4 REITs With 10%+ Yields: Once-In-A-Lifetime Opportunity Or A Desperate Trap?
While inflation has made real estate investment trusts (REITs) more appealing to many investors, the rate hikes that followed sent many running in the opposite direction. Higher interest rates have not only hindered company growth but have also made REIT dividend yields less attractive than the "risk-free" Treasury yields. When dividend yields start hitting double digits, however, some REITs become a little too tempting to ignore. Are these 10%+ yields too good to pass up, or too good to be true?
Medical Properties Trust: A Pillar In Hospital Real Estate
Medical Properties Trust Inc (NYSE:MPW) specializes in hospital real estate, which has become an indispensable part of healthcare infrastructure. Despite recently cutting its dividend in half, this healthcare REIT still boasts a 12% dividend yield, presenting an intriguing proposition for income-focused investors.
The company’s share price has fallen drastically since January 2022, from around $23 per share to $5.46, as of this writing. A major concern leading to this price drop was the large amount of debt coming due. However, the REIT seems to be making good progress in managing its debt maturities.
While the recent dividend cut may have been disappointing to some shareholders, the extra capital has helped the company pay down debt to protect long-term value. The REIT still needs to raise approximately another $2 billion over the next year through dispositions and joint ventures. If its management can pull this off, the risk of another dividend cut should be minimal.
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Uniti Group: A High-Wire Act In Telecommunications Infrastructure
Uniti Group Inc (NYSE:UNIT) is an infrastructure REIT that leases wholesale fiber to various data providers. The company has had its fair share of drama in its short life, which has caused major interruptions to its business. Despite these interruptions and a major dividend cut in 2019, this REIT still boasts a 12% dividend yield today.
A very brief overview of Uniti Group’s drama: Its largest tenant was being sued by creditors, filed for Chapter 11 bankruptcy, and stopped paying Uniti on its fiber lease. This not only hurt the REIT’s revenue, but it also forced it to tap into its credit revolver and take on some high-rate debt. The tenant has since emerged from bankruptcy, and Uniti came out of the deal with more fiber to lease to other tenants.
The drama appears to be behind the company for now, which should provide some stability and improved funds from operations (FFO) moving forward. On one hand, the REIT could see some significant upside in its price if the market starts to value it in line with other infrastructure REITs. On the other hand, Uniti is still faced with some long-term risks, such as the useful life of its fiber network and some battles that could ensue over who’s going to be responsible for replacing that network when the time comes.
SL Green Realty Corp: New York’s Real Estate At A Crossroads
SL Green Realty Corp (NYSE:SLG), as Manhattan's largest office landlord, presents a unique case where location is both its crowning jewel and potential pitfall. With a 10% yield tempting investors, it's a beacon for those seeking substantial income, especially considering its monthly dividend payments—a rarity that provides consistent cash flow for shareholders.
However, the landscape of New York’s real estate market has undergone seismic shifts due to the pandemic. The embrace of remote work has cast a shadow over the demand for office space, putting pressure on landlords like SL Green. While there’s been a partial rebound as companies call employees back to the office, the long-term picture remains clouded by uncertainty.
Examining SL Green’s dividend history, there’s a tale of resilience and adaptation. The dividends have shown stability in recent times, maintaining a steady payout without decreases through 2023. This steadiness is a testament to SL Green's active management and efforts to diversify its portfolio, including retail properties and investments in debt and preferred equity.
Yet, the question remains: Are the yields a siren song luring investors toward rocky shores? SL Green's commitment to maintaining dividends is clear, but with office vacancies at notable levels and the evolving nature of work, the sustainability of such high yields is under scrutiny. Investors must consider if New York's office real estate market will recover, or if the shift to remote work is here to stay.
Outfront Media: The Advertising Vanguard Facing Digital Transformation
Outfront Media Inc (NYSE:OUT) is a unique type of REIT with a focus on outdoor advertising. With billboards and transit displays as its mainstays, it commands attention in both urban landscapes and highways across America. The high yield of 11.4% is a reflection of the high-risk, high-reward nature of the advertising market, particularly in an era where digital media is king.
The risks for Outfront Media are as visible as its billboards. The advertising industry is notoriously cyclical, ebbing and flowing with the broader economy. During downturns, advertising budgets are often the first to be slashed, which can directly impact Outfront’s revenues. Moreover, the rapid advance of digital advertising poses a significant challenge. As dollars continue to shift online, the company must innovate to stay relevant, investing in digital billboards and data-driven ad solutions to remain competitive.
The dividend history for Outfront Media shows some volatility, indicative of the sector it operates in. The pandemic dealt a hard blow to advertising spends, and consequently, Outfront’s payouts saw a dip. While recent quarters show some stabilization, the long-term trend still points to reduced payouts.
Investors eyeing Outfront Media’s attractive yields need to balance the allure of immediate income with the volatility inherent in the advertising space. While the dividends look appealing, they come with the risk of an industry subject to economic swings and rapid digital change.
Want to chat about REITs and share ideas with other investors? Join the REIT Investors group on Facebook.
Tread With Caution On The High-Yield REIT Path
In the realm of high-yield REITs, the adage of ‘higher returns with higher risk’ rings particularly true. For these four REITs, the double-digit yields are undeniably attractive, but they are not without their pitfalls. Each company faces unique industry challenges, and anything less than the desired outcome could mean further price declines and dividend cuts.
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