{"id":37095,"date":"2023-11-25T14:15:43","date_gmt":"2023-11-25T14:15:43","guid":{"rendered":"https:\/\/microloannexus.com\/investing\/lock-in-9-reit-yields-before-they-disappear\/"},"modified":"2023-11-25T14:15:44","modified_gmt":"2023-11-25T14:15:44","slug":"lock-in-9-reit-yields-before-they-disappear","status":"publish","type":"post","link":"https:\/\/microloannexus.com\/?p=37095","title":{"rendered":"Lock In 9%+ REIT Yields Before They Disappear"},"content":{"rendered":"
\n

Stick with me for some \u201cnext level\u201d dividend thinking. We have a potential opportunity right now<\/em> to buy five payers yielding up to 14.9% as the economy heads into recession.<\/p>\n

Wait, what? Why<\/em> would we want to buy stocks as the economy slows?<\/p>\n

Well, we don\u2019t want to own any<\/em> names. We\u2019ll pass on sky-high AI darling NVIDIA Corp (NVDA)<\/strong>. Give us cheap REITs (real estate investment trusts) because they are likely to rise as rates fall.<\/p>\n

Yes, that\u2019s what happens in a recession. Investors flood into fixed income. Interest rates fall, and REITs\u2014which tend to move opposite rates\u2014rise.<\/p>\n

These landlords are already getting up off the mat after a rough two years in which rates rose relentlessly. It was a November to remember for the sector, with the sector benchmark elevating 8.1%:<\/p>\n

I called this REIT rally a couple of months ago and, well, it arrived ahead of schedule and in full force. Yet these stocks aren\u2019t expensive by any means thanks to a two-year bear market. In fact they pay a lot<\/em> more the stock-market average:<\/p>\n

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But be careful. The bucket is full of landlords that are going to have trouble collecting the rent in a recession. We want to avoid the office space peddlers and retail owners.<\/p>\n

Let\u2019s pick on a five-pack of REITs paying a terrific 10.3% today. Even after their nifty November, these dividends remain generous:<\/p>\n

Outfront Media (OUT, 9.6% yield)<\/strong> is one of the more niche real estate plays you\u2019ll find\u2014it dabbles in ads.<\/p>\n

More specifically, it dabbles in the places where advertisers want to place their ads. That is, billboards, transit stations and vehicles, and \u201cmobile assets\u201d\u2014effectively, mobile ad campaigns tethered to, say, a customer\u2019s store visit or presence in a specific area.<\/p>\n

Outfront, like other REITs, has been hindered by rising interest rates, but its pain is somewhat more elevated due to weakness in transit. Specifically, post-COVID, ridership in metro systems like the MTA and WMATA has rebounded somewhat, but is still nowhere pre-COVID figures. Continued recovery, including back-to-office policies, should help OUT slowly but surely.<\/p>\n

Until then, it remains steeply depressed. Even with a recent bounce in shares, Outfront\u2019s stock trades at just 7 times estimates for adjusted funds from operations (AFFO), and it yields close to 10%. It\u2019s a pretty safe dividend, at just 72% of AFFO.<\/p>\n

Despite room for payout growth, it\u2019s hard to tell whether that distribution will grow anytime in the near future. OUT management suspended its 38-cent-per-share quarterly dividend amid COVID, then brought it back at just 10 cents in 2021 before tripling it to 30 cents in early 2022. The dividend has remained pat since then.<\/p>\n

SL Green Realty (SLG, 9.7% yield) <\/strong>is billed as \u201cNew York City\u2019s largest office landlord.\u201d It holds interest in 59 buildings totaling 32.5 million square feet, including 28.8 million square feet of Manhattan buildings. The business is overwhelmingly office-property in nature, at 92% of net operating income (NOI), though it also has trace retail and residential exposure.<\/p>\n

SLG is not just a high yielder, but a monthly yielder\u2014a practice it started in 2020. What it didn\u2019t do in 2020, is cut its dividend like many, many other retail REITs.<\/p>\n

Sadly, it looks like SL Green was just late to the game. It pared its payout by about 13% at the end of 2022\u2014and while that actually provided a tailwind, as SLG cut the dividend to improve liquidity and pay off more debt, that tailwind was brief.<\/p>\n

SLG has bounced back somewhat amid more aggressive moves by American corporations to drag their employees back into the office. But fundamentally, it\u2019s still coming up short\u2014the company recently announced it probably would come short of the 92%-plus occupancy target it set for 2023 last year.<\/p>\n

If there\u2019s a sunny side to SL Green right now, it\u2019s the value proposition. Shares yield nearly 10% at current levels, and they trade lean, at less than 6 times next year\u2019s FFO estimates.<\/p>\n

