3 Real Estate Stocks Trading At Attractive Valuations As The Fed Is Set To Lower Rates In 2024

With the Fed factoring in four rate cuts in 2024 per the latest Federal Open Market Committee (FOMC) meeting, market participants are increasingly looking at the rate-sensitive sectors of the economy.

Lower interest rates generally lead to cheaper borrowing costs, which can stimulate demand for real estate. Thus, companies involved in real estate development, property management, or real estate investment trusts (REITs) tend to benefit in a lower rate regime.

With interest rates anticipated to lower in 2024, we’ll look at three real estate stocks that are currently trading at favorable valuations.

See Also: November FOMC Minutes: Fed Leans Toward Rate Stability As Inflation Eases

1. Forestar Group Inc. FOR — The real estate development company is a subsidiary of D.R. Horton Inc DHI and renowned for its expertise in acquiring land and converting it into single-family residential communities. It develops the necessary infrastructure and sells the finished lots to local, regional, and national home builders. It targets regions with growth potential and favorable economic conditions to optimize sale prices of residential properties and deliver robust financial returns. At 9.45 P/E GAAP (FWD), FOR stock trades at over 75% discount to the sector median.
   
2. City Office REIT Inc. CIO — The real estate enterprise concentrates on acquiring and managing superior office properties, primarily situated in Sun Belt markets. At present, City Office possesses or maintains a controlling stake in 5.7 million square feet of office properties. Valuations within the Office REIT sector have experienced a dip, prompting investors to scrutinize the evolving office environment more closely. At 9.33 P/AFFO (FWD), this REIT stock is trading at about 40% discount to sector median. CIO stock also comes with an attractive AFFO Yield (FWD) of 9.59%. Rich Hill, head of Real Estate Strategy at Cohen & Steers Inc CNS recently shared his optimism regarding the evolving dynamics within the Office REIT segment.
   
3. EPR Properties EPR — The diversified REIT specializes in enduring experiential properties. Focused on venues that offer leisure and recreational experiences, EPR manages approximately $5.7 billion in assets across 44 states. The company maintains rigorous standards for underwriting and investments, centered on industry, property, and tenant cash flow. On the valuation front, EPR stock trades at 9.36 P/AFFO (FWD), which makes it very attractive relative to the sector median at 15.40 (implying about 40% discount to sector). EPR stock also sports a juicy AFFO Yield (FWD) of 10.16%.

Now Read: How Interest Rates Could Impact REITs In 2024 — Cohen & Steers’ Rich Hill Weighs In