Historically, REITs are a major beneficiary of rate cuts. They tend to outperform markets if cuts are followed by a recession while they perform in line with the S&P in the case of no recession. Laurel Durkay, Morgan Stanley Investment Management head of global listed real assets, previously mentioned to CNBC that the REITs that are going to benefit the most from a rate cut would be net lease companies that would experience an improved acquisition spread and a better cash flow growth as a direct result of the rate cut.

Furthermore, REITs are more resilient as they continue to capitalize on the trends that persist regardless of the volatility in conventional real estate. For instance, data center REITs benefit from AI trends, health care REITs benefit from an aging demographic, and housing REITs benefit from the housing affordability issues persistent in the United States.

In recent news, Fed Chair Jerome Powell pointed towards further, smaller rate cuts saying that the Fed is not on any preset course.  Two more rate cuts are to be witnessed this year in case the economy performs as expected. However, these cuts will be smaller and not as aggressive as the first half percentage point rate cut. The rate cut is taking center stage at the REIT conference in NYC, as reported by CNBC.

This rate cut is positive news for the REIT sector as seconded by Conor Flynn, CEO of Kimco Realty. In his opinion, the potential rate cut would change investor appetite in real estate investment trusts. He believes in a bright outlook for the sector and that the cut would benefit real estate in general as well as his business.

With that being said, let’s move to the 8 most undervalued REIT stocks to buy now.

Our Methodology:

In order to compile our list, we first used stock screeners to identify REIT stocks that are trading with a forward P/E under 20, as of October 7. We listed stocks from all sub-segments of the REIT industry. From those, we picked the stocks which have the highest number of hedge fund holders. The 8 most undervalued REIT stocks to buy now have been ranked in ascending order of the number of hedge fund holders, as of Q2 2024.

At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

8 Most Undervalued REIT Stocks To Buy Now

8. Apple Hospitality REIT, Inc. (NYSE:APLE)

Number of Hedge Fund Holders: 19

Forward P/E: 17.64

Apple Hospitality REIT, Inc. (NYSE:APLE) is the owner of one of the largest and most diverse portfolios of upscale, rooms-focused hotels in the US. This portfolio comprises 224 hotels with over 30,000 guest rooms positioned in 87 markets across 37 states and the District of Columbia. The REIT was formed in 2007.

Apple Hospitality REIT, Inc. (NYSE:APLE) has a history in the lodging industry of over 20 years through its predecessor companies. The firm’s established portfolio shows that it invests in high-quality hotel properties that are situated in urban, high-end suburban, and developing markets and offer an attractive upside potential. Additionally, the firm has strong relationships with industry-leading brands since its portfolio has 119 Hilton-branded hotels, 100 Marriott-branded hotels, and five Hyatt-branded hotels.

For the second quarter ended June 30, comparable Hotels RevPAR increased 2.5% year-over-year. Comparable hotel occupancy was 80% thereby recording an over 2% increase since the preceding year. The steady improvement in midweek business travel demand is expected to be a major opportunity for driving growth. The strength of leisure travel demand was evident during the quarter from the growing occupancy on both weekdays and weekends.

Therefore, the fundamentals of the business of Apple Hospitality REIT, Inc. (NYSE:APLE) remain strong. The broadly diversified portfolio, alignment with the best lodging brands, and dominant position in the lodging industry deem the stock attractive.

7. AGNC Investment Corp. (NASDAQ:AGNC)

Number of Hedge Fund Holders: 19

Forward P/E: 5.17

AGNC Investment Corp. (NASDAQ:AGNC) is an internally managed mortgage REIT. It came into being in 2008 during the financial crisis. The REIT is a leading investor in Agency residential mortgage-backed securities (Agency MBS) which are guaranteed by a US government-sponsored enterprise. The firm also invests in other mortgage and mortgage-related securities including non-Agency residential and commercial MBS, credit risk transfer securities, and assets related to the housing, mortgage, or real estate markets not guaranteed by a government agency.

AGNC focuses on Agency MBS which has government support, substantial yield opportunity, and a highly liquid market to offer. Furthermore, the company’s dividend-driven total stock return since its IPO in 2008 has surpassed those of comparable indices and other yield-oriented alternatives. This reflects a proven long-term performance. With more than $13 billion of common stock dividends paid since inception, the REIT is a source of substantial monthly dividend income.

The second quarter didn’t go quite well for the firm. Agency MBS spreads to benchmark rates widened during the quarter since the Fed maintained its commitment to a hawkish monetary policy. However, the firm believes its future business prospects to be favorable since Agency MBS tends to offer meaningful incremental yield as compared to both US Treasuries and investment grade corporate debt. Additionally, an improving monetary policy and the positive supply-demand dynamic for Agency MBS are signs good enough to believe in a bright future for the REIT.

Overall, the REIT is in a good position to continue offering strong dividend-driven total returns over the long run. The Agency-focused business model has also been resilient against market cycles which deems it durable. AGNC Investment Corp. (NASDAQ:AGNC) ranks among the 8 most undervalued REIT stocks to buy now.