Baron Rothschild, an 18th-century English nobleman, has been credited with the famous saying, “The time to buy is when there’s blood in the streets.” Rothschild used that idea to build his fortune, and many other famous investors have done the same over the last three centuries.
But it’s never easy to follow Rothschild’s advice. Most investors become fearful when stocks experience major declines, as the common psychological tendency is to believe that the future will be a continuation of the recent past. Share price losses are often a result of bad earnings and extensive bearish comments from analysts and Wall Street pundits. But given enough time, solid companies will usually rebound in price, rewarding courageous investors with substantial profits.
Take a look at some real estate investment trusts (REITs) that were high-flyers a short while ago but have since been battered down by economic conditions. For those brave enough to consider them despite blood in the streets, dividend yields of 8% to 10% now make these REITs quite compelling.
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SL Green Realty Corp. SLG is a New York City-based office REIT and the largest office building landlord in New York. As of June 30, SL Green Realty held interests in 60 buildings totaling 33.1 million square feet. Many income-oriented investors like owning SL Green Realty for its monthly paying dividend.
On July 19, SL Green Realty reported its second-quarter operating results. Funds from operations (FFO) of $1.43 was down 23.53% from FFO of $1.87 in the second quarter of 2022 but beat the estimates by $0.09. Revenue of $221.07 million was above estimates of $205.97 million.
On Aug. 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. Kim noted, “While BMO still sees positive catalysts ahead, they are more incremental in nature.”
As recently as March 2022, SL Green Realty traded near $73 per share. Since that time, it has lost 58% of its value. Short interest is still quite high, and analysts are quite bearish on the entire office REIT sector.
But SL Green Realty is the largest office landlord in what is still the No. 1 city in America for commerce. For long-term investors, present economic conditions presently provide a dividend yield of 9.9%.
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Medical Properties Trust Inc. MPW is a Birmingham, Alabama-based healthcare REIT that owns and operates 444 general acute care and other properties across the U.S. and nine other countries, with locations in Europe and Australia. It has a total portfolio of $19.2 billion, of which 64% are general acute care hospitals, and about two-thirds of its properties are in the United States.
On Aug. 8, Medical Properties Trust reported its second-quarter operating results. Funds from operations (FFO) of $0.48 missed estimates of $0.70 but were an increase of 4.35% from FFO of $0.46 in the second quarter of 2022. Revenue of $337.39 million missed the estimates of $351.38 million and was 15.7% below 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 because of the early termination of five Utah hospital leases and a straight-line rent write-off of $95 million.
The bad news caused Medical Properties Trust shares to drop by 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 to come for shareholders.
On Aug. 11, Raymond James analyst Jonathan Hughes downgraded Medical Properties Trust three levels from Strong Buy to Underperform. Hughes cited underperformance in comparison to other healthcare REITs and the REIT general average performance. Hughes had other concerns about management’s credibility and lack of transparency in disclosing vital information related to Medical Properties’ relationships with its operators. He also wondered whether the dividend is sustainable.
The three-level downgrade brought about more selling and later in the day, Bank of America Securities analyst Joshua Dennerlein downgraded Medical Properties Trust from Neutral to Underperform and lowered the price target from $9 to $8.
Dennerlein’s concern, like many analysts, has to do with Medical Property Trust’s ongoing exposure to Steward, its top tenant, as well as the absence of clarity on unpaid debt from Prospect Medical Holdings, another top tenant.
These concerns are nothing new and began early in 2022 with The Wall Street Journal questioning various business practices in which Medical Properties Trust was loaning money to its operators, who were having difficulty paying rent.
Since then, Medical Properties Trust has been one of the worst-performing REITs, declining 68% from its high of $20.89 in January 2022, to its most recent closing price of $6.77.
This REIT is clearly not for all, but investors with the courage of a Rothschild can snap up shares at 2023 lows right now and snag an 8.86% dividend yield.
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Outfront Media Inc. OUT is a New York-based specialty REIT with 500,000 advertising displays across 70 U.S. markets, using billboard, digital, transit and mobile assets to showcase its clients. Outfront Media’s website claims that its media reaches 70% of all Americans on a weekly basis. Outfront says that it and Lamar Advertising Co. LAMR are the only specialty REITs that exclusively own advertising space.
In March 2022, Outfront Media touched a high of $26.92. Since then, it has declined 59% to its most recent closing price of $11.07.
On Aug. 3, Outfront Media reported poor second-quarter operating results. FFO of negative $2.92 missed the estimate of $0.24 by 1,316.67% and was a 1,142.86% decrease from FFO of $0.28 in the second quarter of 2022. Revenue of $468.8 million missed the estimate of $472.7 million and was 4.13% below revenue of $450.2 million in the second quarter of 2022.
The second-quarter announcement led to two analyst downgrades and a 20% loss over the first week of August. Oppenheimer & Co. analyst Ian Zaffino downgraded Outfront Media from Outperform to Perform and JP Morgan analyst Richard Choe downgraded Outfront Media from Overweight to Neutral and lowered the price target from $20 to $14.
Analyst Choe noted that despite solid billboard performance, growth has underperformed analyst expectations and there is potential for a weaker second half of 2023.
Outfront Media’s transit business in New York City has been the main problem, with Outfront Media expecting an operating income before depreciation and amortization loss 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 below 6% but has now climbed to 10.77%. The next ex-dividend date is Aug. 31.
One caveat: The annual dividend is well above the forward FFO of $0.84, so it would not be surprising to see a dividend cut. However, the latest $0.30 dividend was declared on the same day earnings were announced, so Outfront may be feeling confident that it can rebound from its poor showing in the second quarter.
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