consolidating, and American Tower is poised to benefit as a handful of remaining players step up investments in 4G networks to gain market share.
American Tower also is a rarity in that it has the overwhelming majority of its covering analysts on its side. Right now, 21 of 22 analysts evaluating AMT have it as a “Buy” or “Strong Buy.”
Market value: $6.8 billion
Medical Properties Trust (MPW, $18.36) is the second largest non-governmental owner of hospital beds worldwide. The REIT invests in acute-care, long-term care and rehabilitation hospitals as well as other types of medical and surgical assets. Its portfolio consists of 276 facilities, mainly acute-care hospitals, operated by about 30 large hospital chain operators. Approximately 77% of Medical Properties’ assets are in the U.S. The remaining 23% are spread across Germany, Australia, the U.K., Italy and Spain.
This REIT pioneered the concept of sale/leaseback for hospitals, first in the U.S. and then later in Europe. Its portfolio is actively managed; Medical Properties closed the $148 million sale of a Texas property in September 2018, recognizing a $100 million gain on this sale.
And earlier in 2018, the REIT sold its stake in 71 German hospitals to a European partner for $1.89 billion. Medical Properties earned a 15% return on this investment, which was the largest European health-care transaction at that point in the year. The company planned to use the proceeds to pay down debt and invest in new American and European hospitals.
Medical Properties has grown its assets 33% a year for the past five years while delivering consistent FFO growth and five years of rising dividends, averaging 4.6% annually over that time. The last increase was by 4% last February to a new quarterly rate of 25 cents per share.
Market value: $44.9 billion
Dividend yield: 2.7%
Prologis (PLD, $71.19) is the global leader in logistics real estate. The REIT owns or has interests in nearly 3,700 properties totaling 768 million square feet of space across 19 countries. Prologis leases these facilities to more than 5,000 customers.
A worldwide network enables Prologis to meet the global needs of multinational customers such as Amazon.com (AMZN), DHL, BMW and Walmart (WMT). Among its top 25 customers, 95% operate globally and 75% lease from Prologis on multiple continents.
Prologis has recorded the best core FFO and dividend growth of any logistics REIT, with a 13% three-year CAGR and 9% five-year CAGR, as of its November investor presentation. This compares favorably to 4% averages in both metrics for its peers, and 6% and 7%, respectively, across all REITs.
In December, Deutsche Bank analyst Derek Johnson joined the bull camp with 11 other analysts, upgrading the stock to “Buy” thanks to its “comfortable” valuation and the fact that Prologis is “well-positioned” to capture more growth ahead.
Market value: $23.3 billion
Dividend yield: 4.9%
Ventas (VTR, $65.21) invests in senior housing, medical and life-sciences office space and hospitals across the U.S., Canada and U.K.
The REIT owns more than 1,180 properties, and it plans to grow by taking advantage of demographic trends in the $1 trillion worldwide senior housing and health-care market while managing risk by diversifying its portfolio across geographies, property types, tenant/manager mix and operating model.
Ventas has acquired nearly $32 billion of properties since 2001 and demonstrated its market savvy a few years ago by spinning off its skilled-nursing home business before this sector tanked. Ventas’ 2018 went well, with FFO of $4.07 per share coming in at the high end of internal guidance, and management says it expects “2019 to be a pivot year in our transition back to growth following a multi-year period of strategic improvement in our portfolio quality and mix from the disposition and receipt of loan repayments totaling $8 billion.”
Ventas has increased its dividend every year for well more than a decade, though its last increase, announced in December, was a paltry 0.4%, and its five-year average dividend growth is less than 2% annually.
Market value: $2.1 billion
Dividend yield: 4.6%
Canadian Granite REIT (GRP.U, $46.76) owns industrial and logistics properties in North America and Europe. Its portfolio consists of more than 85 established properties, as well as three properties in development, with a combined value of $3.2 billion. European properties, primarily located in Germany and Austria, represent roughly one-third of assets.
Most of its assets are single-tenant properties and leased to more than 40 tenants across a spectrum of industries and geographies. While the portfolio is well-diversified geographically, Granite REIT has been criticized for being overly dependent on one tenant, Magna International (MGA), which is the third largest global automotive supplier with operations in 28 countries.
Granite is currently focused on de-risking the portfolio over the long term by re-cycling non-core assets that are primarily Magna-tenanted. The REIT divested an Ontario property that served as Magna’s corporate headquarters in July and sold two American properties in July that reduce its Magna exposure from 70% two year ago to 48% of the leasing portfolio today, with plans to get that number down to 40%. As a result of these asset sales, the REIT made a special distribution of 23.3 Canadian cents per unit.
