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ONE BIG THING

5 REITs Ready To Pay Special Dividends

What: REIT investors are sometimes treated to special dividends paid near the end of every year. The special dividends are in addition to the REIT’s regular quarterly or monthly dividend and will vary in amount. Reasons for the payment of special dividends include the sale of assets, stronger-than-usual earnings that must be distributed to shareholders, or changes in the financial structure of a REIT, such as a spin-off.

How: Special dividends are paid into one’s brokerage account and with some brokerages can be reinvested like ordinary dividends. However, for tax purposes, special dividends cannot be qualified. They may be subject to ordinary income tax rates as returns of capital.

Special dividends are sometimes far larger than ordinary dividends. In 2004, Microsoft paid a special dividend of $3 per share, far above its normal quarterly dividend of $0.04. Remember that any dividends paid by a REIT will lower the price of the shares by approximately the same amount.

Who: Five REITs have recently declared special dividends to be paid near the end of the year or in January. They are:

Host Hotels & Resorts Inc (Nasdaq: HST) Host Hotels announced a special dividend of $0.10 on December 11, in addition to its regular quarterly cash dividend of $0.20 per share. The dividends are payable on January 15, 2025. to shareholders of record as of December 31, 2024.

Diamondrock Hospitality Co (NYSE: DRH) On December 9, Hotel REIT Diamondrock Hospitality declared an extra dividend of $0.20 per share, payable along with its fourth-quarter dividend of $0.03 per share on January 14, 2025, for shareholders of record as of December 31, 2024.

On December 6, Specialty REIT, Lamar Advertising Co (Nasdaq: LAMR), announced its board of directors has authorized a special cash dividend of $0.25 per share, payable with its quarterly cash dividend of $1.40 per share on December 30 to shareholders of record of Lamar’s Class A or Class B common stock on December 18.

As mentioned in this newsletter last week, on December 3, Timberland REIT Rayonier Inc (NYSE: RYN) declared a one-time special dividend of $1.80 per common share, with 25% payable in cash and 75% in common shares. The dividend is payable on January 30 for shareholders of record on December 12 and results from Rayonier’s $495 million timberland disposition in the fourth quarter.

On November 26, Park Hotels & Resorts Inc (NYSE: PK) announced a “top off” special dividend of $0.40, in addition to its regular quarterly dividend of $0.25 per share, payable in cash on January 15, 2025, to shareholders of record on December 31, 2024.

Takeaway: One of the perks of owning dividend stocks such as REITs is that occasionally an investor will receive a special dividend along with the regular dividend paid. However, a REIT should never be purchased solely for a special dividend, and investors are advised to perform normal due diligence when considering the purchase of a REIT for whatever reason. It’s also important to realize that paying out a special dividend leaves a company with less cash for acquisitions or other growth.

However, if you are already a shareholder or have previously considered purchasing any of the five REITs above, these “holiday presents” are a great opportunity to enhance your 2024 returns.

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WHAT WALL ST. SAID ABOUT REITS THIS WEEK

This week, analysts at BMO Capital Markets and several other firms were extremely active, upgrading and downgrading many REITs across different sub-sectors:

Prologis Inc (NYSE: PLD) On December 6, BMO Capital Markets analyst John Kim downgraded Industrial REIT Prologis from Market Perform to Underperform and reduced the price target by 13.3% from $120 to $104. BMO feels that Prologis has an expensive valuation and that the new administration’s proposed 10% incremental tariffs on Chinese imports will add further uncertainty to Prologis’ tenant base.

Brixmor Property Group Inc (NYSE: BRX) Conversely, on the same day BMO Capital Markets analyst Juan Sanabria upgraded Retail REIT Brixmor Property Group from Market Perform to Outperform and raised the price target by 10% from $30 to $33. The analyst noted that Brixmor has improved its portfolio in the past several years and now has attractive, low basis rents, a strong balance sheet, improved management and opportunities for new accretive acquisitions.

Omega Healthcare Investors Inc (NYSE: OHI) On December 9, BMO Capital analyst Juan Sanabria upgraded Omega Healthcare from Market Perform to Outperform while maintaining a $45 price target. The analyst cited Omega’s diversified tenant base, low EBITDA ratio of 4.2%, expectations of increasing accretive acquisitions and a generally optimistic view of the healthcare sub-sector with reduced regulatory pressures under the new administration.

Also on December 9, BMO Capital analyst Ketan Mamtora upgraded Timberland REIT Weyerhaeuser Co (NYSE: WY) from Market Perform to Outperform and maintained the previous $38 price target. BMO is expecting higher lumber prices due to higher export duties on lumber from Canada and an increase in Oriented Strand Board (OSB) prices as well. The analyst also cited an attractive current valuation for Weyerhaeuser, as it’s down nearly 30% from its April 2024 high of $35.56.

