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.
A manager of Equity Real Estate Investment Trusts and Real Estate Management and Development Companies, overseeing investments.
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.
6. Gaming and Leisure Properties, Inc. (NASDAQ:GLPI)
Number of Hedge Fund Holders: 25
Forward P/E: 16.71
Gaming and Leisure Properties, Inc. (NASDAQ:GLPI) was founded in 2013 as the first gaming real estate investment trust in the US. The firm’s portfolio includes 65 premier gaming and related facilities which are operated by recognized industry leaders. The REIT engages in acquiring, financing, and owning real property to be leased to gaming operators in triple net lease arrangements.
Gaming and Leisure Properties, Inc. (NASDAQ:GLPI) has an unmatched gaming industry and real estate expertise. The REIT has a portfolio positioned well across the country and focuses on stable and resilient regional gaming markets. It benefits from its unmatched roster of the gaming industry’s leading operators. Regarding the future of the REIT, the firm remains confident in the long-term health of the casino gaming industry.
For the quarter ended June 30, total revenue increased 6.7% year-over-year to $380.6 million. AFFO grew 5.6% as compared to the prior year period. The firm continues to expand its portfolio and build its tenant base while strengthening its bond with existing tenants. It agreed to fund and oversee a landside development project and hotel renovation of the Belle of Baton Rouge for its tenant The Queen Casino and Entertainment Inc. The REIT also plans to add two promising assets to its existing portfolio through the acquisition of Bally’s Kansas City and Bally’s Shreveport.
Therefore, Gaming and Leisure Properties, Inc. (NASDAQ:GLPI) is a real estate investment trust focused on growth and diversification. The firm is positioned well as the real estate partner of choice for operators of all sizes.
5. Starwood Property Trust, Inc. (NYSE:STWD)
Number of Hedge Fund Holders: 25
Forward P/E: 9.84
Starwood Property Trust, Inc. (NYSE:STWD) is an affiliate of the global private investment firm Starwood Capital Group. The firm was established when Starwood Capital witnessed a need for alternative commercial mortgage financings since traditional commercial lenders left amidst the financial crisis. Starwood Property Trust has expanded since then and currently qualifies as the largest commercial mortgage REIT in the United States. The firm has been organized into complementary business segments including real estate lending, real estate investing and servicing, property, and infrastructure lending.
Starwood Property Trust, Inc. (NYSE:STWD) has a distinct position in the global real estate finance market as one of the world’s leading diversified real estate finance companies. The REIT has navigated multiple real estate cycles and has deployed more than $98 billion of capital since its inception, as of June 30. With the average size of its loans being approximately $100 million since inception, the scale of the firm is clear. Since Starwood Capital Group is one of the largest institutional real estate investors globally, Starwood Property Trust takes advantage of its global reach.
Since the firm has been diversified into investment cylinders other than commercial lending, it has outperformed in a relatively challenging global property market. However, the management believes that the hard phase is behind them, with an easing US and Europe market to be seen in the future. The firm’s access to capital and liquidity has further allowed it to invest across its businesses consistently.
Starwood Property Trust, Inc. (NYSE:STWD) is in an attractive spot with more than $4 per share of embedded gains in its owned property portfolio as well as $1.2 billion of liquidity. Since the firm’s founding 15 years back, it has also delivered a consistent dividend and an over 10% annualized return.
4. Host Hotels & Resorts, Inc. (NASDAQ:HST)
Number of Hedge Fund Holders: 26
Forward P/E: 18.43
Host Hotels & Resorts, Inc. (NASDAQ:HST) is one of the largest lodging real estate investment trusts. The firm has a geographically diverse portfolio of luxury and upper-upscale hotels across the United States. It was incorporated as a Maryland corporation in 1998. Currently, the REIT is headquartered in Bethesda, Maryland.
The portfolio of the REIT comprises high-quality assets in attractive markets across the US. The firm owns 76 properties in the United States and 5 properties internationally totaling approximately 43,400 rooms. Host Hotels & Resorts, Inc. (NASDAQ:HST) also has a strong scale and reputation as evident from the fact that it serves as the largest third-party owner of Marriott and Hyatt hotels. Host entered the pandemic with a strong balance sheet allowing it to re-invest in the portfolio during a period of low demand which led to 2023 FFO per share growth above 2019 levels, while other full-service lodging REITs lagged.
For Q2 2024, the firm delivered net income of $242 million, up 13.1% year-over-year. Comparable hotel total RevPAR was $368.25 for the quarter, an increase of 0.5% since the prior year. This was due to the group business driving increases in banquet and catering revenues. The firm also diversified its presence in New York City by acquiring the 1 Hotel Central Park subsequent to the quarter end. The REIT has acquired $1.5 billion of iconic and irreplaceable real estate so far in 2024 which positions it well for future EBITDA growth.
With unrivaled properties, a strong scale, a robust balance sheet, and a significant EBITDA growth potential, Host Hotels & Resorts, Inc. (NASDAQ:HST) is an attractive REIT stock to consider. The firm is an S&P 500 company.
