Investors looking to generate higher levels of income from their investment portfolios should take a look at Real Estate Investment Trusts, or REITs. These are companies that own real estate properties and lease them to tenants or invest in real estate backed loans, both of which generate a steady stream of income. REITs pass through a significant amount of cash flow to shareholders, through dividends.
With this in mind, the following 3 high dividend REITs have current yields over 8%, which makes them appealing for income investors.
SL Green Realty (SLG)
SL Green is focused on acquiring, managing, and maximizing the value of Manhattan commercial properties. It is Manhattan’s largest office landlord, with a market capitalization of $2.6 billion, and currently owns 62 buildings totaling 34 million square feet.
In mid-October, SLG reported (10/19/2022) financial results for the third quarter of fiscal 2022. Its occupancy rate edged up from 92.0% at the end of the previous quarter to 92.1%, but its same-store net operating income dipped -0.5% over the prior year’s quarter. Given also the negative effect of some assets sales, its funds from operations (FFO) per share decreased -7% over the prior year’s quarter, from $1.78 to $1.66. The REIT exceeded the analysts’ consensus by $0.01.
During the quarter, SLG signed 32 Manhattan office leases for a total of 930,232 square feet. SLG has been severely hit by the pandemic, which has hurt several companies that are tenants of SLG. Occupancy of office space in New York remains near historic lows. This has caused an unprecedented tenant-friendly environment and challenges to the business of SLG. The REIT has offered average concessions of 9 months of free rent in its new leases this year. On the bright side, this metric improved to 5 months in the third quarter.
SLG benefits from long-term growth in rental rates in one of the most popular commercial areas in the world, Manhattan. The REIT pursues growth by acquiring attractive properties and raising rental rates in its existing properties. It also signs multi-year contracts (7-15 years) with its tenants in order to secure reliable cash flows.
SL Green stock yields over 9%.
Medical Properties Trust (MPW)
Medical Properties Trust is the only pure-play hospital REIT today. It owns a well-diversified portfolio of over 400 properties which are leased to over 30 different operators. The great majority of the assets are general acute care hospitals, but show some diversification into other specialty hospitals, including inpatient rehabilitation and long-term acute care.
The portfolio of assets is also well diversified across different geographies with properties in 29 states to mitigate the risk of demand and supply imbalances in individual markets. On top of its US portfolio, Medical Properties maintains a strategic exposure to key European markets, including Germany, the UK, Italy, and Australia. It currently trades at a market capitalization of $6.7 billion.
On October 27th , Medical Properties reported Q3 FFO of $0.45 per share. Revenue of $352.34M (-9.8% Y/Y) missed analyst consensus estimates by $36.68M. The company is increasing its estimate of 2022 per share net income to a range of $1.99 to $2.01 and is also tightening its estimate of 2022 per share NFFO to $1.80 to $1.82 from a prior range of $1.78 to $1.82 vs. consensus of $1.82.
Medical Properties’ FFO/share growth has been strong over the past decade as it has gone from $0.72 in 2011 to $1.75 in 2021. Looking ahead the trust expects its aggressive acquisition pipeline to combine with its defensive net-leases to drive growth.
Uniti Group (UNIT)
Uniti Group focuses on acquiring, constructing, and leasing out communications infrastructure in the United States. In particular, it owns millions of miles of fiber strand along with other communications real estate.
It is primarily working to drive this growth through refinancing its debt at significantly lower rates in order to generate increased cash flow from existing revenue streams while also leasing up its under-utilized assets. By adding leasing to its assets it can generate extremely high returns on investment capital as additional customers require minimal additional capital expenditures, but bring in strong cash flows.
Uniti Group’s balance sheet is on firmer footing and continuing to improve as management works to refinance debt to improve the maturity ladder as well as reduce interest costs. Furthermore, the trust is retaining a lot of cash right now thanks to the low payout ratio which it is using to deleverage and pursue growth opportunities which should in turn reduce leverage further.
The company’s fiber assets are critical infrastructure in the regions in which it operates and therefore the REIT should enjoy fairly stable cash flows in the face of a recession. While its assets are mission critical, there is nothing unique about Uniti Group that gives it a durable competitive advantage. As a result, it lacks meaningful pricing power and therefore is unlikely to drive abnormally high profitability over time.
Shares of UNIT currently yield 8.2%.
MPW stock currently yields 9.4%.
Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.
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