For investors uncertain about broader market dynamics, real estate investment trusts or REITs offer an excellent avenue to put your money to work. I think it’s safe to say that the number one reason people consider this sector is the often-robust passive income potential. In other words, you’re putting your money to good use. That’s especially the case with high-yield REITs.
Legally speaking, all REITs must distribute at least 90% of their taxable income to shareholders through dividends. Of course, that’s what makes these ideas attractive for those who seek income-generating investments. Further, REITs tend to operate in major sectors such as healthcare and retail. By offering the land to conduct business, they’re better mitigated from the volatility than can impact individual brands.
And while real estate itself is often considered the king of investments, it’s also cumbersome. By acquiring REITs, an investor can enjoy some of the benefits of real estate ownership without the hassles. With that in mind, below are high-yield REITs to consider.
We’ll start with one of the riskiest ideas – if not the riskiest – in the form of Simon Property (NYSE:SPG). Simon represents one of the biggest high-yield REITs that’s focused on retail properties. These include malls, outlets and community centers. Of course, with malls losing much of their relevance over the past several years, SPG stock is undoubtedly risky.
Nevertheless, looking at the financial performance, a contrarian opportunity might exist. Let me be straight up: in the second quarter of 2023, Simon posted earnings per share of $1.49, missing the consensus estimate by 5 cents. However, in the past four quarters, the average EPS came out to $1.96. This print led to an average earnings surprise of 25.08%.
During the trailing 12 months (TTM), Simon posted a diluted EPS of $7.85 on revenue of $5.75 billion. On a year-over-year basis, the most recent quarterly earnings and sales growth rate came out to 61.8% and 6.8%, respectively.
For fiscal 2024, EPS may slip slightly to $6.92. However, sales could expand by 3.1% to $5.33 billion. Lastly, SPG offers a forward yield of 5.41%, which is quite attractive.
BRT Apartments (BRT)
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One of the top high-yield REITs focused on the residential sector, BRT Apartments (NYSE:BRT) owns and operates multi-family properties. As a secondary business, it also holds interests in joint ventures regarding such properties. As of the end of 2023, BRT owned or had interest in 28 multi-family properties with 7,707 units in 11 states.
Naturally, the housing shortage dilemma impacting several regions of the U.S. makes BRT quite attractive. However, the enterprise is risky because the financial performance doesn’t quite align with the fundamentals. In the past four quarters, the average EPS came out to 5.5 cents. Unfortunately, the average earnings surprise was 5.55% below breakeven.
While not the most encouraging development, BRT offers a forward dividend yield of 5.83%. That’s well above the norm for passive-income providing enterprises. However, the payout ratio is supremely high (even for a REIT) so it’s something to monitor.
For fiscal 2024, experts see a modest bump of 1.6% in revenue to $95.12 million. If you want to speculate, BRT ranks among the tempting high-yield REITs to consider.
VICI Properties (VICI)
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Based in New York City, VICI Properties (NYSE:VICI) falls under the diversified segment of high-yield REITs. Per its public profile, Vici bills itself as an experiential enterprise, owning one of the largest portfolios of gaming, hospitality and entertainment destinations. Fundamentally, the company could benefit from the concept of travel prioritization. In essence, consumers presently value experiences over the accumulation of physical goods.
Admittedly, VICI’s financial performance has been choppy. For example, the REIT missed earnings expectations – and quite conspicuously – in Q3 and Q1. Overall, in the past four quarters, the enterprise’s average EPS landed at 63.3 cents. However, the average earnings surprise came out to 1.05% below parity.
Still, in the TTM period, VICI posted EPS of $2.52 on revenue of $3.69 billion. On a YOY basis, its most recent quarterly earnings and sales growth rate clocked in at 13.7% and 8.3%, respectively. For fiscal 2024, analysts see a 3.24% bump in EPS to $2.55. Sales may rise 5.7% to $3.82 billion.
VICI offers a forward yield of 5.98%. Further, the payout ratio is quite reasonable (for being so generous) at 64.88%.
