BNL - Demonstrable Cheapness In REIT Stocks Suggests High Forward Returns
2024-03-08 14:00:39 ET
Summary
- REIT stocks have become undervalued due to fear of office spreading to other unaffected sectors.
- There are 72 REITs trading below 15X AFFO, with many of them steadily growing earnings.
- High-quality REITs are trading at multiples that should be reserved for lower-quality companies, presenting an opportunity for investors.
Valuation has been forgotten in this market. REIT stocks have suffered from fear as continued problems in office cast a gloom over commercial real estate. Office is now only 3% of the REIT index, yet it has taken down AFFO multiples across the sector. High quality REITs are now trading at multiples that should be reserved for junky companies. There are 72 REITs trading below 15X AFFO and the majority of these are steadily growing earnings.
We believe forward returns on these REITs will be well above market given the following:
- Free cashflow analysis indicates a certain amount of growth is required to generate a market return for any given free cashflow yield.
- Consensus estimates call for significantly higher growth.