If you are looking for a list of the most undervalued REITs to buy in April, then you have come to the right place. This article explores several real estate investment trusts (REITs) that appear attractively priced given the current economic environment of falling interest rates. Lower rates reduce borrowing costs for REITs and can act as a catalyst to push these stocks higher.
REITs allow investors to gain exposure to the real estate market without having to directly own physical properties. As part of their structure, REITs are required to distribute at least 90% of taxable income to shareholders in the form of dividends. This makes them particularly appealing income vehicles in a low rate world.
In addition to potentially higher income streams, REITs can also provide diversification benefits when added to a traditional stock and bond portfolio. The real estate sector tends to exhibit lower correlations to other asset classes, which can help reduce overall portfolio volatility.
Here are seven of the most undervalued REITs to buy in April for U.S. investors.
Innovative Industrial Properties (IIPR)
Innovative Industrial Properties (NYSE:IIPR) specializes in properties for regulated cannabis facilities. It has a dividend yield of 7.3%.
The cannabis sector has been disappointing for many investors due to its slow start and regulatory hurdles that still stand in the way of its adoption. However, in the long term, it could be a significant growth driver, thus making IIPR potentially undervalued.
The company’s net income was $30.6 million in Q3 last year, translating to $1.20 per diluted share. IIPR’s portfolio expanded with the acquisition of new properties and lease amendments to existing properties.
Another buying point, is its financial performance in terms of Adjusted Funds From Operations (AFFO), a critical metric for REITs. In Q3 2023, IIPR reported an AFFO of $65 million, marking a 7.5% increase from the previous year. This metric is essential because it represents the cash flow generated from operations after accounting for capital expenditures required for property maintenance and upgrade.
National Health Investors (NHI)
A healthcare-focused REIT, National Health Investors (NYSE:NHI) owns a range of senior housing and skilled nursing facilities. It has a yield of 5.97%.
For 2024, NHI has projected a 2.6% growth in Funds Available for Distribution (FAD) compared to 2023. However, NHI’s performance in 2023 highlighted mixed results, with a decrease in net income per share but an increase in NAREIT Funds From Operations (FFO) year-over-year.
The reason I believe NHI is undervalued comes down to its low valuation ratios. It trades at just 19 times earnings, and 9 times sales. Compared to some of its peers, this is below the median wichh suggests that it could be scooped up at a bargain price.
The bull case for NHI is strengthened when one considers that analysts are expecting a 7% increase for the company’s EPS next year, which is substantial considering its would bring it above $3 per share.
Modiv Industrial (MDV)
Modiv Industrial (NYSE:MDV) focuses on single-tenant net-lease industrial properties. It has a dividend yield of 6.96%.
MDV has over $600 million in real estate assets, covering more than 4.5 million square feet of aggregate leasable area. The company’s strategic focus on single-tenant net-lease industrial properties continues to position it uniquely in the real estate market, which perhaps makes it incomparable to other REITs available to investors.
The reason I believe that MDV is undervalued comes from a contrarian stance I’m taking on the stock. For the fourth quarter of 2024, MDV reported earnings that missed expectations, with a reported EPS of -$0.46 against expectations of $0.38.
The company’s stock price looks attractive when compared with its long-term average, and with a total shareholder yield of 6%, it could be wise for investors to pick up shares in this REIT.
Gladstone Land (LAND)
Gladstone Land (NASDAQ:LAND) specializes in farmland and has been addressing its vacancy and income issues effectively. It pays a dividend yield of around 4.2% at the time of writing.
For the fourth quarter, LAND missed analyst for funds from operations (FFO) per share, reporting $0.15 against an expected $0.18. The current consensus FFO estimate for the upcoming quarter is $0.15 on $21.44 million in revenues, and for the current fiscal year, it’s projected to be $0.63 on $89.89 million in revenues.
On the daily charts, LAND is headed towards the bottom, which is raising its dividend yield. Its prior miss is also part of my contrarian stance with this REIT. It also a REIT that could work well in an portfolio for those who are looking for dividend growth over immediate income, due to its yield of 4.2% and the fact that the company has a history of increasing its dividend for 10 years.
CTO Realty Growth (CTO)
CTO Realty Growth (NYSE:CTO) owns office and retail properties in the Southern and Southwest U.S., particularly in fast-growing areas. This REIT has an impressive dividend yield of around 9% at the time of writing and has 10 years of dividend growth under its belt. I feel that it could be a great buying zone for investors.
CTO reported strong financial results for Q4 and the full year of 2023. In 2023, CTO saw a 41% growth in FFO and adjusted funds from operations (AFFO) per share. The company completed nearly 100,000 square feet of new leases, renewals, options, and extensions, leading to a modest increase in occupancy rates to 90.3% by year-end.
For 2024, CTO anticipates continued strong performance with investment activities projected between $100 million and $150 million. The company expects core FFO to range between $1.56 and $1.64, and AFFO between $1.70 and $1.78 per diluted share. Leased occupancy rates are forecasted to be between 95% and 96% by the end of 2024.
Park Hotels & Resorts (PK)
Park Hotels & Resorts (NYSE:PK) has a diverse portfolio of hotel and resort properties across the U.S. It has a dividend yield of 3.19%. Although its yield is smaller than many REITs, PK also offers substantial capital appreciation potential, with its stock price surging over 40% for the past year.
The reason I think it’s undervalued is because PK reported strong performance in 2023, with its urban hotel portfolio achieving nearly 8% growth. The fourth quarter saw a 1.5 percentage point increase in comparable occupancy to 71.0%, and a 1.9% rise in the average daily rate to $250.93. Additionally, PK experienced a 230.2% increase in operating income, resulting in a 42.1% operating income margin, with comparable Hotel Adjusted EBITDA margin at 27.6%.
For 2024, PK is optimistic about the ongoing strength across its portfolio, anticipating positive impacts from renovation projects at Bonnet Creek Orlando and Casa Marina Key West. Furthermore, S&P Global upgraded the company’s corporate credit rating by two notches, amid its plans plans to spend $230 to $250 million on capital expenditures in 2024.
Invitation Homes (INVH)
Invitation Homes (NYSE:INVH) operates in the residential REIT sector. It’s also one of the top-rated REITs in this sector on Morningstar and pays a 3.22% yield with a 12.55% dividend growth rate.
In 2023, NVH focused on expanding its portfolio and enhancing its property management services. Throughout the year, INVH and its joint ventures acquired 3,221 homes for approximately $1.17 billion while selling 1,489 homes for about $547 million. Additionally, INVH entered an agreement to manage over 14,000 single-family homes for a third party,
Although these results were impressive INVH, it’s the outlook for the future, along with tis very attractive dividend growth rate that makes me think that it’s an undervalued pick. For example, it has set ambitious plans to further solidify its position in the single-family rental market. The company intends to invest between $600 million to $1 billion in house acquisitions, supplemented by an additional $100 million to $300 million in purchases through its joint ventures.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
