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4 REITs to Consider as Interest Rates Hold Steady, Yields Fall

- By Sydnee Gatewood

While lower mortgage rates are encouraging consumers to buy homes, the prospects for the real estate sector appear to be bright. In addition, CNBC reported last week Morgan Stanley analyst Michael Wilson recommended that since the Federal Reserve is holding off on interest rate hikes and yields continue to recede on a weak economic outlook, real estate-related stocks may be a good bet for investors.


As a result, investors may find good value opportunities among real estate investment trusts that are trading below Peter Lynch value. REIT stocks have a tendency to move in tandem with bond prices, which typically move in the opposite direction of yields.

A legendary investor, Lynch developed this method as a way of simplifying his research process. With the belief good, stable companies eventually trade at 15 times their annual earnings, he set the standard at a price-earnings ratio of 15. Stocks trading below this level are often good investments since their share prices are likely to appreciate over time, creating value for shareholders. In addition, the GuruFocus All-in-One screener looked for companies that have business predictability ranks of at least one out of five stars and have grown revenue by at least 6% per year over the last decade.

The screener found REITs that met these criteria as of April 9 were CorEnergy Infrastructure Trust Inc. (CORR), BRT Apartments Corp. (BRT), Senior Housing Properties Trust (SNH) and Manhattan Bridge Capital Inc. (LOAN).

CorEnergy Infrastructure Trust

The Kansas City, Missouri-based REIT, which focuses on energy infrastructure assets, has a $484.76 million market cap; its shares were trading around $37.88 on Tuesday with a price-earnings ratio of 13.59, a price-book ratio of 1.35 and a price-sales ratio of 5.45.

The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.

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GuruFocus rated CorEnergy's financial strength 4 out of 10. In addition to a historically low cash-debt ratio, the company has recorded a decline in revenue per share over the last five years.

The REIT's profitability and growth scored a 1 out of 10 rating, driven by an underperforming net margin and return on equity. It also has a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per year.

Jim Simons (Trades, Portfolio)' Renaissance Technologies is the company's largest guru shareholder with 7.10% of outstanding shares.

BRT Apartments

The residential REIT, which is headquartered in New York, has a market cap of $222.13 million; its shares were trading around $14 on Tuesday with a price-earnings ratio of 8.35, a price-book ratio of 1.12 and a price-sales ratio of 1.70.

According to the Peter Lynch chart, the stock is undervalued.

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BRT's financial strength was rated 4 out of 10 by GuruFocus. As a result of issuing approximately $170.8 million in new long-term debt, the company now has poor interest coverage. In addition, the Altman Z-Score of 0.55 warns the REIT is in danger of going bankrupt.

Despite seeing a slowdown in revenue per share growth over the last 12 months, the company's profitability and growth scored a 7 out of 10 rating. Although margins are also weak, BRT is supported by a return on equity that is outperforming 88% of industry peers, a moderate Piotroski F-Score of 5, which suggests operating conditions are stable, and a one-star business predictability rank.

With 3.65% of outstanding shares, Simons' firm has the largest position in BRT. Michael Price (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) are also shareholders.

Senior Housing Properties

Based in Newton, Massachusetts, the REIT, which owns and operates retirement and assisted living communities and nursing homes, has a $2.12 billion market cap; its shares were trading around $8.91 on Tuesday with a price-earnings ratio of 7.45, a price-book ratio of 0.72 and a price-sales ratio of 1.89.

Based on the Peter Lynch chart, the stock appears to be undervalued.

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Weighed down by new long-term debt and poor interest coverage, Senior Housing's financial strength was rated 4 out of 10 by GuruFocus. In addition, the Altman Z-Score of 0.32 warns the company is at risk of bankruptcy.

The REIT's profitability and growth fared much better, scoring an 8 out of 10 rating. While the operating margin is in decline, the company is supported by strong returns, consistent earnings and revenue growth, a high Piotroski F-Score of 7, which indicates business conditions are healthy, and a 2.5-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average of 7.3% per year.

Of the gurus invested in Senior Housing, Simons' firm has the largest holding with 0.29% of outstanding shares. Pioneer, Ken Fisher (Trades, Portfolio), Caxton Associates (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Ray Dalio (Trades, Portfolio) are also shareholders.

Manhattan Bridge Capital

The mortgage REIT, which operates out of New York, has a market cap of $61.6 million; its shares were trading around $6.38 on Tuesday with a price-earnings ratio of 13.28, a price-book ratio of 1.96 and a price-sales ratio of 10.16.

The Peter Lynch chart suggests the stock is undervalued.

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Manhattan Bridge's financial strength was rated 4 out of 10 by GuruFocus. Having issued approximately $9 million in new long-term debt over the last three years, the company's interest coverage has deteriorated to insufficient levels.

The REIT's profitability and growth fared a bit better, scoring a 6 out of 10 rating as a result of operating margin expansion, strong returns and a one-star business predictability rank. It has also recorded an operating income loss over the last three years and witnessed its assets building at a faster rate than its revenue, which suggests it is becoming less efficient.

Simons' firm holds 2.50% of outstanding shares.

Disclosure: No positions.

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This article first appeared on GuruFocus.