Real Estate Investment Trusts, or REITs, are a great way for long-term income investors to gain exposure to real estate (1) without the hassle that comes with actually owning, maintaining, and managing rental properties.
In fact, REITs, if carefully chosen, can help you achieve the ultimate form of financial freedom; being able to live off pure dividend income during retirement, including early retirement.
Of course with so many REITs out there investors can have a tough time choosing where to invest their hard earned money.
Let’s take a look at one of the largest blue chip REITs, Simon Property Group Inc (NYSE:SPG), and see if now, thanks to the recent REIT correction, this mall owner deserves a core spot in a diversified portfolio such as our Conservative Retirees dividend portfolio (2).
Simon Property Group is America’s largest mall owner (and the largest REIT by market cap), with 218 properties across the North America, Europe, and Asia. As seen below, malls account for half of the company’s assets, and premium outlets contribute another 31%. Most of the business is domestic with international assets accounting for just 8% of the total.
Source: Simon Property Group Investor Presentation
By geography, Florida (14.7% of net operating income), California (12.8%), and Texas (10.4%) are the biggest contributors, but the business is well-diversified.
The REIT’s historical success has been due to management’s disciplined approach to slow but steady growth. Specifically, Simon Property Group focuses exclusively on high-end and ultra premium luxury properties (such as its “Mills properties”), with good diversification across the U.S. as well as with tenants.
As you can see, Simon Property Group’s largest tenant accounts for just 3.4% of its total rent for U.S. properties. The malls the company owns property in are also reasonably diversified by anchor tenants with Macy’s representing the biggest share of square footage (12.8% of the total).
This helps protect Simon Property Group from being overly exposed to the fate of any single retailer, which is important because retail is a notoriously tough business with a low survival rate for many companies (consumers are fickle).
Source: Simon Property Group Earnings Presentation