Can this 12.7% yielding REIT portfolio continue?
Real estate prices are plummeting, which means real estate investment trusts (REITs) are cheap again.
finally! REIT yields are back where they should be.
Of course, we contrarians can do better than the popular ones. Vanguard Real Estate ETF (VNQ)3.5% isn’t bad, but pales in comparison to the 12.7% “headline yield” we’re about to discuss.
Why Are REITs Cheap Again? Simple: Fed.
as I said a few months agoRising interest rates mean not only a higher cost of capital for REITs (and all other companies), but more competition for income as bond yields become increasingly competitive. .
In fact, REITs are performing exactly as we expected them to.
Interest rates rise, real estate falls
But in the big picture, we can look back at this period as one of the best times to buy REITs at below-average prices and much higher yields.
where should i start? Consider three packs of REITs with yields between 11.4% and 13.5%.
Need Retail REIT (RTL)
Dividend Yield: 13.5%
i have a little soft spot Getty Realty (GTY)is a single-tenant specialist that fits the “boredom is beautiful” mold by leasing its properties to what I call “must-have” retailers such as gas stations, convenience stores and auto parts stores.
Given that, I offal Loving the real estate company that calls itself Need Retail REIT (RTL)right?
Necessity Retail owns over 1,000 single-tenant “outdoor power, stationary and grocery centers” in 48 states, primarily netleased under long-term contracts. Its tenants come from 44 different industries, including gas/convenience, healthcare, and quick-service restaurants, with no single industry above 8% of flat rent.
Why does such a large REIT sound so unfamiliar?Well, just over a year ago it was renamed from American Finance Trust (AFIN)– name investigated in 2020Large exposures to restaurants, entertainment, retailers and office premises are ‘liable’ amid COVID but could look like bargain buys due to possible snapback of COVID recovery Please note that there is
RTL got its snapback, but it didn’t last
Fast-forward to today, and RTL has an entirely different problem: debt.
Near the end of 2021, we announced the acquisition of 81 retail properties from CIM Real Estate Finance Trust for $1.3 billion and the sale of three non-core office properties.
Good news? RTL has reduced its focus on the top 10 tenants and reduced its exposure to office space from 7% to 1%. What are the drawbacks? The huge debt burden was only getting bigger and bigger. This REIT of his now has a net debt of $2.8 billion. That’s almost 10x his EBITDA adjusted and more than 3x his market cap.
For what it’s worth, dividend coverage isn’t a prominent concern here, with dividends representing just 83% of adjusted funds under management (FFO) over a 12-month period. However, the high debt burden and lack of an obvious catalyst have put RTL on hold for a bit.
Global Net Lease (GNL)
Dividend Yield: 11.4%
Global Net Lease (GNL) As the ‘global’ of its name implies, it is a commercial REIT that operates not only here in the United States, but also in 10 other countries, including the United Kingdom, the Netherlands, Finland and France. It owns 311 properties leased to 140 tenants in 50 industries, but the industry is slightly more concentrated, with financial services (13%) and automotive manufacturing (12%) both topping the portfolio pie. is a two-digit slice of .
The other part of its name is “Net Lease” and, like RTL, that’s why it’s preferred. Remember, a net lease is a “net” of insurance, maintenance, and taxes. This means that GNL investors have fewer variables to worry about. Profits are more predictable and reliable than traditional leasing.
so what is error with GNL?
First of all, Global Netlease was one of many REITs to cut dividends due to COVID. Specifically, the company cut its dividend by 25% to 40 cents per share in April 2020 and hasn’t looked back.
GNL’s 2019 hike was short-lived
If there’s a positive side to the cuts, it’s that current payments are more sustainable. AFFO has a payout percentage of 93%, which is safe enough, but bears will be watching closely over the next few months.
Also, like Necessity Retail, GNL has a sizeable $2.2 billion in debt. It’s not that bad, at least by comparison. 8x adjusted EBITDA and 1.5x market cap. And the weighted average interest rate you are paying on that liability (3.5%) is slightly better than RTL’s (4.2%).
So Global Net Lease certainly has its warts. But for more aggressive dividend investors, GNL, a rare multinational real estate business trading at attractive levels relative to both AFFO and adjusted EBITDA, may fit the bill. I can’t.
Office Property Income Trust (OPI)
Dividend Yield: 13.2%
Sometimes even the worst of situations can yield beneficial results.
took Office Property Income Trust (OPI), for example. The REIT owns 160 properties and leases them primarily to high credit single tenants, which include government agencies as well as corporations.and When reviewed in October 2022it had indeed been plagued by a decade-long decline that had accelerated recently, with OPI shares being cut almost in half.
But while being a landlord of an office property in the age of working from home can be challenging, OPI is not without its benefits. At the time, I was thinking, “Maybe the market is overselling him OPI.”
It certainly was.
To be clear, OPI is grappling with an uphill battle that began long before COVID.
The ‘office decline’ is not a new phenomenon
The terms “WFH,” “remote work,” and “work from home” may have gone mainstream in 2020, but American companies have been leaning toward flexible working arrangements for years.
still bet Against Office property income trusts can be risky, at least for now. Having regained almost 20% of its value over the past few months, the stock is still very cheap, five times the CAD (distributable cash, an alternative earnings measure for some of his REITs). OPI trades at less than 4x normalized FFO when using more traditional REIT metrics.
Plus, OPI isn’t bleeding tenants like a New York City-based REIT. It’s more suburban and currently has 96% occupancy. His third of tenants are government agencies or contractors, tenants glued to the office. And after years of offering unlimited flexibility, many employers are finally resisting, with demanding workers spending days back in the office.
2023 Retirement Guide: 7% Yield Blue Chip Paying Monthly
but i don’t bet upon OPI, too, at least not as a long-term retirement benefit.
Yes, the dividend is high and the valuation is low. And for now, employers are going the other way. But the Office Properties Income Trust is swimming upstream against a formidable megatrend, making it nearly impossible to thrive in the industry, no matter how skilled OPI’s management team is.
That’s not enough if you want to enjoy a large dividend and a significant share price appreciation after retirement.
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Let’s do the math: Putting just a $500,000 nest egg (less than half the amount most financial pundits would argue you need to retire from) into this strong portfolio could generate $35,000 in annual income. can produce.
That’s about $3,000 a month with regular income checks.
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The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.
https://www.nasdaq.com/articles/can-this-12.7-yielding-reit-portfolio-keep-it-going Can this 12.7% yielding REIT portfolio continue?