blood on the streets? 3 REITs with 8% to 10% dividend yields

Baron Rothschild, an 18th-century English nobleman, is credited with famously saying, “The time to buy is when blood is flowing in the streets.” Rothschild used this idea to build his fortune, and many other famous investors have invested in done the same for the last three centuries.

But following Rothschild’s advice is never easy. Most investors become anxious when stocks experience large falls in price, as the general psychological tendency is to believe that the future will be a continuation of the recent past. Stock price declines are often the result of poor earnings and extensive dovish commentary from analysts and Wall Street pundits. But given enough time, solid companies tend to rebound, rewarding bold investors with sizeable gains.

Take a look at some real estate investment trusts (REITs) that were high achievers recently but have suffered in the economic climate. For those brave enough to consider them despite the blood in the street, dividend yields of 8% to 10% make these REITs pretty enticing these days.

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SL Green Realty Corp. (NYSE: SLG) is a New York City-based office REIT and the largest office building lessor in New York. As of June 30, SL Green Realty held interests in 60 buildings totaling 33.1 million square feet. Many income investors like owning SL Green Realty because of the monthly dividend payout.

On July 19, SL Green Realty reported its second quarter operating results. Funds from operations (FFO) of $1.43 was down 23.53% from Q2 2022 FFO of $1.87, but beat estimates by $0.09. Revenue of $221.07 million beat estimates of $205.97 million.

On August 17, BMO Capital Markets analyst John Kim downgraded SL Green Realty from Outperform to Market Perform and raised the price target to $35 from $32. Kim noted, “While BMO still sees positive catalysts ahead, they are more of an incremental nature.”

As recently as March 2022, SL Green Realty was trading at around $73 per share. Since then it has lost 58% of its value. Short interest is still quite high and analysts are rather bearish on the office REIT sector as a whole.

But SL Green Realty is the largest office rental company in what remains America’s leading commercial city. For long-term investors, current economic conditions currently offer a dividend yield of 9.9%.

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Medical Properties Trust Inc. (NYSE: MPW) is a Birmingham, Alabama-based healthcare REIT that owns and operates 444 general acute care and other properties in the United States and nine other countries, with locations in Europe and Australia. Its total portfolio is $19.2 billion, of which 64% is general acute care hospitals and about two-thirds of the properties are in the United States.

On August 8th, Medical Properties Trust announced its second quarter operating results. Funds from operations (FFO) of $0.48 missed estimates of $0.70 but represented a 4.35% increase from Q2 2022 FFO of $0.46. Revenue of $337.39 million missed estimates of $351.38 million and was 15.7% below revenue of $400.23 million for the second quarter of 2022. Medical Properties Trust also reported a net loss of $42 million, compared to a net income of $190 million a year ago, which was due to the early termination of five Utah hospital leases and a $95 million straight-line rent depreciation.

The bad news caused shares in Medical Properties Trust to fall over 14% in one day. Shares continued to slide over the next two days, ending at $8.13 on Aug. 10. But there was more bad news for shareholders.

On August 11, Jonathan Hughes, analyst at Raymond James, downgraded Medical Properties Trust three notches from “strong buy” to “underperform.” Hughes cited underperforming relative to other healthcare REITs and the REIT’s overall average performance. Hughes had further concerns about management’s credibility and lack of transparency in disclosing important information related to Medical Properties’ relationships with its operators. He also wondered if the dividend was sustainable.

The three-notch downgrade led to more selling and later in the day, Bank of America Securities analyst Joshua Dennerlein downgraded Medical Properties Trust to underperform from neutral and lowered the price target to $8 from $9.

Dennerlein’s concern, like many analysts, has to do with Medical Property Trust’s ongoing commitment to Steward, its top tenant, as well as a lack of clarity about unpaid debts from Prospect Medical Holdings, another top tenant.

These concerns are nothing new and began in early 2022 when The Wall Street Journal questioned various business practices in which Medical Properties Trust lent money to its operators who were struggling to pay rent.

Since then, Medical Properties Trust has been one of the worst-performing REITs, falling 68% from its peak of $20.89 in January 2022 to its most recent close of $6.77.

This REIT is clearly not for everyone, but investors with the courage of a Rothschild can now buy shares at the lows of 2023 and lock in an 8.86% dividend yield.

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Outfront Media Inc. (NYSE: OUT) is a New York-based specialty REIT with 500,000 advertising displays in 70 US markets, using billboards, digital media, public transportation and mobile devices to showcase to its clients. Outfront Media’s website states that its media reaches 70% of Americans weekly. Outfront says it and Lamar Advertising Co. (NYSE: LAMR) are the only specialty REITs that own only advertising space.

In March 2022, Outfront Media peaked at $26.92. Since then, the price has fallen 59% to its last close of $11.07.

On August 3, Outfront Media reported poor second quarter operating results. FFO of minus $2.92 missed the estimate of $0.24 by 1,316.67% and was down 1,142.86% from Q2 2022 FFO of $0.28 Revenue of $468.8 million missed an estimate of $472.7 million and was 4.13% below second quarter 2022 revenue of $450.2 million.

The second-quarter announcement resulted in two analyst downgrades and a 20% loss in the first week of August. Oppenheimer & Co. analyst Ian Zaffino downgraded Outfront Media to perform from outperform and JP Morgan analyst Richard Choe downgraded outfront media to neutral from overweight and lowered the price target from $20 $14.

Analyst Choe noted that despite solid billboard performance, growth has fallen short of analysts’ expectations and that there is potential for a weaker second half of 2023.

The main concern was Outfront Media’s transit business in New York City, with Outfront Media expecting operating income before depreciation and amortization losses of $15 million to $20 million in 2023.

Outfront Media pays a quarterly dividend of $0.30 per share and an annual dividend of $1.20 per share, which was under 6% not too long ago but is now up to 10.77%. The next ex-dividend date is August 31st.

One caveat: The annual dividend is well above its projected FFO of $0.84, so a dividend cut wouldn’t be surprising. However, its latest dividend of $0.30 was declared on the same day that earnings were announced, so Outfront may feel confident in recovering from its poor second-quarter performance.

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