The April “Fool’s Gold” REITs

The funny cat in a jester hat holds the poster. April fools day. White background. Isolated.

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And hello there, my fine fellow. How are you doing today?

Doing well? I’m so happy to hear that. I couldn’t be happier myself on such a beautiful day.

It’s a good day, I tell you. Don’t you think? A perfect day, in fact. A perfect day to make some money for a savvy investor like you. Because, let me tell ya here: You look like a savvy investor. I can always tell these things. It’s in the eyes. And you’ve got the eyes, kid.

You’ve got the eyes.

I bet those eyes have already taken in that bridge over there, haven’t they? Of course they have. Because you know a good thing when you see it. You’re smart like that. You and those savvy investor eyes of yours.

That’s the Brooklyn Bridge, you know. And it’s up for sale right now. For a limited time, mind you. I can’t be offering this kind of price 24-7. It can’t be done. Not for something with that kind of structural integrity and profit potential.

Honestly, I don’t want to let it go at all. That Brooklyn Bridge right there is going to go on to make some lucky investor some major money – in the near future too. We’re talkin’ big bucks here! Big, big bucks.

Thing is though, I’m in a bit of a bind and need the cash right away. And if I’ve got to pass on these kinds of profits, at least I’d like to pass them on to someone like you. A savvy investor: someone who can see a good thing and know what to do with it.

Someone like you. Someone with the eyes. For the bargain basement price of just $200. You’re not going to get another deal like this one. This is a once-in-a-lifetime chance, my friend.

What do you say?

April Fools

First of all, happy April Fools’ Day. Hopefully, you haven’t fallen for any pranks yet, good-natured or otherwise. For that matter, hopefully you won’t fall for any pranks going forward either, especially not of Brooklyn Bridge proportions.

… unlike a short but sheepish list of people in the solid structure’s somewhat sordid past.

Most of us know the saying, “If you believe that, I’ve got a bridge to sell you.” Some of us might even know it specifically relates to the Brooklyn Bridge. But did you know that people around the turn of the 20th century seriously fell for the line?

Hook, sinker and all.

According to The New York Times, conmen like George C. Parker, William McCloundy (aka “I.O.U. O’Brien”), Reed C. Waddell, and Charles and Fred Gondorf all took their turns at selling the Brooklyn Bridge to gullible individuals.

Two hundred dollars. Three hundred dollars. A thousand dollars…

Apparently there were plenty of suckers ready for the taking. Sadly, this is no joke, April Fool’s Day or otherwise.

It really happened.

Brooklyn Bridges and Sucker Yields

More than likely, you’re not the kind of “savvy investor” to fall for such a ploy. You’re a lot more sophisticated than that.

The Brooklyn Bridge? Puh-lease!

But what about other pieces of property? What about real estate investment trusts with really high dividend yields? You know the ones: they’re the kind that make your eyes big, your jaw drop open, and a little bit of drool slide down your chin at the thought of all the profits you’re going to make.

Have you fallen for stories like that?

Are you falling right now?

They look good. Oh so very tempting. Sweet talkers, every one of them. But if they don’t have a strong, smart business model to back them up, then you might as well “buy” the Brooklyn Bridge.

Keep in mind that the dividend yields you’re rightfully interested in obtaining have to come from somewhere. They don’t just grow on trees. They need to be thought through and followed through with attention to detail and pride in production yet a checked and double-checked ego.

If a REIT is boasting too big of a dividend yield, you’ll need to automatically remember that pride goes before a fall.

I know this is something I write about a lot, and I don’t mean to harp on the same subject so much. But for every sucker yield that exists, there are dozens, hundreds or thousands of people who are ready, willing and outright eager to be taken advantage of.

As long as that keeps happening, I’m going to continue to publish pieces like this, warning investors away from dangerous concepts and dangerous companies.

This includes the following three REITs.

These Yields Are a Joke – and Not the Funny Kind

If something seems too good to be true, it probably is. You see, this article is titled The April ‘Fool’s Gold’ REITs for a very good reason.

Fool’s Gold This is where a company decides to pay a large dividend without any intention for this large dividend payment to persist.

There are three REITs that fit squarely into our April Fool’s Gold bucket: Washington Prime (WPG), Global Net Lease (GNL), and Senior Housing Properties (SNH).  All three of these REITs have high payout ratios (based on AFFO per share): WPG is 120%, GNL is 107%, and SNH is 94% (source: FAST Graphs).

In fact, we do not believe the dividends are sustainable: WPG’s dividend yield is 17.7%, GNL’s dividend yield is 11.3%, and SNH’s dividend yield is 13.2%.

In addition, these high yielding REITs are often referred to as yield traps, meaning they have terrible fundamentals, including deteriorating business models and cash flows, and weak balance sheets. So ultimately, there’s a very good chance that the dividends will be cut or even eliminated.

Remember what I said, “If a REIT is boasting too big of a dividend yield, you’ll need to automatically remember that pride goes before a fall.” That’s no joke, even though it is April 1st.

I do not shares in WPG, SNH, or GNL.

 

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