Five Cheap REITs Under $10 that Hedge Funds are Bullish On

Real Estate Investment Trusts (REIT) represent great investment opportunities, mainly because they pay most of their profits as dividends, which is why they sport solid dividend yields and offer investors a steady flow of payments aside from the profits made from the appreciation of the stock. However, out of thousands of REITs that are publicly traded, it’s hard to pick the ones that are the safest and the ones that can offer high chances of stock gains. Some of the REITs are rather expensive, such as Equinix Inc (NASDAQ:EQIX), which trades at around $289, while others are too cheap, like Wheeler Real Estate Investment Trust Inc (NASDAQ:WHLR), valued at less than $2.00 and which has a dividend yield of over 11%. One of the easiest ways to identify the best REITs is to follow the hedge fund activity that surrounds them and with this in mind, we have identified five cheap REITs that currently trade around and below $10 per share, sorting them in terms of popularity among the over 700 hedge funds from our database.

While often an overlooked metric, hedge fund sentiment can provide a lot of insights to retail investors. Hedge funds spend a lot of time and always conduct due diligence while making their picks, which makes them the perfect investors to emulate, without spending a lot of own resources. Our research has shown that imitating hedge funds’ 15 most popular small-cap picks can generate returns as much as nearly one percentage point per month and our strategy that follows this approach has returned over 118% since it went live in August 2012; it has outperformed the S&P 500 ETF (SPY) by some 60 percentage points since then (see more details here).

With this in mind, let’s take a closer look at the REITs we’ve selected, starting with Two Harbors Investment Corp (NYSE:TWO), a $3.50 billion residential REIT, which pays a dividend of $0.26 per quarter and trades slightly below $10, providing a yield of almost 11%. The main assets of Two Harbors Investment Corp (NYSE:TWO) are represented by Agency residential mortgage-backed securities, whose interest payments and principal amount are secured by Ginnie Mae, Fannie Mar and Freddie Mac. At the end of June, Two Harbors Investments Corp could be found in the equity portfolios of 20 funds from our database, which held in aggregate $157.18 million worth of stock, equal to 4.40% of the outstanding stock, significantly higher compared to 15 funds with stakes valued at $148.21 million a quarter earlier. Among these funds, the largest stake is held by billionaire Israel Englander’s Millennium Management, which upped its stake by 43% during the second quarter to 3.98 million shares. Another billionaire investor bullish on Two Harbors Investment Corp (NYSE:TWO) is Ken Griffin of Citadel Investment Group, which almost doubled its holding to 1.28 million shares.

New York REIT Inc (NYSE:NYRT) was also included in the equity portfolios of 20 funds from our database, but while this number went up by 14 during the second quarter, these investors amassed only 2.80% of the REIT’s outstanding stock. Still, the total value of funds’ positions surged to $46.17 million from $4.89 million between April and June, which shouldn’t be overlooked. However, New York REIT Inc (NYSE:NYRT) pays a dividend of only $0.04 per share and has a dividend yield of 4.50%, aside from the fact that its stock has lost almost 3% since the beginning of the year. Moreover, the top three shareholders of New York REIT Inc (NYSE:NYRT) from our database hold new positions, and include Dmitry Balyasny’s Balyasny Asset Management, and David S. Winter and David J. Millstone’s 40 North Management on the first two spots, with stakes of 970,100 shares and 584,200 shares respectively.

On the third spot is Annaly Capital Management, Inc. (NYSE:NLY), a $10 billion mortgage REIT, whose stock has slid by over 3% year-to-date and trails a dividend yield of 11.50%. In Annaly Capital Management, Inc. (NYSE:NLY) 20 funds also reported holding stakes as of June 30, but the total value of their holdings declined to $510.36 million, equal to 5.90% of the float, from $1.05 billion held by 18 funds a quarter earlier. Nevertheless, the top two shareholders, Brian Taylor’s Pine River Capital Management and David E. Shaw’s D.E. Shaw, boosted their stakes considerably, to 32.56 million shares and 15.09 million shares respectively. On the third spot, with a much smaller stake, is Jim Simons’ Renaissance Technologies, which owns 1.54 million shares of Annaly Capital Management, Inc. (NYSE:NLY), down by 67% on the quarter.

Lexington Realty Trust (NYSE:LXP) is slightly more popular than the previous three REITs, as it was included in 22 funds’ 13Fs for the end of June reporting period. Moreover, as the number of funds with long positions remained flat over the quarter, the aggregate value of their holdings declined to $102.28 million from $111.29 million, and represented 5.10% of the trust’s stock. Lexington Realty Trust (NYSE:LXP) holds a diversified portfolio of equity and debt investments in land and single-tenant properties; it pays a quarterly dividend of $0.17, which gives the stock a yield of 8.21%, but the stock has lost almost 25% year-to-date. Renaissance Technologies holds the largest stake in Lexington Realty Trust (NYSE:LXP) among the funds we track, reporting holding 2.11 million shares in its latest 13F. It is followed by Balyasny Asset Management, which more than doubled its exposure to 1.98 million shares between April and June.

And the cherry on the top is FelCor Lodging Trust Incorporated (NYSE:FCH), which is not only the most popular under-$10 REIT, but is also the cheapest, with a current price of $7.40 per share, which comes on the back of a 30% drop since the beginning of 2015. The REIT pays a dividend of $0.04 per share, which gives it a yield of 2.16% and it was included in the latest 13F filings of 24 funds, up by two over the quarter. The aggregate value of these investors’ positions in FelCor Lodging Trust Incorporated (NYSE:FCH) advanced to $151.52 million from $139.41 million during the second quarter and amassed 10.70% of the trust’s shares at the end of June. Billionaires Simons and Englander rank among FelCor Lodging Trust Incorporated (NYSE:FCH)’s top shareholders as well, with positions of 2.38 million shares and 1.14 million shares, trailing Chuck Royce’s Royce & Associates on the first spot with a 3.57 million-share stake.

Disclosure: None