High-Yield REITs in 2025: Navigating Dividend Risks Amid Rising Interest Rates

The high-yield REIT sector in 2025 presents a paradox: attractive yields coexist with structural risks as rising interest rates test dividend sustainability. While the sector's average yield of 4–7% draws income-focused investors, the interplay of debt structures, payout ratios, and macroeconomic shifts demands a nuanced evaluation. This analysis examines key players-Apple Hospitality, EPR Properties, Starwood Property Trust, and VICI Properties-to assess which are most likely to preserve or cut dividends amid tightening monetary policy.

Sector Trends: A Mixed Outlook

The REIT sector's resilience in 2025 hinges on divergent property types and capital structures. Data centers and industrial REITs have thrived, with FFO growth of 21.3% and 8.0% year-over-year, respectively, driven by AI infrastructure demand and supply chain resilience. Conversely, office and hotel REITs face headwinds, with occupancy declines and hybrid work trends eroding cash flows.

Interest rates, which peaked in mid-2025, have begun to stabilize, offering some relief. J.P. Morgan projects REIT earnings growth of 3% in 2025, with acceleration to 6% in 2026 as borrowing costs moderate. However, the sector's average debt-to-EBITDA ratio of 32.5% remains a vulnerability, particularly for REITs with floating-rate debt or heavy refinancing needs.

Dividend Sustainability: A REIT-by-REIT Breakdown

Apple Hospitality (APLE):
Apple Hospitality's dividend sustainability is under severe strain. With a Q1 2025 payout ratio of 221% based on earnings and 242% based on operating free cash flow, the REIT is distributing more in dividends than it generates. Compounding this, the company faces $361 million in debt maturities over 12 months and a net debt-to-equity ratio of 0.46. While its $3.27 billion equity base provides some buffer, analysts warn of potential cuts unless capital raising or asset sales offset cash flow shortfalls.

EPR Properties (EPR):
EPR Properties, an experiential net-lease REIT, balances strong tenant quality with structural risks. Its Q3 2025 operating free cash flow payout ratio of 123% indicates over-reliance on operational cash flow to sustain dividends. The company's $2.8 billion debt load includes $629.6 million in 2026 maturities, and its interest expense rose 8.2% year-over-year to $68 million. While compliance with leverage covenants (debt-to-adjusted assets <60%) suggests short-term stability, its high payout ratio and refinancing needs make it a moderate-risk candidate for dividend preservation.

Starwood Property Trust (STWD):
Starwood's 177.8% payout ratio-well above the sector average of 146.3%-signals significant strain. The mortgage REIT's exposure to floating-rate debt and commercial lending amplifies sensitivity to rate hikes. With total liabilities of $55.36 billion and equity of $7.19 billion, Starwood's leverage leaves little room for error. Analysts note that its dividend sustainability hinges on asset liquidation or refinancing success, making it one of the most vulnerable high-yield REITs in 2025.

VICI Properties (VICI):
VICI Properties stands out as a relative safe haven. Its 74.6% operating free cash flow payout ratio and 98.1% fixed-rate debt insulate it from rate volatility. The REIT's triple-net lease model minimizes capital expenditures, and its $2.2 billion undrawn credit facility provides liquidity flexibility. However, tenant concentration-MGM and Caesars account for 74% of lease revenue-introduces idiosyncratic risks. Despite this, VICI's disciplined deleveraging and covenant compliance position it as the sector's most dividend-safe name.

Yield vs. Risk: Strategic Implications

For investors, the 2025 REIT landscape demands a balance of yield hunger and risk awareness. Closed-end funds offering 7%+ yields may appear enticing, but their performance is tied to the same macroeconomic forces affecting individual REITs. Data centers and infrastructure REITs, with their inelastic demand and long-term leases, offer the most compelling risk-adjusted returns. Conversely, office REITs and high-payout mortgage REITs like Starwood and Apple Hospitality warrant caution.

As interest rates stabilize, REITs with fixed-rate debt and diversified tenant bases-such as VICI-will likely outperform. However, those with aggressive payout ratios and refinancing needs face a higher likelihood of dividend cuts. The key takeaway: high yields must be scrutinized through the lens of balance sheet strength and sector-specific dynamics.