13 Most Undervalued REIT Stocks To Buy According To Hedge Funds

Published on February 12, 2023 at 3:49 pm by Fahad Saleem in Hedge Funds, News

In this article, we will take a look at the 13 most undervalued REIT stocks to buy according to hedge funds. To see more such companies, go directly to 5 Most Undervalued REIT Stocks To Buy According To Hedge Funds.

The real estate industry has been experiencing a rollercoaster ride over the past few months amid rising interest rates and rapidly changing dynamics in the mortgage markets. However, investors believe the broader industry is expected to see some stability in the second half of 2023. Colliers in its 2023 outlook report for the industry said that stabilization in the global real estate market can “take hold” in mid-2023. The report said that most of the growth in the industry will come from the Asia Pacific region. The report noted that the volatility in the market will cause Asia Pacific investors to have three preferences in 2023. These include offices, industrial & logistics and multifamily/build-to-rent properties.

However, things will not be totally smooth for REITs in 2023. Despite the fact that inflation is now slowing in the US and all over the world and the Federal Reserve is starting to slow down its interest rate hikes, some investors still expect a mild recession this year. A report from investment firm Uniplan Investment Counsel said REITs were expected to generate total returns of -25% in 2022. The report said that this figure was well below the firm’s estimate of total returns of +8-10% for the year.

Uniplan also expects that in 2023, earnings for most REITs will be supported by office space demand. There are several studies which suggest that companies now prefer in-office work routines over work-from-home culture. Major tech companies have also reportedly started demanding their employees to work from offices, at least for a few days in a week. This trend will spark a new demand for office spaces and bode well for the REIT industry.

One of the biggest factors that make REIT stocks attractive is dividends. The Uniplan report said the REIT sector dividend yield stands at 3.7%, which is about 2.5X the S&P 500 index yield. Uniplan said that over the medium- to long-term REITs can up their dividends at 4-5% annually.

As you will see in this article, most of the REITs that are currently undervalued and are famous among smart money are also high-yield dividend players. As investors continue to pile into dividend stocks amid recession fears, REIT dividend stocks will see a growing demand and popularity in the market.

Photo by Owen Lystrup on Unsplash

Our Methodology

For this article we used stock screeners to identify REIT stocks that are trading with a PE ratio under 15 as of February 2. We listed stocks from all sub-segments of the REIT industry — mortgage, office, residential, retail, specialty, industrial, among other areas. From the resultant dataset, we picked the stocks which have the highest number of hedge fund investors. To gauge that metric we used Insider Monkey’s database of 920 hedge funds. The list is ranked in ascending order of the number of hedge fund investors.

Most Undervalued REIT Stocks To Buy According To Hedge Funds

13. NexPoint Real Estate Finance, Inc. (NYSE:NREF)

Number of Hedge Fund Holders: 4

NexPoint Real Estate Finance, Inc. (NYSE:NREF) has a PE ratio of 12.53 as of February 2. NexPoint Real Estate Finance, Inc. (NYSE:NREF) has a dividend yield of about 10.3%. A total of 4 hedge funds tracked by Insider Monkey had stakes in NexPoint Real Estate Finance, Inc. (NYSE:NREF) as of the end of the third quarter of 2022.

Here is what Baron Real Estate Income Fund has to say about NexPoint Residential Trust, Inc. (NYSE:NXRT) in its Q2 2022 investor letter:

“Despite strong quarterly results and an encouraging update from management, the shares of NexPoint Residential Trust, Inc., a sunbelt focused apartment REIT, declined in the most recent quarter alongside most other REITs. At its recent price of only $62, we believe the shares are valued at a significant discount to its private market value and remain optimistic about the company’s prospects.

NexPoint owns and operates approximately 15,000 apartment units across 10 geographic markets primarily geared toward workforce housing with average rents of $1,300 per month. The company has substantial insider ownership and has been one of the most successful apartment operators in terms of equity value creation among its peers.

We believe NexPoint will achieve above average organic growth and are optimistic about the prospects for the company due to: i) its favorable market exposure in the sunbelt (attractive job growth, household formation, net migration, and increasing cost of ownership); ii) a shortage of affordable housing broadly, which is more acute in the sunbelt; iii) relative affordability both to other apartment or single-family rental options and the cost of home ownership; and iv) its ability to deploy capital into attractive value-added opportunities such as kitchen upgrades and washer/dryer installations at high returns on capital (around 20%) to augment organic growth…” (Click here to see the full text)

12. Ares Commercial Real Estate Corporation (NYSE:ACRE)

Number of Hedge Fund Holders: 7

Ares Commercial Real Estate Corporation (NYSE:ACRE) is a Chicago-based REIT. Ares Commercial Real Estate Corporation (NYSE:ACRE) has a dividend yield of over 10%. As of the end of the third quarter, 7 hedge funds had stakes in Ares Commercial Real Estate Corporation (NYSE:ACRE). The total value of these stakes was $21 million. In November, Ares Commercial Real Estate Corporation (NYSE:ACRE) posted its Q3 results. Ares Commercial Real Estate Corporation (NYSE:ACRE)’s distributable EPS in the quarter totaled $0.39, beating estimates of $0.31. Revenue in the period came in at $27.3 million. Interest income in the period came in at $45.6 million, compared to $34 million posted in the comparable period last year.

