CUZ - The 3 Most Undervalued REITs to Buy in July 2024
2024-07-10 06:54:00 ET
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Undervalued REITs are the way to go in the current real estate environment, which is still struggling after the Federal Reserve hiked rates 11 times from 2022 to 2023 in an effort to curb inflation. Still, it continues to be above the benchmark rate of 2%.
Eight publicly listed real estate investment trusts (REITs) in the U.S. increased their dividends in May, increasing the total number of U.S. REITs that have paid their dividends in the first five months of 2024 to 44.
REITs for U.S. stocks have been selling at a discount, less than their net asset values. This pattern, which has remained unbroken for a few months, points to either stability or a rebound in their worth.
Furthermore, despite rate rises, the average short interest in U.S. REITs has been very constant, which is encouraging for those considering underpriced REITs. Positive news for the real estate market: Freddie Mac (OTCMKTS: FMCC ) noted that the U.S. needs at least 1.5 million additional homes to cover its housing shortage.
At least one rate decrease by the Fed this year will also help to boost mood. If you want to cash in, now is the time to purchase undervalued REITs with at least double-digit potential.
Alexandria Real Estate Equities (ARE)
Alexandria Real Estate Equities (NYSE: ARE ) sets itself apart in the competitive commercial real estate market by targeting specialty, in-demand office locales. Since the stock is down 8%, it’s attractive for those looking to buy undervalued REITs. ARE is a Strong Buy with a price target of $143, implying a 22.6% upside.
Alexandria Real Estate Equities reported 97 cents net income per share in the first quarter, 6 cents more than expected. It earned $2.35 per share in funds from operations and $769.1 million in revenue, 9.7% more than the previous year and $2.44 million more than forecast.
The company maintained a high rental rate of 94.6% across all of its North American buildings, and tenants paid their rent and other debts on time 99.9% of the time. There was a lot of leasing going on during the quarter — 1.1 million rentable square feet worth.
Alexandria built 343,445 square feet of service development and refurbishment projects to expand. These completely leased projects are expected to generate $26 million in net operating income. ARE’s debt is secure, since 98.9% has a fixed rate, and 32% will be paid off by 2049 or later.
Alexandria’s 2024 first-quarter dividend was $1.27 per share, a 4.4% return, which is above the real estate sector’s average yield of 3.9%. ARE is still seeking smart partnerships, particularly in life sciences, to help it develop.
Federal Realty Investment Trust (FRT)
Federal Realty Investment Trust’s (NYSE: FRT ) well-located homes and long-term tenants provide dependable revenue, contributing to a consensus rating of Strong Buy and a price target of $112.93, a 12.3% upside from $100.59.
In the first quarter of 2024, Federal Realty had strong financial results, with FFO per share at $1.64, up 3.1%. FRT has been profitable for the last 1o years, so this is nothing new. Federal has also raised its dividend for 56 years, making it a Dividend King.
It has a competitive edge because it focuses on high-quality buildings in wealthy areas, has a strong balance sheet with an A- credit rating, and has a resilient business model that keeps money coming in despite COVID-19 and the 2007–2008 financial crisis.
Part of its success is because FRT consistently refreshes its portfolio, recently selling the last of its properties on Santa Monica, California’s Third Street Promenade. At the same time, Federal Realty bought Virginia Gateway, Gainesville’s largest 110-acre shopping complex, in June, expanding its regional reach by 3.6 million square feet in affluent, high-traffic areas.?
Federal Realty and Fifth Wall are also concentrating on tech-driven property developments. This cooperation uses cutting-edge technologies to improve property management and growth to uncover new real estate possibilities.
Cousins Properties (CUZ)
Cousins Properties (NYSE: CUZ ), which mostly invests in Class A office buildings in Sun Belt regions, draws investors from cooler regions — especially after the pandemic. The focus on the Sun Belt locations helps CUZ earn a Strong Buy recommendation with a $27 price target, reflecting a potential upside of 19.3%.
Furthermore, the economic and demographic growth-driven attraction of companies and individuals to these locations in cities like Atlanta and Austin benefits Cousins Properties’ portfolio’s utilization rates and rental revenue.
Cousins’ clever acquisitions and sales also highlight how aggressively its management maximizes its resources.
For Q1’24, CUZ reported a net income of $13.3 million, less than the $16.1 million expected and down more than double the $22.2 million it made the previous year. However, revenue of $208.8 million beat estimates of $199.5 million.
Same-property cash net operating income rose 6.6%, while second-generation net rent per square foot rose 5.3%. CUZ rented 404,000 square feet of office space quarterly. Of these leases, 71% were for new or expanded spaces, which shows a strong demand for the REITs’ office spaces.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.
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