Real estate investment trusts can offer some pretty valuable tax benefits to wealthy investors. For example, unlike corporate profits, a REIT's income isn't taxed at the corporate level, and therefore these companies can generally afford to pay higher dividends. With that in mind, here are three REITs our analysts think wealthy investors should love.
Eric Volkman: One somewhat offbeat REIT I like at the moment is a niche player, Digital Realty Trust (NYSE:DLR). It concentrates on the operation of data centers, the facilities that host many corporate IT functions. No, it's not the sexiest corner of the economy, but it's one that is nearly indispensable in this highly connected age and will continue to be so.
Digital Realty Trust's client list tops 650 names, and its centers are located around the world. They're bringing in the money, too, as the company boasted funds from operations -- a key fundamental metric for REITs -- to $1.26 per diluted share in its most recent quarter. That number was 5% higher than the $1.20 in the comparable period of 2014.
There should be more where that came from, as Digital Realty Trust's big footprint is getting larger. This past July, the company announced that it struck a deal to acquire fellow data-center specialist Telx, operator of 20 such facilities across America, for just under $1.9 billion. The acquisition is expected to be accretive to earnings starting next year.
Meanwhile, the REIT's dividend yield is robust at nearly 5.4%. That's plenty attractive for even the most discerning income investor.
Dan Caplinger: Real-estate investment trusts have gained in popularity lately, but the best opportunities are those that focus on particularly strong areas of the real-estate market. One such area is in the healthcare field, where Health Care REIT (NYSE:WELL) has built up an impressive track record of paying dividends to its shareholders. The REIT has its greatest concentration of assets invested in senior housing facilities, with long-term care facilities and outpatient medical buildings rounding out a diversified portfolio of real-estate holdings. Given the aging population in key areas of the U.S., Canada, and the U.K., the growth opportunity for Health Care REIT is nearly limitless, and the company already boasts nearly 1,400 different properties in those three countries.
It's true that rising interest rates have posed a threat to REITs in general, with Health Care REIT at its lowest level of the year because of fears of rate hikes in the near future. Yet fixating too much on income ignores the growth potential that Health Care REIT has, and in particular, the company's partnerships with major senior-living property-management companies gives the REIT an inside track toward growing its portfolio in a sustainable way. Overall, Health Care REIT has built up a good record of success, and its 5% yield makes it a smart income choice for wealthy investors.
Matt Frankel: Americans love to shop, so one great REIT for wealthy investors seeking income is mall REIT Simon Property Group (NYSE:SPG). As the largest REIT of any kind -- it owns nearly $100 billion worth of shopping malls and outlet centers -- the company is a master at knowing what consumers want and adapting to it.
Simon Property Group has an A/A2 credit rating (S&P/Moody's), which is among the highest in the REIT business, and this gives the company access to low-cost capital to develop new properties and take advantage of acquisition opportunities. The company has 28 properties that are either in redevelopment or expansion right now, and three brand-new outlet centers are being built. As far as stability goes, Simon Property Group has more than 24,000 separate leases with 3,100 different tenants, none of which account for more than 3.5% of the company's rent. And, since tenants are on long-term leases, the company doesn't need to worry about short-term economic fluctuations.
Over its 22-year history as a publicly traded company, Simon Property Group has produced average annual total returns of 16.1%, including the recent market correction. Its dividend yield of 3.5% is on the lower end in the REIT space, but with average dividend growth of 19% per year over the past several years, Simon Property Group could be a great addition to your portfolio for both income and growth.