3 Undervalued REITs That Could Turn Around Soon

Between inflation worries and recession signals, the stock market is currently acting volatile. Some analysts, like Katie Stockton of Fairlead Strategies, have recently noted that stocks are in the beginning stage of a bear market cycle. After four good days last week in which the major indices were trending higher, stocks gave up their gains on Friday and really succumbed to selling pressure on the following Monday morning.

In the face of this turbulence, investors often look for safer stocks, such as stocks in the real estate investment trust (REIT) sector, which are mandated to return 90% of their taxable income to stockholders in the form of dividends. Therefore, REIT stocks often have lucrative dividend yields.

But REITs as a sector have sharply declined for several months now, so investors are looking for those individual stocks that may soon reverse course. Now may be a good opportunity to take advantage of higher dividend yields that have ensued from the price declines in these stocks. But yield alone is not enough. Investors need to have confidence that the stocks are primed for a turnaround. 

Three REIT stocks with strong yields and a promising future may be worth adding to your portfolio.

SL Green Realty Corp. SLG is the largest landlord of office buildings in New York City. The company owns and manages 66 buildings, with over 40 million square feet of rentable space. The 2020 pandemic was devastating to SLG, with a large reduction in its tenant numbers and rents received. The declines were so bad that the stock lost 55% of its value within three months. 

However, those who predicted the demise of the office and SLG's annihilation were proven wrong when SLG bounced back from $35 to $80 over the next 12 months. Thereafter, the stock traded sideways for many months, but since April of this year, it has once again fallen, to a current price near $45. 

Despite CEO Marc Holliday’s claims that the company expects office populations to return to full employment levels by mid-2023, some analysts seem doubtful and have factored in a possible recession to their target price. Nonetheless, SLG’s current occupancy rate is about 93%, with a company expectation for over 94% by year’s end. 

And it’s full steam ahead for SLG as it continues building four new skyscraper developments in Manhattan, as well as remodeling several other buildings in its portfolio. 

In a recent earnings call, Holliday also noted that despite a 17% decline in year-over-year revenue, funds from operation (FFO) of $115.8 million was up 7% from Q4 2021. This bodes well for the monthly dividend of $0.311, which currently sports a lucrative annual yield of 7.7%. 

SLG is also committed to a multi-year stock buyback plan. Unfortunately, almost two million shares were bought back last year at a lofty average price of $76.69 per share. There are CLG plans to buy back another 250 million shares this year, which, considering the current price, will be much more advantageous to shareholders.

Investors can pick up shares right now at a reasonable price and perhaps lock in a great monthly dividend for years to come. This company has proven to be resilient in recent years, and it could continue to flourish despite whatever headwinds it continues to face. 

Related: This Little Known REIT Has Produced Double Digit Annual Returns For The Past Five Years

Plymouth Industrial REIT Inc. PLYM is a Boston-based real estate firm that owns, leases and manages single- and multi-tenant industrial properties in 13 regions of the United States. It owns and manages 207 buildings, totaling 34 million square feet. Much of its portfolio is located in secondary markets throughout Ohio, Illinois, Tennessee, Georgia and Florida.

PLYM stock more than tripled from the COVID-19-induced lows of early 2020 to December 2021. But since then the stock has declined from almost $32 to a recent low of $17.04. While the company was increasing revenue nicely throughout this period, its earnings per share (EPS) lagged because aggressive acquisitions made by the company had yet to see earnings.

However, Plymouth’s EPS may be on the increase soon. In the quarterly earnings call of August 3, CEO Jeff Witherell noted: “we are starting to see the cumulative impact of double-digit rent increases and record leasing volumes show up and accelerating same-store NOI growth. Occupancy was 97.3%. Cash releasing spreads were 22.2%. Same-store NOI on a cash basis was up 15.8%. Rent collections were well over 99%. Core FFO per share was up 15% and AFFO per share was up 28%.” He went on to say that the company will be pulling back from acquisition activity over the near term.

PLYM stock rose some 15% in the weeks following that earnings call. The stock is probably due for a breather after that rise, but, longer term, the acquisitions may now become accretive to earnings. If that happens, PLYM could move back into the mid-$20s over the next 12 months. The dividend is currently paying about 4%, and, with rising FFO, the dividend appears to be secure for a long time.

EPR Properties EPR is a diversified experiential-based REIT that manages $6.7 billion worth of entertainment properties in 44 states. It owns venues such as amusement parks, movie theaters, ski resorts and waterparks. And if you’ve ever gone to a Topgolf center, that’s one of its business partners too.

Like SL Green, EPR was absolutely crushed by the onset of COVID-19 in 2020 and the subsequent lockdowns that tore apart the entertainment industry. EPR shares fell from the mid $60s in February to only $11.40 in mid-March. And while the stock has never approached those highs again, it recently touched $55.90. Revenue has increased as lockdowns have ended, and people have booked vacations and look more to out-of-home entertainment sources.

But concerns over inflation and recession have recently taken hold of EPR shares, and in the past few days, the stock has slumped to $48. Another investor scare was Cineworld’s announcement that it is evaluating options for more liquidity and considering a balance sheet restructuring. Cineworld is the parent company to entities that lease Regal theaters, a large tenant of EPR. However, EPR was quick to announce that Regal is current on all its lease payments and not in any negotiations with EPR over future rent payments. That reassurance assuaged the market fears but only to a small degree.

At its current price, EPR’s annual dividend yield is 6.8%. Like SLG, this dividend is also paid on a monthly basis, which makes it great for bill paying in retirement or even for younger investors to reinvest shares. In the short term, EPR could struggle as the market tries to discern how much inflation or recession could impact spending on entertainment. However, EPR has already demonstrated its ability to withstand hardships and could be a good source of dividend income for years to come.

Today’s Real Estate Investing News Highlights

• The CalTier Multi-Family Portfolio Fund recently completed a new investment in a portfolio of four multi-family properties consisting of 185 units. The CalTier Multi-Family Portfolio Fund is one of the few non-traded real estate funds available to non-accredited investors and has a minimum investment of $500. Year to date, the fund has produced an annualized cash-on-cash return of 7.02%.

• The Bezos-backed real estate investment platform Arrived Homes launched a new batch of offerings to allow retail investors to purchase shares of single-family rental homes with a minimum investment of $100. The platform has already funded over 150 properties with a total value of over $50 million. 

Find more news and real estate investment offerings on Benzinga Alternative Investments