REITs are Undervalued – Here’s Proof

Real Estate Investment Trusts (REITs)

This is a REIT tale that I have a bit of trouble telling. My timing on a particular REIT was not good, and my subscribers missed out on a nice gain. However, there is a good lesson here – and it shows why REITs are undervalued right now.

Let’s take a look at why now is the time to pounce…

A female hand with a dollar sign on it and a male hand with a small house on it on a chalk city background.

Apartment Income REIT Corp. (AIRC) became a portfolio stock in December 2020 when it was spun off by Apartment Investment and Management Co. (AIV). The spin-off’s structure was very complicated, which turned off investors. I dug through the numbers and determined it was an easy profit opportunity. I recommended buying AIV to my Monthly Dividend Multiplier service subscribers.

When the spin-off happened, we made a quick 30% profit. I recommended selling the AIV shares and keeping the AIRC shares. I kept AIRC in the Monthly Dividend Multiplier portfolio until last month (March 2024). The company had not increased its dividend for over two years, and I decided to get the stock out of the portfolio. The Monthly Dividend Multiplier strategy focuses on owning dividend growth stocks.

I was surprised to read the press release announcing that AIRC had agreed to be acquired by Blackstone, Inc. (BX) for $10 billion or $39.12 per share. The buyout price was 25% higher than the average AIRC price for the previous month.

It’s not the greatest feeling to know I missed this opportunity for a nice gain. However, that is not the point of this article.

The Blackstone purchase of AIRC shows how undervalued the REIT sector currently is. Blackstone believes that AIRC is worth at least 25% more than the value the investing public had put on it.

As the Federal Reserve increased interest rates starting in early 2022, REIT share values fell dramatically. When rates stopped increasing, REIT values stayed down, and investor sentiment about the sector remains quite negative. I think the Blackstone purchase shows that investors are too pessimistic about REITs.

I regularly tell my newsletter subscribers that changes happen very slowly in real estate. Leases go on for years, mortgages are the same, and property values aren’t genuinely known unless a sale is made. As a result, I don’t expect REIT values to suddenly rocket higher. I do expect investor interest to pick u, and share prices to appreciate through the rest of this year and into 2025.

In the meantime, REIT investors earn dividends, often at very attractive yields. One REIT to check out is EPR Properties (EPR). EPR pays monthly dividends and yields just over 8%. The EPR share price is down 12% year to date but seems to be forming a floor. This is a good stock to average into.

EPR is a recommended stock for subscribers of my Dividend Hunter service. I monitor the stock and keep subscribers apprised of its performance.

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