To The Moon

$Realty Income(O)$ $Brandywine(BDN)$ $Community Healthcare(CHCT)$ $Innovative Industrial Properties Inc(IIPR)$

Over the past few years, I have successfully anticipated several high-profile dividend cuts across the REIT sector. Among those were Global Medical REIT, Service Properties Trust, Government Properties Income Trust, and Crown Castle—all of which ultimately followed through on the reductions I forecasted.

Today, I return with a fresh slate of dividend cut predictions that may catch some investors off guard. I believe these names face elevated risk of dividend reductions, which could translate into significant capital losses for shareholders.

1. Brandywine Realty Trust (NYSE: BDN)

High Yield, But At What Cost?

Brandywine Realty Trust remains a fan favorite among REIT enthusiasts, particularly on platforms like Seeking Alpha. Investors are drawn to its portfolio of high-quality office assets, seemingly aligned management, and shareholder-oriented practices. Today, the stock yields an eye-catching 14%, leading many to conclude that the dividend is both safe and sustainable—especially after a modest reduction in 2023.

However, I must express my strong skepticism.

While it is true that the dividend was trimmed last year—by approximately 20%—I do not believe the adjustment was sufficient. Another significant reduction appears imminent. The crux of the issue lies in Brandywine’s geographic and sector concentration: the REIT is primarily exposed to the office market in Philadelphia, which continues to experience structural distress.

To be clear, these are well-located, institutional-grade properties that should benefit from a long-term “flight to quality” trend. However, the near-term fundamentals are challenging. Vacancy rates in Philadelphia’s office market exceed 20%, and landlords—even those with Class A assets—are being forced to offer substantial leasing concessions to attract and retain tenants.

These incentives, alongside required capital expenditures for tenant improvements, are rapidly draining Brandywine’s cash flow. This is where standard REIT metrics like Funds From Operations (FFO) can mislead. FFO does not account for these real-world outflows such as capex and leasing incentives, leading to an overstated view of dividend coverage.

Brandywine itself has issued guidance for Cash Available for Distribution (CAD)—a more accurate indicator of dividend sustainability. Based on management’s own figures, the dividend payout ratio exceeds 120–150% of CAD. In other words, the dividend is not just under pressure; it is fundamentally unsupported by internal cash generation.

Moreover, Brandywine’s leverage ratio stands at approximately 7x, with relatively short debt maturities. This compounds the risk profile, especially in an environment where refinancing remains expensive. Investors should not expect material improvements by 2026 or 2027. In fact, the rise of artificial intelligence may reduce long-term office space demand further, as companies reassess their staffing needs in an increasingly automated world.

My forecast: A dividend cut in the range of 30% to 50% is highly probable in the near term.

2. Innovative Industrial Properties (NYSE: IIPR)

A Cautionary Tale in Cannabis Real Estate

Innovative Industrial Properties (IIPR) is another REIT that has garnered strong investor interest. Specializing in cannabis-related real estate, the company boasts high-quality assets, a conservatively structured balance sheet—with a loan-to-value ratio of only 15%—and a management team with a strong historical track record.

Yet the story is not as reassuring as it seems.

The cannabis sector itself is in prolonged distress. Many tenants are operating at a loss, surviving primarily through equity raises to fund operations, including rent. Unfortunately, these capital raises are becoming increasingly dilutive, and valuations across the sector remain severely depressed.

Notably, IIPR’s largest tenant, which accounted for 17% of its rental income, recently defaulted. While a resolution was found that mitigated the damage, other tenants are reportedly under pressure, and additional defaults are anticipated in the coming quarters.

This wouldn't be catastrophic if IIPR maintained a low payout ratio, offering it room to absorb temporary disruptions. However, the REIT currently distributes more than 100% of its cash flow. With no buffer, even minor lease defaults may force a dividend cut.

Investors appear aware of these concerns—shares yield roughly 14%—signaling that the market has priced in substantial risk. In such a situation, cutting the dividend may actually serve a strategic purpose, allowing the company to strengthen its position and improve negotiations with defaulting tenants.

For reference, its closest peer—NewLake Capital Partners—operates with a notably lower risk profile. NewLake retains about 20% of its cash flow and maintains a net cash position, offering it greater resilience in an unpredictable tenant environment. We prefer this positioning and have accordingly allocated capital to NewLake at High Yield Landlord.

Bottom line: IIPR was perhaps too aggressive with debt and payout strategy in a volatile industry. Without sufficient margin for error, a dividend reduction may be on the horizon.

3. Community Healthcare Trust (NYSE: CHCT)

A Yield That May Be Too Good to Be True

Community Healthcare Trust has built its brand around recession-resistant healthcare properties—primarily skilled nursing facilities—and currently offers an 11% dividend yield. As expected, it is often promoted as a defensive income play, particularly during uncertain economic cycles.

Yet high yields often signal elevated risk—and this REIT is no exception.

CHCT has aggressively acquired assets with unusually high cap rates—often 8% to 10%—suggesting a willingness to take on risk in exchange for elevated returns. But in healthcare real estate, high cap rates are typically a red flag, indicating struggling assets or less-creditworthy tenants.

As a result, CHCT has already begun facing lease defaults.

Worse still, the REIT lacks a safety cushion. It carries significant leverage, its debt maturities aren’t particularly long-dated, and its dividend payout ratio is already stretched. When adjusting for real estate-related expenses like capex and leasing commissions, we estimate CHCT’s payout ratio is closer to 110%–120% of true cash flow—not a sustainable figure.

This pattern is all too familiar: REITs stretching for yield, underestimating risk, and eventually being forced to reduce distributions once defaults materialize and cash flows weaken.

Expected outcome: A dividend cut in the range of 20% to 30% seems increasingly likely.

Not All REITs Are Created Equal

To be clear, I am not suggesting that all REIT dividends are in jeopardy. On the contrary, I believe the majority of REITs are well positioned for dividend stability and even growth over the coming years. Sector-wide leverage is near historical lows, rental growth continues in several property types, and most REITs maintain disciplined payout ratios around 70%.

The commonly cited “90% rule”—which mandates that REITs pay out at least 90% of their taxable income—does not reflect actual free cash flow. Thanks to real estate depreciation, taxable income tends to be significantly lower than GAAP or cash earnings.

Accordingly, many well-managed REITs retain sufficient cash flow to grow distributions sustainably. These are the opportunities we continue to favor in our portfolio.

Final Thoughts

In closing, investors should be cautious about chasing high yields without understanding the underlying risks. Brandywine, Innovative Industrial Properties, and Community Healthcare Trust may each appear attractive on the surface—but a deeper dive reveals structural vulnerabilities.

Key Takeaways:

1. High Dividend Yields can be deceptive—often reflecting embedded risk or unsustainable payout practices.

2. Office and Cannabis Sectors remain under significant pressure and may face further deterioration in fundamentals.

3. Leverage and Tenant Quality are crucial variables often overlooked in headline metrics like FFO.

4. Dividend Cuts are likely for BDN, IIPR, and CHCT—potentially by 20–50% depending on the REIT.

5. Due Diligence Matters—not all REITs are created equal, and careful portfolio construction remains critical.

Dividend investors must look beyond yield to assess true sustainability. In a market that increasingly punishes mispriced risk, avoiding the next cut may be just as important as capturing the next raise.