Granite has produced consistent growth in FFO per share since 2012 and dividend growth averaging 5% per year on its monthly dole while maintaining a conservative payout ratio at less than 80%. Dividends have increased six years in a row, putting it in the ranks of the Canadian Dividend Aristocrats.
Market value: $36.2 billion
Dividend yield: 3.9%
Public Storage (PSA, $207.74) is the world’s largest operator of self-storage facilities. Its U.S. operations consist of more than 2,400 self-storage locations covering just more than 160 million square feet of space, making it larger than the next three competitors combined. PSA also has a presence in Europe through its equity stake in Shurgard, Europe’s largest self-storage business. Shurgard owns 228 storage facilities and 12 million square feet of space across seven European countries.
Public Storage plans to grow by developing and acquiring new storage facilities in the U.S., diversifying into industrial properties through its investment in PS Business Parks (PSB) and participating in Shurgard’s growth. Self-storage is a relatively new concept in Europe, and Shurgard is capitalizing on rising demand by expanding its foothold, acquiring $266 million of facilities in Germany, France, the U.K. and the Netherlands over the last three years.
Due to this diverse approach, Public Storage has been able to consistently generate best-in-class returns on assets compared to other REITs over the past decade.
Dividend growth over five years has averaged 7.4% annually, though the company hasn’t raised its payout since an 11% hike in 2017 to its current quarterly rate of $2 per share. Analysts also started to pile on the bearish bandwagon in summer 2018, seeing PSA shares as overstretched from a valuation standpoint. However, shares have worked off a little of their froth since then.
Market value: $15.4 billion
Dividend yield: 6.6%
Brookfield Property REIT (BPR, $20.01) is a bit of an oddity. It’s technically a subsidiary of a master limited partnership, Brookfield Property Partners LP (BPY), which owns 150 Class A office properties in the world’s major gateway cities, 125 retail properties, including 100 of the top 500 U.S. malls, and assorted apartment, hotel, industrial and self- storage assets.
BPR shares are, to quote the company, “intended to offer investors economic equivalence to BPY units but in the form of a U.S. REIT security. Dividends on BPR shares are identical in amount and timing to distributions paid out for BPY units, and BPR shares are exchangeable on a 1:1 basis for BPY units or their cash equivalence.”
At the parent company level, which includes Brookfield Property Partners and Brookfield managed funds, the firm has $160 billion of assets worldwide, including $25 billion of assets in Canada, Brazil, the U.K., Europe, Australia and Asia.
Brookfield’s FFO growth rate between full-year 2014 and 2017 was 9%, and the company’s dividend has been expanding at just under 5% annually for the past five years. Future business growth is expected to come from 2% to 3% annual same-store improvements, contributions from development projects and reinvesting sale proceeds for higher returns.
Brookfield acquired the remaining stake it didn’t already own in General Growth Properties in August 2018 and envisions major opportunities for redevelopment from GGP properties located in wealthy urban markets.
Market value: $40.1 billion
Distribution yield: 7.0%*
This “bonus” pick is not a REIT, nor does it have REIT shares you can buy instead of its partnership units. Nonetheless, Blackstone Group LP (BX, $33.35) does belong in a group of favored real estate plays with international exposure.
Blackstone is one of the world’s largest real estate investors with more than $439 billion in assets under management, including $119.4 billion deployed in real estate. The company also invests in private equity, debt and hedge funds.
Its real estate portfolio consists of office, retail, hotel, industrial and residential properties across North America, Europe, Asia and Latin America. Blackstone leverages its global platform to invest in deals that are too large or complex for competitors. For example, the company identified logistics as a global investment theme and built its Logicor logistics business through more than 50 acquisitions to 620 facilities across 17 countries. Blackstone sold Logicor in 2017 for $14.2 billion – the largest private real estate transaction in European history.
Blackstone has been paying distributions for 11 years, and though the payout has varied, its yield typically rests in the 6%-8% range. And its 66% total return over the past five years compares favorably to the 53% return of the broader market.
Morgan Stanley named BX to its “top pick” list of 30 stocks for 2019 back in August 2018. More recently, Ariel Focus (AFOYX) manager Charles Bobrinskoy lauded the stock’s asset growth in Kiplinger’s roundup of manager-favored companies.
* Distributions are similar to dividends but are treated as tax-deferred returns of capital and require different paperwork come tax time.