Ares Commercial Real Estate Corporation (NYSE:ACRE) also declared a $0.33 per share quarterly dividend in November. Forward dividend yield at the time came in at 10.59%. The dividend was payable on January 18 to shareholders of record as of December 30.

11. Broadmark Realty Capital Inc. (NYSE:BRMK)

Number of Hedge Fund Holders: 9

Broadmark Realty Capital Inc. (NYSE:BRMK) is a Seattle-based real estate company. Broadmark Realty Capital Inc. (NYSE:BRMK) has a PE ratio of 10.12 of February 2 and a dividend yield of over 9%. A total of 9 hedge funds had stakes in Broadmark Realty Capital Inc. (NYSE:BRMK) as of the end of the third quarter. The total value of these stakes was about $33 million. In January, Broadmark Realty Capital Inc. (NYSE:BRMK) declared a monthly dividend of $0.035 per share. Broadmark Realty Capital Inc. (NYSE:BRMK) took a hit back in November when the company declared a 50% decrease in its monthly dividend.

10. Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI)

Number of Hedge Fund Holders: 10

Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) is yet another high-yield, undervalued dividend stock on our list. Insider Monkey’s database of elite hedge funds’ holdings shows that 10 hedge funds had stakes in Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) at the end of the third quarter of 2022. The biggest stakeholder of Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) was Dmitry Balyasny’s Balyasny Asset Management which had an $8.7 million stake in the company.

In January, Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) announced that in 2022 it completed about $3.7 billion of new loan originations, up from $3.2 billion in 2021. In the fourth quarter alone, Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) originated $243.1 million of mortgages.

In December, Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) declared a quarterly dividend of $0.35 per share. Forward dividend yield at the time came in at 11.84%. The dividend was payable on January 13.

9. Arbor Realty Trust, Inc. (NYSE:ABR)

Number of Hedge Fund Holders: 13

Arbor Realty Trust, Inc. (NYSE:ABR) is one of the most undervalued REIT stocks to buy according to hedge funds. This high-yield dividend stock is also highly popular among income investors. As of February 2 Arbor Realty Trust, Inc. (NYSE:ABR) has a dividend yield of over 11%.

In the third quarter, Arbor Realty Trust, Inc. (NYSE:ABR)’s third quarter distributable EPS came in at $0.56, beating the estimates of $0.36. Net interest income in the period totaled $99.3 million, compared to $99.3 million posted in the previous quarter.

A total of 13 hedge funds tracked by Insider Monkey reported owning stakes in this REIT as of the end of the third quarter.

8. BrightSpire Capital, Inc. (NYSE:BRSP)

Number of Hedge Fund Holders: 14

BrightSpire Capital, Inc. (NYSE:BRSP) is a California-based REIT that is focused on commercial real estate. BrightSpire Capital, Inc. (NYSE:BRSP) has a dividend yield of over 10% and its PE ratio stands under 10 as of February 2.

As of the end of the third quarter of 2022, 14 hedge funds tracked by Insider Monkey had stakes in BrightSpire Capital, Inc. (NYSE:BRSP). The net worth of these stakes was about $72 million.

In December, BrightSpire Capital, Inc. (NYSE:BRSP) declared a quarterly dividend of $0.20 per share. Forward dividend yield at the time came in at 11.71%. The dividend was payable on January 17. In the same month, BrightSpire Capital, Inc. (NYSE:BRSP) was downgraded by BTIG analyst Eric Hagen, who also downgraded some other players in the mortgage space, citing higher interest rates.

7. Rithm Capital Corp. (NYSE:RITM)

Number of Hedge Fund Holders: 14

Rithm Capital Corp. (NYSE:RITM) is operating in the mortgage real estate industry. As of the end of the third quarter, 14 hedge funds had stakes in Rithm Capital Corp. (NYSE:RITM). The total value of these stakes was about $65 million. In November, Rithm Capital Corp. (NYSE:RITM) shares jumped after the company posted strong Q3 results. Rithm Capital Corp. (NYSE:RITM) also announced that it will buy 50% stake in Senlac Ridge Partners. Distributable EPS in the quarter came in at $0.32, exceeding the $0.29 consensus. In the second quarter this metric was $0.31.

6. Blackstone Mortgage Trust, Inc. (NYSE:BXMT)

Number of Hedge Fund Holders: 15

Blackstone Mortgage Trust, Inc. (NYSE:BXMT) ranks 6th in our list of the most undervalued REIT stocks to buy according to hedge funds. In October, Blackstone Mortgage Trust, Inc. (NYSE:BXMT) shares jumped after the company posted strong third-quarter results which were helped by rising interest rates. Distributable EPS in the quarter totaled $0.71, surpassing estimates by $0.67.

As of the end of the third quarter of 2022, 15 hedge funds had stakes in Blackstone Mortgage Trust, Inc. (NYSE:BXMT), according to Insider Monkey’s proprietary database. The total value of these stakes was over $166 million. The biggest stakeholder of Blackstone Mortgage Trust, Inc. (NYSE:BXMT) was John Armitage’s Egerton Capital Limited, which owns a $54.4 million stake in the company.

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