Caretrust REIT Inc (NYSE: CTRE) Another Healthcare REIT, Caretrust, was reviewed by BMO Capital analyst Juan Sanabria on December 9, but this time the analyst downgraded it, from Outperform to Market Perform while lowering the price target from $34 to $32.

Caretrust’s largest tenant, PACS Group Inc (NYSE: PACS), has recently been the target of a civil investigative demand from the federal government and a class action lawsuit, alleging that Caretrust misled investors by engaging in deceptive Medicare practices such as submitting fraudulent claims, billing Medicare for unnecessary therapies and falsifying licensure and staff documentation.

BMO Capital’s concern about Caretrust is because PACS comprises about 20% of Caretrust’s pro-forma rents. The downgrade reflects a caution that the investigations could hamper PACS’ ability to pay its rents.

SL Green Realty Corp (NYSE: SLG) On December 10, JP Morgan analyst Anthony Paolone upgraded SL Green from Underweight to Neutral and raised the price target 56% from $51 to $80 per share. JP Morgan cited improving fundamentals in the NYC office market and the ability of SL Green to make further accretive investments.

Crown Castle Inc (NYSE: CCI) On December 10, Wells Fargo analyst Eric Luebchow downgraded Specialty REIT Crown Castle from Equal-Weight to Underweight and slashed the price target from $105 to $100. Wells Fargo cites limited private market demand for CCI’s fiber and small cell assets, which may negatively impact funds from operations (FFO) and perhaps even lead to a dividend cut.

Blackstone Mortgage Trust Inc (NYSE: BXMT) On December 11, Wolfe Research analyst Keegan Carl upgraded Blackstone Mortgage Trust from Peer Perform to Outperform and initiated a $20 price target. The analyst noted Blackstone’s strong origination pipeline and healthy repayments and is looking for improved earnings going into 2025-2026.

Eastgroup Properties Inc (NYSE: EGP) On December 11, Raymond James analyst Jonathan Hughes upgraded Industrial REIT Eastgroup Properties from Outperform to Strong Buy and hiked the price target from $185 to $200. The analyst sees less supply pressure and more demand for Eastgroup’s smaller, multi-tenant industrial buildings than its peers and has a strong balance sheet and capability for growth.

FIVE ZINGERS

Giving Investors More “Green”: On December 6, SL Green Realty Corp (NYSE: SLG) announced its Board of Directors approved a 3% increase to its 2025 annual dividend from $3.00 to $3.09 per share. SL Green will continue to pay dividends monthly and the first dividend of $0.2575 per share is payable on January 15, 2025, to shareholders of record at the close on December 31. SLG also raised its 2024 FFO guidance from $7.45-$7.75 to $7.65-$7.95, trouncing the consensus estimate of $7.58 per share.

We’re In, You’re Out: On December 6, it was announced that Terreno Realty Corp (NYSE: TRNO) and Champion Homes Inc (NYSE: SKY) will replace Hudson Pacific Properties Inc (NYSE: HPP) and REGENXBIO Inc (Nasdaq: RGNX) in the S&P Small Cap 600. Terreno was also in the news on December 5 for acquiring a 17,000-square-foot industrial property in Queens, NY for $7.6 million.

Director Cashes In Some “Income”: On December 4, Realty Income Corp (NYSE: O) disclosed that Board member Gregory McLaughlin sold 1,250 shares of Realty Income stock at an average price of $56.17 for a total value of $70,212. However, Director McLaughlin still owns 34,636 shares, which should pay him approximately $9,143 per month with Realty Income’s just announced 128th dividend raise from $0.2635 to $0.2640 per share.

Bargain Score: Caretrust REIT Inc (NYSE: CTRE) announced on December 9 that it has acquired a 46-facility, 3,820-bed/unit skilled nursing and senior housing portfolio in the Midwest for approximately $97 million as part of a bankruptcy and sale of all assets by the debtor/seller. CareTrust immediately locks in a 15-year triple-net master lease with a large skilled nursing investor and operator who will sublease with several other licensed subtenant operators.

Believing In Themselves: Alexandria Real Estate Equities Inc’s (NYSE: ARE) share price has declined by almost 50% since January 2022 and on December 9, Alexandria announced its Board of Directors authorized a $500 million repurchase program of its common stock until December 31, 2025, using net cash from operations and asset sales. Alexandria also announced an increase to its cash dividend from $1.30 to $1.32 per share, payable January 15, 2025, to shareholders of record on December 31, 2024.

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