Healthpeak Properties (DOC)
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Falling under the healthcare facilities segment among high-yield REITs, Healthpeak Properties (NYSE:DOC) is a fully integrated enterprise that owns, operates and develops quality real estate for healthcare discovery and delivery. Of course, one of the benefits of DOC stock is the underlying relevance. Barring some radical paradigm shift, the concept of caring for patients should be an ongoing one.
With that in mind, Healthpeak should benefit from an insulation factor, irrespective of market rumblings. To be fair, though, the REIT’s financial performances have been hit or miss. In Q3 and Q4 of last year, the company delivered strong numbers relative to analysts’ expectations. However, Q2 2023 and Q1 2024 saw some bad misses. Overall, the average earnings surprise came out to 6% below breakeven.
During the TTM period, EPS came out to 35 cents on sales of $2.26 billion. In the most recent quarter, earnings “growth” resulted in a slide of 94.4%. However, sales growth clocked in at 15.4%. For fiscal 2024, experts see revenue rising 19.8% to $2.61 billion.
However, the spotlight could be on the dividend, which is up there at 6.14%.
Gaming and Leisure Properties (GLPI)
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Another speculative but intriguing idea among high-yield REITs, Gaming and Leisure Properties (NASDAQ:GLPI) engages in the business of acquiring, financing and owning real estate property to be leased to gaming operators in triple-net lease arrangements. Thanks to the focus on experiential expenditures over the acquisition of material things, it’s possible that GLPI stock could pop higher.
While the narrative may be promising, prospective market participants must have confidence in it. As with some of the other speculative REITs, GLPI is hit or miss. During the past four quarters, the company posted an average EPS of nearly 68 cents. However, the average expected target was closer to 70 cents. Therefore, the earnings surprise was almost 3% below water.
In the TTM period, EPS landed at $2.71 on sales of $1.46 billion. For the most recent quarter, earnings growth came out to almost 5% below parity. However, revenue growth was 5.8% up. Analysts believe that for fiscal 2024, EPS may rise 3.25% to $2.86. Revenue may expand by 5.1% to $1.51 billion.
Finally, the company’s forward yield is in the stratosphere at 6.92%.
Piedmont Office Realty (PDM)
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Headquartered in Atlanta, Georgia, Piedmont Office Realty (NYSE:PDM) is an owner, manager, developer, redeveloper and operator of high-quality, Class A office properties. Primarily, the REIT serves major Sunbelt markets. Of course, this segment of the commercial real estate sector is super risky because of the work-from-home (WFH) phenomenon. Folks swear up and down that WFH is here to stay forever.
To that, I say, maybe. Yeah, workers’ rights, work-life balance, blah, blah, blah. However, when push comes to shove, employers sign the checks. Also, as workers become investors, the tone might shift. After all, you probably wouldn’t feel too good if your money was used to pay salaries for people who pretend to work. So, it’s possible that PDM could eventually rise from the muck.
Still, it’s a high-risk venture. During the TTM period, Piedmont incurred a net loss of $74.78 million. Sales came out to $579.93 million. Further, analysts see losses per share of 36 cents in fiscal 2024, though it’s an improvement over last year’s 39 cents in the red.
Revenue could also suffer a dip to $565.73 million, down 2.1%. However, Piedmont offers a 6.92% forward yield and experts rate shares a moderate buy.
Innovative Industrial Properties (IIPR)
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Based in San Diego, California, Innovative Industrial Properties (NYSE:IIPR) ranks among the riskiest high-yield REITs. However, it’s also simultaneously one of the most attractive or compelling. Long story short, Innovative intersects with the cannabis industry. Basically, the company provides specialized properties to state-licensed operators for their regulated cannabis operations.
On the plus side, the sector is receiving plenty of legal momentum. Recently, the Biden administration proposed a reclassification of cannabis to a lower enforcement level. However, it must be stated that reclassification does not mean marijuana is federally legal. That’s another ballgame. And so, IIPR stock and related investments still operate under a cloud of ambiguity.
Moving forward, the idea is that this dynamic will change for the better. In the TTM period, Innovative posted net income of $160.91 million on sales of $308.89 million. These figures are a bit soft compared to the prior year. Investors may need to wait until fiscal 2025, when analysts expect EPS to rise to $5.85 on sales of $325.98 million.
In the meantime, investors can enjoy a robust forward yield of 7.07%.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
