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By Ethan Roberts, Benzinga
Long-term investors looking for undervalued REITs should consider solid companies with good track records over the years that have fallen out of favor with Wall Street for one reason or another. These REITs now provide solid dividend yields for income or have low price/FFO ratios and may, over time, provide solid appreciation as economic conditions improve.
The three best-value REITs cited for July, Easterly Government Properties Inc (NYSE:DEA), Realty Income Corp (NYSE:O) and Regency Centers Corp (NYSE:REG) all made substantial moves higher in July and no longer appear to be undervalued. Take a look at three new REITs that now make the best-value list:
Alexandria Real Estate Equities
Alexandria Real Estate Equities Inc. (NYSE:ARE) is a Pasadena, CA-based specialty Office REIT with a portfolio of 800 tenants in 408 properties exclusively devoted to life science, Agtech, and advanced technology companies in what its website calls “top innovation clusters.” These areas include Boston, NYC, Seattle, and San Francisco. Mega campuses make up 74% of its annual rental revenue. Alexandria is a member of the S&P 500.
94% of Alexandria's leases are triple-net and 96% contain annual rent escalations. The weighted average remaining term (WALT) is 7.4 years. The tenant quality is strictly higher-grade, with many of its tenants, such as Moderna Inc. (NASDAQ:MRNA) and Eli Lilly and Co. (NYSE:LLY), publicly traded on Wall Street. The total occupancy rate as of Q2 2024 was 94.6%. Earnings have grown appreciably since 2023.
On July 22, Alexandria Real Estate Equities reported its second-quarter operating results. FFO of $2.36 per share beat the analyst consensus estimate of $2.34 and topped its Q2 2023 FFO of $2.24. Revenue of $766.73 million missed the consensus estimate of $783.07 million but topped $713.90 million in Q2 2023.
Alexandria Real Estate also raised its full-year 2024 (FY24) FFO outlook from $2.98-$3.10 to $3.60-$3.72. The street estimate was $3.38.
Three analysts have downgraded Alexandria Real Estate within the last month. On July 24, Wedbush analyst Richard Anderson downgraded Alexandria Real Estate from Outperform to Neutral and lowered the price target from $140 to $130. Analyst Anderson called the Q2 results “noisy but in-line” and believes the rest of 2024 could be up and down with an oversupplied life science real estate marketplace.
Evercore ISI Group analyst Steve Sakwa downgraded Alexandria Real Estate from Outperform to In-Line the following day and lowered the price target from $133 to $126. Then, on July 29, Banc of America Securities analyst Jeffrey Spector downgraded Alexandria Real Estate from Buy to Neutral and lowered the price target from $151 to $126.
While it's true that Alexandria Real Estate had run up significantly from early June to mid-July, the second-quarter numbers and increase in FY24 FFO projection did not warrant the huge price cuts.
Furthermore, on June 3, Alexandria increased its quarterly dividend by 2.4% from $1.27 to $1.30 per share. REIT boards usually raise dividends when feeling confident about future earnings. Alexandria has raised its dividend four other times within the past five years. The $5.20 annual dividend yields 4.42% and the payout ratio of 54.8% means the dividend is extremely well covered. The Price/FFO ratio (P/FFO) is 12.54, below the subsector median of 13.83.
The selling now seems overdone on Alexandria Real Estate and this one could bounce back nicely over the coming months.
Saul Centers
Saul Centers Inc. (NYSE:BFS) is a self-managed and administered diversified REIT in Bethesda, MD. It operates and manages 61 properties, including shopping centers and mixed-use properties with approximately 9.8 million square feet of leasing area and four land and development properties.
Most of its operating income is derived from Baltimore and Washington, D.C.
On Aug. 1, Saul Centers reported its second-quarter operating results. FFO of $0.83 topped estimates of $0.77 and FFO of $0.78 in Q2 2023. Revenue of $66.94 million was ahead of the analyst consensus estimate of $65.54 million and bested its Q2 2023 revenue of $63.71 million.
Saul Centers pays a $0.59 per share quarterly dividend and the annualized $2.36 dividend yields 6.22%. The payout ratio is 76.37%, so the dividend is still well-covered.
Saul Centers touched $40.79 at the end of July, but it was overbought and investors “bought on the rumor, sold on the news.” Its recent close at $37.83 gives investors a good pullback entry point. The forward price/FFO ratio of 12.28 is below the median of its peers at 13.68. It's a value stock now but may not be so for long.
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Park Hotels & Resorts
Park Hotels & Resorts Inc. (NYSE:PK) is a Tysons, VA-based REIT with 42 hotels and resorts with over 26,000 rooms located in 25 prime U.S. markets with high barriers to entry. About one-third of its properties are in Hawaii. Park Hotel's brands include Marriott, Hyatt, Four Seasons, and Hilton.
Park was established as an independent company in January 2017, following its spinoff from Hilton. In September 2019, Park acquired Chesapeake Lodging Trust to add premium-brand hotels and resorts in prime markets such as Miami, Boston, Los Angeles and San Francisco.
On July 31, Park Hotels reported its Q2 2024 operating results. AFFO of $0.65 beat the estimate of $0.62 per share and easily topped FFO of $0.60 in Q2 2023. Revenue of $686.00 million missed the estimate for $692.985 million and was about 4% below revenue of $714.00 million in Q2 2023.
In addition, Park Hotels increased its Full-Year 2024 AFFO projection from $2.07-$2.27 to $2.10-$2.26 per share, bringing the estimate to $2.19.
Park Hotels hit a price peak in April near $17.50, but it's declined considerably since with a recent close of $13.80. However, Park's numbers are improving. Occupancy rose from 72.2% in Q2 2023 to 74.0% in Q2 2024. Revenue per available room (RevPAR) rose 4.6% year-over-year.
Park Hotels' recent quarter was mixed, but the REIT is improving in important numbers such as occupancy and RevPAR. The street seems to have priced in the risk of recession this month, but longer-term, Park Hotels at a P/FFO of only 6.29 is as undervalued as can be and well below the median 13.58 of other Hotel REITs.
Park Hotels offers considerable value, and with a dividend yield of 7.25%, investors can afford to be patient while waiting for the price to improve.
Musk's new company could top a trillion?
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Elon Musk has predicted that his new venture – something I'm calling “X-9840″ – could become “a trillion dollar company.” Today, only three companies in the US are worth more than $2 trillion. Microsoft… Apple…and Nvidia. And each of those companies gave their early investors the chance to become millionaires over several decades – starting with just a $1,000 investment. That's why I believe Elon is about to mint a new round of millionaires across America with this new venture. Unfortunately, most people will end up missing out… Because this has nothing to do with electric vehicles… Self-driving cars, rockets, brain chips, or satellites. Click here to see the details because you don't have much time to act. Elon has said he could flip the switch “as early as mid 2024.”
