Baron Rothschild, an 18th-century English nobleman, is attributed to famously saying, “The time to buy is when there is blood in the streets.” Rothschild used this idea to build his fortune, and many other famous investors have done the same over the past three centuries.
But it is never easy to follow Rothschild’s advice. Most investors become fearful when stocks experience significant declines, as a common psychological tendency is to believe that the future will be a continuation of the recent past. Stock price losses are often the result of bad earnings and widespread bearish comments from analysts and Wall Street pundits. But with enough time, the prices of strong companies usually rebound, rewarding brave investors with big profits.
Take a look at some real estate investment trusts (REITs) that were very successful a short while ago but have since been hit by economic conditions. For those brave enough to look at it despite the blood on the streets, dividend yields of 8% to 10% now make these REITs very compelling.
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SL Green Real Estate Company (NYSE: SLG) is a New York City-based REIT and the largest office building owner in New York. As of June 30, SL Green Realty owned interests in 60 buildings totaling 33.1 million square feet. Many income-oriented investors would love to own SL Green Realty for its monthly dividend payment.
On July 19, SL Green Realty reported its operating results for the second quarter. Funds From Operations (FFO) of $1.43 decreased 23.53% from the FFO of $1.87 in Q2 2022 but beat estimates by $0.09. Revenue of $221.07 million was higher than estimates of $205.97 million.
On August 17, BMO Capital Markets analyst John Kim downgraded SL Green Realty from outperform to market perform, while raising the price target from $32 to $35. “Although BMO still sees positive catalysts in the future, they are of a more incremental nature,” Kim noted.
In March 2022, SL Green Realty was trading near $73 per share. Since then it has lost 58% of its value. Short interest is still very high, and analysts are very pessimistic about the entire desktop REIT sector.
But SL Green Realty is the largest office owner in what remains America’s number one city by business. For long-term investors, the current economic conditions currently provide a dividend yield of 9.9%.
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Trust Company for Medical Properties (NYSE: MPW) is a healthcare real estate investment trust headquartered in Birmingham, Alabama, that owns and operates 444 public acute care and other properties across 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 nearly two-thirds of its holdings are in the United States.
On August 8, Medical Properties Trust announced its operating results for the second quarter. Funds from Operations (FFO) of $0.48 missed estimates of $0.70 but was a 4.35% increase over FFO of $0.46 in Q2 2022. Revenue of $337.39 million beat estimates of $351.38 million and was down by 15.7% of revenue of $400.23 million in the second quarter of 2022. Medical Properties Trust also reported a net loss of $42 million, versus net income of $190 million a year ago due to early termination of five leases for Utah hospitals and straight-line rent write-offs worth $95 million.
The bad news caused shares of Medical Properties Trust to drop more than 14% in one day. The shares continued to fall over the next two days, ending at $8.13 on August 10. But there was more bad news coming for shareholders.
On Aug. 11, Raymond James analyst Jonathan Hughes downgraded Medical Properties Trust three notches from Strong Buy to Poor Perform. Hughes noted the underperformance of other healthcare REITs and the average performance of general REITs. Hughes had other concerns about the management’s credibility and lack of transparency in disclosing vital information regarding Medical Properties’ relationships with its operators. He also questioned whether the profits were sustainable.
A three-level downgrade led to more selling, and later in the day, Bank of America Securities analyst Joshua Dinnerline downgraded Medical Properties Trust from neutral to underperform and cut its price target from $9 to $8.
Dennerlein’s concerns relate, like many analysts, to the Medical Property Trust’s continued exposure to Steward, its largest tenant, as well as the lack of clarity over unpaid debts from Prospect Medical Holdings, another large tenant.
These concerns are not new, and began in early 2022 when The Wall Street Journal questioned several business practices by which the MRF was lending money to its operators, who were having difficulty paying rent.
Since then, Medical Properties Trust has become one of the worst-performing REITs, dropping 68% from a high of $20.89 in January 2022, to its latest closing price of $6.77.
This REIT is clearly not for everyone, but investors with the courage of the Rothschilds can now buy shares at the lows of 2023 and get a dividend yield of 8.86%.
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Outfront Media Company (NYSE: OUT) is a New York-based specialty real estate investment trust with 500,000 advertising offerings in 70 U.S. markets, using billboards, digital assets, transportation assets, and mobile phones to showcase its clients. Outfront Media claims that its media reaches 70% of all Americans weekly. Outfront says it and Lamar Advertising Company (NYSE: LAMR) is the only specialty REIT that owns advertising space exclusively.
In March 2022, Outfront Media reached a high of $26.92. Since then, it has fallen 59% to its recent closing price of $11.07.
On August 3, Outfront Media reported poor operating results for the second quarter. The FFO of $2.92 missed the estimate of $0.24 by 1,316.67% and was a decrease of 1,142.86% from the FFO of $0.28 in Q2 2022. Revenue of $468.8M beat the estimate of $472.7M and was down by 1%. 4.13% of revenue of $450.2 million in the second quarter of 2022.
The second-quarter announcement led to an analyst downgrade and a 20% loss during the first week of August. Oppenheimer & Co. analyst. Ian Zaffino downgraded Outfront Media from Outperform to Performance, and JP Morgan analyst Richard Choi downgraded Outfront Media from Overweight to Neutral and lowered his price target from $20 to $14.
Analyst Choi noted that despite Billboard’s strong performance, growth was below analyst expectations and there is potential for a weaker second half of 2023.
Outfront Media’s transportation business in New York City has been the main problem, with Outfront Media expecting operating income before depreciation and amortization 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 not long ago was less than 6% but has now risen to 10.77%. The next dividend payment date is August 31st.
One caveat: the annual dividend is much higher than the forward FFO of $0.84, so it wouldn’t be surprising to see a dividend cut. However, the last $0.30 dividend was announced on the same day as the earnings announcement, so Outfront may feel confident it can recover from its poor performance in the second quarter.
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This article Blood in the streets? 3 real estate investment funds with profit returns ranging from 8% to 10% originally appeared on Benzinga.com
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