Although the real estate investment trust (REIT) sector has been suffering a steady downward trend for the last 12 to 18 months, it may be possible to identify bargains. By taking a value stock approach to REITs and identifying those with funds from operations (FFO) growth, trading below book value and paying dividends, the following three REITs seem to qualify.
Dynex Capital Inc. (NYSE: DX) is a mortgage REIT with a market capitalization of $659 million. It continues to be available for purchase at a significant discount to its book value of 25%. With a price-to-earnings ratio of 3.44 and no long-term debt, the REIT is displaying certain key qualities that value investors look for.
Funds from operations over the most recent 12 months show growth of 14.2% and over the past five years of 18.2%. The price-to-sales ratio is 7.47, and the price-to-free-cash-flow metric sits at 12. Average daily volume for the REIT on the New York Stock Exchange (NYSE) is 1.07 million shares.
Dynex pays a 12.69% dividend.
Hersha Hospitality Trust (NYSE: HT) is a hotel and motel operation that trades at just 37% of its book value alongside a price-to-earnings ratio of 2.17. The REIT’s market capitalization is $249 million.
Shareholder equity slightly exceeds the amount of long-term debt on the books. Price to free cash flow is 4.79 and price to sales measures 0.61.
Over the past five years, funds from operations increased by 12.1% and over the most recently reported 12 months at 284%. The REIT is relatively lightly traded for a NYSE-listed security with an average daily volume of 674,00 shares. The short float is 3.36%.
Hersha pays a dividend of 3.13%.
RPT Realty (NYSE: RPT) has a market capitalization of $780 million and trades at a 9% discount from book value. The retail REIT has a price-to-earnings ratio of 10, price to sales at 3.58 and price to free cash flow of 11.57, the REIT pays a 6.02% dividend.
In the past five years, funds from operations show an increase of 2.8% and over the last 12 months of 19.7%.
Long-term debt is about equal to shareholder equity.
This is another real estate investment trust that is relatively lightly traded with an average daily volume of 468,000 shares.
No guarantees exist that such an approach could lead to inevitable profitability. The Federal Reserve’s determination to maintain higher interest rates and the difficulties of the banking sector may continue to weigh on securities for longer than one might think.
Not investment advice. For educational purposes only.
Over the past five years, private market real estate investments have outperformed the publicly traded REIT market by about 50%. Check out Benzinga’s Real Estate Offering Screener to discover the latest passive real estate investments.
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Source: finance.yahoo.com