Realty Income Corp (O), Health Care REIT, Inc. (HCN): Which of These REITs Is Cheap Enough to Buy?

And, their valuation multiples are now much more reasonable. For example, Realty Income expects at least $2.37 per share in funds from operations in 2013, meaning new investors are paying 18 times this year’s FFO. For Health Care REIT, Inc. (NYSE:HCN), shares can be had for 16 times forward FFO.

I’d be particularly interested in Realty Income under $40 per share, and it’s getting close to that level.

A REIT with the best of all qualities

One REIT that sat out the eye-popping rally is Digital Realty Trust, Inc. (NYSE:DLR), a REIT focused on real estate properties for the technology sector.

Shares of Digital Realty Trust, Inc. (NYSE:DLR) have actually fallen quite considerably over the past two years. The stock exchanged hands for $80 per share in July 2012, but has steadily fallen over the past 52 weeks to its current level of $65 per share.

This dramatic decline came in spite of strong underlying fundamentals. Digital Realty reported 19% higher revenues in its recently released second quarter report. On top of that, the company realized 12% growth in FFO, year over year.

This combination of a falling stock price and strong growth can be summarized with one word: opportunity.

Digital Realty Trust, Inc. (NYSE:DLR) expects, at a minimum, $4.74 in per-share funds from operation in 2013, meaning investors can scoop up shares of this high-quality REIT for just 13 times this year’s FFO.

The stock pays a strong 5% dividend and is very cheap when compared to other REITs. I recently initiated a position in Digital Realty under $60 per share, and will look to add to my position should the stock revisit that level.

Realty Income Corp (NYSE:O) and Health Care REIT, Inc. (NYSE:HCN) are great stocks as well, but they’re not quite cheap enough yet. On further declines they’d be much more interesting, but for now, Digital Realty looks like a REIT that is simply too cheap to ignore.

The article Which of These REITs Is Cheap Enough to Buy? originally appeared on Fool.com and is written by Robert Ciura.

Robert Ciura owns shares of Digital Realty Trust. The Motley Fool recommends Health Care REIT. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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