3 High Dividend REITs for a September Rate Cut

Investors looking for high dividend yields often turn to real estate investment trusts, or REITs. REITs exist virtually entirely to generate income that is then substantially completely returned to shareholders via dividends.

REITs are leveraged, which means they are exposed to interest-rate risk. But with the Federal Reserve looking increasingly likely to cut interest rates as soon as September, REITs could be among the biggest beneficiaries of falling rates.

Here, we’ll look at three high-yield REITs that have high dividend yields, and strong fundamentals.

Report Yourself to HR

Healthcare Realty Trust HR owns, manages, and develops real estate properties related to healthcare services, such as medical office buildings and other outpatient-related medical facilities across the US. Healthcare Realty was founded in 1992, and has grown from a portfolio of 21 healthcare facilities to now being invested in almost 700 properties in the U.S.

The trust’s portfolio primarily consists of multi-tenant, on-campus medical office buildings that provide stable occupancy, high tenant retention, and reliable growth. The portfolio is diversified by geography, tenant size, and physician specialty.

Healthcare Realty reported second-quarter 2024 results for the period ending June 30, 2024. Normalized funds from operations (FFO) equaled $0.38 per share, which was a 2.6% year-over-year decrease. Same-store cash NOI for the second quarter increased 2.3% compared to Q2 2023. During the quarter, the portfolio had leasing activity commenced amounting to 1.301 million square feet associated with 369 leases. 934K square feet of renewals and 367K square feet of new and expansion leases commenced.

Acquisitions will be the main growth driver for Healthcare Realty. One recent example is the merger with Healthcare Trust of America. Additionally, the joint venture with the Teachers Insurance and Annuity Association’s (TIAA) and KKR allows for the trust to continue investing larger amounts of capital by diversifying its funding sources. Further, the trust predicts that average in-place rent increases, and future annual contractual increases for leases will further bolster FFO growth.

The trust’s payout ratio has remained fairly stable over the last five years, whereas the payout had come under threat before then. Today the dividend appears to be covered by normalized FFO. 

HR stock currently yields 7.0%.

California Here We Come

Kilroy Realty Corp. KRC, a self-administered REIT, operates in office and mixed-use submarkets along the West Coast. It owns, develops, acquires, and manages real estate assets, consisting primarily of properties in the coastal regions of Greater Los Angeles, San Diego County, the San Francisco Bay Area, and Greater Seattle.

KRC's stabilized portfolio totaled approximately 14.2 million square feet of primarily office and life science space. The company also had more than 1,000 residential units in Hollywood and San Diego. KRC has been developing, acquiring, and managing office space, life science, and mixed-use projects for the past seven decades.

In the 2024 second quarter, KRC reported revenues of $280.7 million and a net income of $0.41 per diluted share available to common stockholders. Funds from operations (FFO) for common stockholders and unitholders amounted to $132.6 million, or $1.10 per diluted share. Kilroy's stabilized portfolio was 83.7% occupied and 85.4% leased by the end of the quarter, with approximately 235,000 square feet of leases signed, including new and renewal leasing activities.

For the full year 2024, Kilroy has updated its guidance for FFO per diluted share to a range of $4.21 to $4.31. The company's net income available to common stockholders is projected to be between $1.50 and $1.59 per diluted share. Key assumptions include a change in same-store cash NOI from -3.0% to -4.0%, an average full-year occupancy of 82.75% to 83.75%.

Kilroy's growth prospects will be its management's ability to continue to acquire attractive properties, and to construct new mixed-use properties. We expect KRC to grow FFO at a compound annual growth rate of 2% for the next five years. This would result in FFO of $4.68 per share for 2029.

KRC’s dividend payout appears secure. The company has an S&P credit rating of BBB, which is considered investment grade. It also has a solid balance sheet with interest coverage of 3.3x and a debt/equity ratio of 0.9. KRC's long-term debt to cap ratio is moderate at 48.2%. Therefore, the dividend payout ratio of 51% based on estimated 2024 FFO, seems well cushioned.

KRC currently yields 6.51%.

Climb the Dividend Tower

American Tower Corp. AMT was founded in 1995 and is one of the world’s largest global REITs. The company specializes in owning, operating, and developing multi-tenant communications real estate, with a portfolio of more than 224,000 communications sites, in the United States and Internationally.

In late July, American Tower reported financial results for the second quarter of 2024. It grew its revenue 5% over the prior year’s quarter, as its customers keep investing in their 5G networks and data consumption keeps growing. Consolidated AFFO per share grew 13%, from $2.46 to $2.79, and exceeded the analysts’ consensus by $0.21.

The REIT benefits from the ramp-up of 5G in the U.S., Canada and India. Its net-debt-to-EBITDA ratio improved from 5.0 to 4.8. Thanks to positive business momentum, American Tower improved its guidance for 2024 for a second quarter in a row. It raised its guidance for growth of property revenue from 1.5% to 1.7% and its guidance for consolidated AFFO per share from $10.30-$10.53 to $10.48-$10.72, implying 7% growth at the mid-point.

American Tower has put together an exceptional record in the last decade, and many of those tailwinds still exist today. The company is well entrenched as a leader in the U.S. market and has also been significantly expanding abroad. The continued increase in data usage, especially as it relates to international countries “catching up,” will be a trend for some time. Moreover, with long-term leases in place, American Tower has good visibility into the future.

American Tower enjoys a competitive advantage in its leadership in the U.S. market. Not only is the company entrenched in the space, but switching costs for the company’s customers (once equipment is installed) are quite high. Meanwhile, American Tower enjoys economies of scale as it grows larger, with the cost to add additional tenants to a tower being essentially negligible.

AMT has increased its dividend for 13 years and currently yields 2.9%.

At the time of publication, Ciura had no positions in any stocks mentioned.