Brandywine Realty Trust (BDN, 14.9% yield)<\/strong>\u2014which has an odd geographical footprint that includes Philadelphia, the greater Washington, D.C., area, and Austin, Texas\u2014deals in office buildings, too, but that\u2019s less than a quarter of its property mix. Residential makes up the largest chunk, at 42%, followed by life science at 27%; the remaining 9% is scattered across other property types.<\/p>\n

Brandywine gets very little love from the analyst set\u2014earlier this year, I highlighted it as one of the most hated stocks on Wall Street, and the pros have only slightly warmed up on the name since then. Interest rates have hit hard, sure, but so has lower occupancy. It probably won\u2019t get much better in 2024, either, with estimates coming in below 2023 projections.<\/p>\n

BDN has been among the worst REITs of 2023, losing roughly a third of its value. Not helping matters was a somewhat unexpected dividend cut. While Brandywine\u2019s payout coverage was clearly tight, management was convinced earlier this year that it could keep financing its dividend at current levels\u2014a stance they abandoned in September when they cut the distribution by 21% to shore up liquidity.<\/p>\n

If there\u2019s any reason to like Brandywine now (in addition to the hope of stable to lower interest rates), it\u2019s a dirt-cheap valuation. Not only does BDN still yield 15% even after its payout reduction, but it trades at less than 4 times next year\u2019s FFO estimates.<\/p>\n

Healthcare Realty Trust (HR, 8.7% yield) <\/strong>owns and operates medical outpatient buildings, typically located around hospital campuses. It owns more than 700 properties totaling over 40 million square feet, most of which are concentrated in 15 growth markets\u2014much larger than it used to be, by virtue of its recently closed merger with Healthcare Trust of America.<\/p>\n

You might think that medical offices would be an, ahem, healthy business, but HR is one of the rare REITs that was gashed by COVID\u2014and has just kept on bleeding ever since.<\/p>\n

HR\u2019s struggles are myriad. Past its own difficulties with rising interest rates, COVID depressed elective and non-emergency procedures, which are critical to Healthcare Realty\u2019s tenants. Also, very few (read: 6%) of HR\u2019s leases have inflation-based escalators, which has severely cramped the REIT\u2019s ability to roll through rocketing consumer prices.<\/p>\n

Healthcare Realty is predicting a significant ramp-up in occupancy (from 85.1% currently to 87% in 2H24). But you could probably find better recovery opportunities to wait for. While HR does deliver a delicious yield of nearly 9%, you\u2019re not getting a screaming value here\u2014shares trade at roughly 11 times next year\u2019s AFFO estimates.<\/p>\n

Global Medical REIT (GMRE, 8.6% yield)<\/strong> is an owner of off-campus medical office and post-acute, in-patient medical facilities. It currently owns 185 buildings representing 4.7 million leasable square feet to 268 tenants.<\/p>\n

While GMRE has performed much better than HR since the start of 2020\u2014the former is roughly breakeven and on par with the sector, the latter has lost nearly half its value\u2014it has come in roller-coaster fashion. It bottomed out in late 2022 as one of its tenants, Pipeline Health System, entered Chapter 11 bankruptcy protection.<\/p>\n

It has mildly rebounded since then, but I\u2019m more encouraged by some of the moves it has made since then. For one, it has locked in much of its financing at roughly 4% interest rates for years into the future. It has also managed to divest properties at surprisingly low cap rates given the current rate environment.<\/p>\n

Shares still have a little value left, at about 10 times AFFO. A noteworthy red flag here, though, is dividend coverage. Its 21-cent-per-share dividend is a little more than 2023 AFFO projections. That pressure should<\/em> ease\u2014GMRE is expected to grow AFFO in each of the next two years. But any hurdles to its growth case could put its dividend squarely in skeptics\u2019 crosshairs.<\/p>\n

Brett Owens is chief investment strategist for <\/em>Contrarian Outlook<\/em>. For more great income ideas, get your free copy his latest special report: <\/em>Your Early Retirement Portfolio: Huge Dividends\u2014Every Month\u2014Forever.<\/p>\n

Disclosure: none<\/em><\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Stick with me for some \u201cnext level\u201d dividend thinking. We have a potential opportunity right now to buy five payers yielding up to 14.9% as the economy heads into recession. Wait, what? Why would we want to buy stocks as the economy slows? Well, we don\u2019t want to own any names. We\u2019ll pass on sky-high<\/p>\n","protected":false},"author":1,"featured_media":37096,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[49],"tags":[],"class_list":{"0":"post-37095","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-investing"},"yoast_head":"\nLock In 9%+ REIT Yields Before They Disappear | Micro Loan Nexus<\/title>\n<meta name=\"description\" content=\"Stick with me for some \u201cnext level\u201d dividend thinking. 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