3. Park Hotels & Resorts Inc. (NYSE:PK)
Number of Hedge Fund Holders: 27
Forward P/E: 16.00
Park Hotels & Resorts Inc. (NYSE:PK) is a lodging real estate investment trust. The firm has a diverse portfolio of market-leading hotels and resorts in some of the top markets in the US and internationally. It was formed as an independent company in 2017 after its spin-off from Hilton. The firm’s headquarters are in Tysons, Virginia.
Park’s irreplaceable portfolio comprises 43 hotels with 26,000 rooms positioned in prime US markets with high barriers to entry. A majority of this portfolio is situated in the central business districts of major cities or conference destinations or resorts. The firm is currently experiencing tailwinds to its growth in 2024 and beyond. The 2024 group revenue pace, which represents bookings for future business, is 11% above 2023.
Simultaneously, Hawaii holds a bright future for Park being a top US resort destination consistently. While US airlines have increased routes to Hawaii, Japanese demand has improved with forward airline bookings to Oahu from Japan up 99% year-over-year through the first half of 2024.
During the year’s fiscal second quarter, Park Hotels & Resorts Inc. (NYSE:PK) saw strong group and leisure demand trends at its hotels in Boston, Miami, and New York. This resulted in a comparable Revenue per Available Room (RevPAR) growth of 2% as compared to the prior-year period. As aforementioned, Group demand continues to improve with more business demand, increasing citywide events and strong convention calendars at its Boston, Chicago, and New York hotels
In conclusion, Park Hotels & Resorts Inc. (NYSE:PK) serves as one of the largest publicly traded lodging real estate investment trusts. The firm has a lot to offer with its established portfolio of hotels and resorts with significant underlying real estate value and strong growth trends. Additionally, it affiliates with some of the biggest names including Hilton, Marriott, and Hyatt.
2. EPR Properties (NYSE:EPR)
Number of Hedge Fund Holders: 30
Forward P/E: 17.93
EPR Properties (NYSE:EPR) is a diversified experiential net lease real estate investment trust. The firm has a mission of becoming the premier experiential REIT. It specializes in select enduring experiential properties in the real estate industry. EPR’s experiential portfolio has diverse property types comprising theatres, attractions, ski, eat & play, experiential lodging, fitness & wellness, cultural, and gaming. Additionally, the company’s education portfolio includes early childhood education center properties and private school properties.
EPR has a unique depth of experience in experiential properties since it has invested in such properties for over 25 years. The potential for future growth in location-based entertainment is vast with an over $100 billion addressable market. EPR has a strong portfolio spanning 354 locations with over 200 tenants in 44 states and Canada. The firm’s properties have historically outperformed both the Russell 1000 and MSCI US REIT Index in total return. With millennials being the largest population segment and prioritizing experiences over products, EPR also has attractive market conditions to pursue.
For the second quarter of 2024, EPR Properties (NYSE:EPR) demonstrated continued positive momentum. Other than having a strong demand for tenant categories, consumers continue to prioritize spending on experiences. Net income available to common shareholders grew 414% year-over-year. During the quarter, the firm’s investment spending totaled $46.9 million which brought year-to-date investment spending to $132.7 million.
EPR Properties (NYSE:EPR) has a strong position with its leading experiential portfolio, extensive market experience, strong balance sheet, and favorable conditions in the market. Additionally, its education portfolio is a legacy investment that offers diversity. As of Q2, the stock is held by 30 hedge funds.
1. VICI Properties Inc. (NYSE:VICI)
Number of Hedge Fund Holders: 33
Forward P/E: 11.80
VICI Properties Inc. (NYSE:VICI) is one of the largest owners of gaming, hospitality, and entertainment destinations in the United States. The company owns 93 experiential assets across a diverse portfolio which comprises 54 gaming properties and 39 other experiential properties, and four championship golf courses positioned across the US and Canada. Under triple-net lease agreements, its properties are occupied by gaming, leisure, and hospitality operators.
The scale of VICI Properties Inc. (NYSE:VICI) is evident from the fact that it is one of the largest triple net lease real estate investment trusts. The company has also demonstrated a strong record of growth and tenant diversification. VICI’s assets have high barriers to entry and high financial transparency making it different from traditional net-lease REITS. The company has also diversified itself with other revenue streams by being the largest owner of hotel room real estate and privately owned meeting, convention, and event space in the US.
During the second quarter, VICI witnessed a 6.6% revenue growth, year-over-year. Net income rose 7.3% to $741.3 million while AFFO attributable to common stockholders rose 9.6%, year-over-year. Furthermore, the REIT announced up to $700 million investment through VICI’s Partner Property Growth Fund strategy to fund extensive reinvestment projects at The Venetian Resort Las Vegas. Additionally, the firm is to favor from secular trends in experiential real estate with the rising share of consumer discretionary income being spent on experiences
VICI Properties Inc. (NYSE:VICI) is a leading player in experiential real estate with quality tenants in durable sectors across attractive geographies. As of Q2, the stock is held by 33 hedge funds.
While we acknowledge the potential of VICI as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than VICI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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