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Real estate investment trusts (REITs) have become more appealing to investors due to inflation, but the subsequent rate hikes have made many cautious. Higher interest rates have hindered company growth and made REIT dividend yields less attractive compared to “risk-free” Treasury yields. However, when dividend yields reach double digits, some REITs become hard to ignore. Are these high 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 is a vital part of healthcare infrastructure. Despite recently cutting its dividend in half, this healthcare REIT still offers a 12% dividend yield, making it an intriguing option for income-focused investors.
The company’s share price has seen a significant decline since January 2022, dropping from around $23 per share to $5.46. This drop was primarily due to concerns about the large amount of debt coming due. However, the REIT appears to be effectively managing its debt maturities.
While the dividend cut may have disappointed some shareholders, the extra capital has helped the company pay down debt and protect long-term value. The REIT still needs to raise approximately $2 billion over the next year through dispositions and joint ventures. If its management can achieve this, the risk of another dividend cut should be minimal.
Uniti Group: A High-Wire Act In Telecommunications Infrastructure
Uniti Group Inc (NYSE:UNIT) is a REIT that leases wholesale fiber to data providers. The company has faced its fair share of challenges, including a major dividend cut in 2019. Despite this, the REIT currently offers a 12% dividend yield.
Uniti Group’s largest tenant filed for Chapter 11 bankruptcy, causing disruptions to its business and revenue. However, the tenant has emerged from bankruptcy, and Uniti has gained more fiber to lease to other tenants.
The company has overcome these challenges, and its price could see significant upside if the market values it in line with other infrastructure REITs. However, Uniti still faces long-term risks, such as the useful life of its fiber network and potential battles over network replacement responsibilities.
SL Green Realty Corp: New York’s Real Estate At A Crossroads
SL Green Realty Corp (NYSE:SLG) is Manhattan’s largest office landlord. With a tempting 10% yield, this REIT attracts investors looking for substantial income. It also offers monthly dividend payments, which provide consistent cash flow.
However, New York’s real estate market has undergone significant shifts due to the pandemic, particularly with the rise of remote work. While there has been a partial rebound as companies bring employees back to the office, the long-term outlook remains uncertain.
SL Green has shown resilience and adaptation in maintaining stable dividends without decreases through 2023. This is thanks to its active management and efforts to diversify its portfolio, including retail properties and investments in debt and preferred equity.
Investors must consider the sustainability of high yields given the office vacancies and evolving nature of work. They need to determine if New York’s office real estate market will recover or if remote work is here to stay.
Outfront Media: The Advertising Vanguard Facing Digital Transformation
Outfront Media Inc (NYSE:OUT) is a unique REIT that focuses on outdoor advertising. With billboards and transit displays as its main assets, it has a strong presence in urban landscapes and highways across America. Its 11.4% yield reflects the high-risk, high-reward nature of the advertising market, especially in an era dominated by digital media.
Outfront Media faces visible risks, including the cyclical nature of the advertising industry and the rapid advance of digital advertising. During economic downturns, advertising budgets are often slashed, directly affecting Outfront’s revenues. The company must innovate to stay relevant, investing in digital billboards and data-driven ad solutions.
The REIT’s dividend history has seen some volatility due to the pandemic’s impact on advertising spends. While recent quarters show some stabilization, the long-term trend indicates reduced payouts.
Investors attracted to Outfront Media’s yields must consider the volatility of the advertising industry and its susceptibility to economic swings and rapid digital changes.
If you’re interested in REITs and want to discuss ideas with other investors, join the REIT Investors group on Facebook.
Tread With Caution On The High-Yield REIT Path
When it comes to high-yield REITs, the adage “higher returns with higher risk” holds true. These four REITs offer double-digit yields that are undeniably attractive but come with their own challenges. Each company faces unique industry obstacles, and failure to achieve desired outcomes could result in further price declines and dividend cuts.
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This article “4 REITs With 10%+ Yields: Once-In-A-Lifetime Opportunity Or A Desperate Trap?” originally appeared on Benzinga.com.
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