Wise investors have traditionally headed for real estate investment trusts (REITs) for their regular, sizeable dividends. Over the past two years, we have grown accustomed to bi-annual payments of 6%, 8% or even 10% of share price.

What if I could tell you one REIT is currently paying over 350%? You would think it is too good to be true.

Of course, you would be right. General Growth Properties (NYSE:GGP), with its $0.43 share price and last dividend payment of $2 per share, may pop up on the screens of investors looking for a big dividend, but there is absolutely no way you should expect to see any dividend from this REIT, let alone anything close to a double-digit payout.

Desperate for cash

General Growth is the latest company to announce it is on the verge of bankruptcy due its tremendous debt load. Like so many other now-defunct companies, General Growth used all the leverage it could muster over the past few years to boost its profits.

Now that the market has headed south, the leverage (to the tune of nearly $27 billion in debt) is magnifying the company’s financial pain. With over 200 malls in its real estate portfolio, General Growth has been dramatically hurt by the devastation in the nation’s retail industry.

The trust has nearly a billion dollars in debt payments due at the end of this month. If it does not find the money, its chances of survival are nearly nothing.

General Growth has a few options. Its best bet is to entice its creditors to extend or refinance the company’s short-term debt. That would at the very least, extend the trust’s operating period and give it a chance to create more financing opportunities.

If that does not work, the company must sell some of its properties to pay its debt burden. But with just over two weeks until the cash is due and few investors willing to take a plunge into the retail market, this is not a likely scenario.

Into the history books

Most likely, General Growth will have to seek bankruptcy protection. With such a huge debt load, the trust may find a solution for this month’s problems, but it will only add to next month’s dilemma. Over the next year, the trust has over $3 billion in debt coming due.

Shares of the REIT are down by over 60% today. That is on top of the more than 95% investors were forced to swallow over the last year. Shares are still worth about fifty cents, but I would not expect even that figure to hang around much longer.

The good news is, the lower share price goes, the higher the dividend yield will soar. Unfortunately, when this company is liquidated, there will not be a penny left over for shareholders.

Unless you already have a short position in this trust, stay away. It is like a burning barn filled with hay. All you can do is stand back and watch it burn to the foundation.

Source: Leverage claims another victim