Real estate may have benefited from the long stretch of historically low interest rates more than any other sector. Cheap debt has a direct impact on cash flow, which means more capital to grow and more cash to distribute to shareholders.
REITs performed especially well because of low interest rates, since bonds and other fixed-income investments weren’t providing attractive yields. Income-focused investors began looking for alternative options and the booming real estate market made REITs that much more attractive.
The flip side of that is the low interest rate environment couldn’t last forever. While some REITs were focused on pumping their dividends to the max to attract more investors, others cleaned up their balance sheets and make themselves more resilient to the inevitable rate increases.
These three high dividend REITs are well positioned to maintain their dividend rates and share value as the Fed cranks up interest rates this year.
Let The Doctors Pay You For Once – 5.74% Yield
Medical Properties Trust (NYSE: MPW) is a healthcare REIT with a $22.3 billion portfolio of hospitals, medical centers and long-term care facilities. There’s a ton of value in this company that’s not yet reflected in its share price. Stock screeners and quant models don’t offer a view of what’s happening behind the scenes, meaning most retail investors miss out on the golden opportunities.
Looking at the REIT’s balance sheet, you’ll see a net debt to EBITDA ratio of 7.5x, which doesn’t look appealing in the face of higher interest rates. However, the company made three investments in the fourth quarter of 2021, totaling over $1 billion that hasn’t yet been fully accretive to the FFO. Besides that, the company has capital invested into over $265 million worth of current developments that are yet to produce any revenue.
Pocket Aces – 5.3% Yield
The market is still trying to wrap its head around VICI Properties (NYSE: VICI), the gaming REIT that showed up to the table in late 2017 ready to dominate. The company recently acquired the iconic Venetian Las Vegas and is now set to acquire MGM Growth Properties (NYSE: MGP), which will put it in the running to be one of the 10 largest equity REITs in the country by market cap.
One could understand a REIT with so much focus on growth having a less than stellar balance sheet, but VICI currently has a 6.8x fixed rate coverage and a low 2.8x net debt to EBITDA ratio while maintaining a FFO dividend payout ratio of around 80%.
The One You Probably Haven’t Heard of – 8.4% Yield
The problem that all publicly traded REITs face is the correlation between their share price and the overall stock market. Regardless of the value of a REIT’s real estate portfolio, a market downturn will almost certainly result in a lower share price. This hurts not only the value of an investor’s portfolio, but also limits the company’s ability to finance operations and future growth.
1st Streit Office is a public, non-traded REIT with a share price tied directly to its net asset value (NAV). Since shares of the REIT aren’t traded on a major stock exchange, a market selloff has little to no effect on the price. This means greater protection for the retail investors’ portfolios as institutional investors reallocate capital back into their preferred fixed-income investments.
The REIT has maintained an 8.4% dividend yield for the past eight consecutive quarters and is one of the best value options currently available, considering most publicly traded REITs are currently priced at a premium to their NAV.
An investment in a non-traded REIT is best suited for those who are comfortable with long-term investments. Since shares can’t be sold on the stock market, there are limited liquidity options available within the five-year investment term.
Shares of 1st Streit Office are available through the Streitwise investment platform with a minimum investment of 500 shares.
Photo by Ameer Basheer on Unsplash
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