3 cheaper REITs with higher returns that are being repurchased

By | December 23, 2023

On December 13, there was a major change in investor sentiment toward real estate investment trusts (REITs) when the Federal Reserve announced another pause in rate hikes and suggested there would be three rate cuts in 2024.

The REIT sector, which has performed well since early November, boomed for a few days but retreated after December 14.

Many low-priced REITs that lagged through the first ten months of 2023 are now seeing renewed buying. It appears that investors are buying REITs with ultra-high dividends, believing that a lower interest rate environment will solve these REITs’ problems and generate both capital appreciation and a high dividend yield in the coming year.

Do not miss it:

Take a look at three low-priced REITs that could benefit from the lower interest rate environment while paying dividends with high yields.

Office Properties Income Trust (NASDAQ:OPI) is a Newton, Massachusetts-based office REIT with 154 properties spanning 20.7 million square feet. As of the third quarter, the occupancy rate was 89.9%. Office Properties is managed externally by the RMR Group Inc. (NASDAQ:RMR).

In September, after much shareholder opposition, Office Properties Income Trust agreed to terminate its proposed April merger with the RMR Group-managed merger. Diversified healthcare trust (NASDAQ:DHC). Since then, that announcement has had a positive impact on Office Properties’ stock price.

On November 17, Office Properties announced that Christopher Bilotto had assumed the position of president and CEO of Diversified healthcare trust on January 1. Yael Duffy will be named president and chief operating officer of Office Properties, also effective early in the new year.

On December 12, the day before the Federal Reserve’s announcement, Office Properties closed at $5.91. The most recent close was $6.88, a gain of 16.4%. Over the past month, it has risen 37.32%.

The current dividend yield is 14.53%, but that is down from over 23% a few weeks ago. The payout ratio stands at 23.8%, but with $2.57 billion in debt and operating cash flow of $109 million, a dividend cut is possible in the future. As recently as April, Office Properties reduced its quarterly dividend from $0.55 to $0.25 per share. The last quarterly dividend of $0.25 was announced in October and paid out on November 16.

Trust service properties (NASDAQ:SVC) is a Newton, Massachusetts-based diversified REIT with a portfolio of 221 hotels and 761 service-oriented net lease stores spanning 46 states, Puerto Rico and Canada. Service Properties owns many of the travel centers along major U.S. highways. Service Properties is also managed externally by the RMR Group.

On November 6, Service Properties Trust announced its third quarter operating results. Funds from Operations (FFO) of $0.56 per share beat estimates of $0.54, as did FFO of $0.54 in Q3 2022. Revenue of $496.82 million exceeded estimates of $489.19 million , but was down slightly from revenue of $498.25 million in the third quarter of 2022. the third quarter of 2022.

Wall Street was unimpressed. One of the problems is that Service Properties has $5.72 billion in high-interest debt, with an 83% debt ratio that is twice that of comparable hotel REITs and 2.5 times the average of net-lease REITs .

On November 13, Wells Fargo Securities analyst Dori Kesten maintained an “Underweight” rating on Service Properties and lowered the price target to $6.50 from $8.

However, the Fed’s announcement this month was a boon for Service Properties, as the company may be able to refinance much of its debt at lower interest rates next year. Before the announcement, the stock closed at $7.90, but rose to $8.60 within three days before retreating to $8.33. Shares are up 21.7% since the Nov. 13 low of $6.84.

Service Properties Trust has a current yield of 9.6% and a modest payout ratio of 46.5%. Despite the low payout ratio, the dividend could be cut at some point unless Service Properties can refinance its $1.1 billion debt maturing in 2024.

Medical Properties Trust Inc. (NYSE:MPW) is a Birmingham, Alabama-based healthcare REIT that owns and operates 441 general acute care and other properties in the U.S. and nine other countries, with operations in Europe and even Australia. General acute care hospitals account for 63.7% of the portfolio, which is valued at $19 billion. About two-thirds of the properties are in the US

Few REITs have suffered as much from negative publicity and shaky finances in 2022 as Medical Properties Trust. But it’s been on fire lately. The recent close at $4.85 is 22.4% above the low of $3.96 on November 13, and reached a high of $5.76 on December 14 before retreating.

On November 29, JP Morgan analyst Michael Lapides maintained an underweight position on Medical Properties Trust and lowered the price target by 37.5% from $8 to $5.

Like the REITs mentioned above, Medical Properties Trust will need to refinance its heavy debt load. The 12.37% yield seems safe enough considering the payout ratio is only 38.21%. Lower interest rates will benefit this REIT in 2024.

Keep in mind that short interest on Medical Properties Trust is high at 23%.

All three REITs are quite volatile and may not be well suited to more conservative investors.

Weekly REIT Report: REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it’s too late. Benzinga’s in-house real estate research team has worked hard to identify the biggest opportunities in today’s market, which you can access for free by signing up for the Weekly REIT Report.

Read next:

“SECRET WEAPON OF ACTIVE INVESTORS” Boost your stock market game with the #1 trading tool for “news & everything else”: Benzinga Pro – Click here to start your 14-day trial now!

Want the latest stock analysis from Benzinga?

This article 3 Cheaper REITs With Higher Yields Seeing Renewed Buying originally appeared on Benzinga.com

© 2023 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Leave a Reply

Your email address will not be published. Required fields are marked *