We recently compiled a list of the 8 Most Undervalued REIT Stocks To Buy Now. In this article, we are going to take a look at where EPR Properties (NYSE:EPR) stands against the other undervalued REIT stocks.
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.
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).
A modern REIT building with a bright and inviting entrance.
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.
Overall EPR ranks 2nd on our list of the most undervalued REIT stocks to buy. While we acknowledge the potential of EPR 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 EPR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.