Analysts See Strong Upside Trade for Undervalued REITs

Key Points

• REITs are legally required to distribute profits to shareholders to maintain their tax-advantaged status.
• Undervalued REITs including Park Hotels & Resorts, Ventas, and Healthpeak Properties are expected to show double-digit price increases.
• Investors receive consistent income from REITs, making them valuable additions to a balanced investment portfolio.

Imagine an investment that’s required by law to pass along profits to you.

Well, you don’t have to conjure up some investment that doesn’t exist. Real estate investment trusts, often called REITs,  are mandated to distribute profits to shareholders to maintain their special tax status. 

REITs develop, own and manage properties including offices, apartment buildings, medical facilities, mobile communications towers, industrial facilities and more. They generate income from rent payments and appreciation of the properties they own. 

The biggest REITs include Prologis Inc. NYSE: PLD, which owns, develops and manages industrial properties, such as warehouses. You can find Prologis properties throughout the U.S. 

Another large REIT is Public Storage NYSE: PSA, which operates self-storage facilities around the country. 

Higher Interest Rates Spooked Investors

REITs as an asset class had a tough go of it this year, skidding as investors fret about higher interest rates and tighter lending standards. 

As a result, many REITs are trading at steep discounts relative to their income potential for investors.

Three of those undervalued REITs are Park Hotels & Resorts NYSE: PK, Ventas Inc. NYSE: VTR, and Healthpeak Properties Inc. NYSE: PEAK.

As an industry, REITS flourished from April 2020 an December 2021, in a time of low interest rates, while rents and property values were rising. 

But for longer-term investors who are seeking income, there are some undervalued REITs that could be solid additions to a balanced portfolio.

Park Hotels & Resorts

Park Hotels & Resorts owns 45 upscale hotels throughout the U.S. It previously sold off a portfolio of lower-quality domestic properties and international hotels. 

The key for this company is to increase operating margins, which analysts are optimistic about. 

According to MarketBeat’s Park Hotels & Resorts analyst ratings, Wall Street has a consensus view of “hold,” with a price target of $16.78. That’s an upside of 39.81%, not bad at all. That would put the stock back to June 2022 levels. 

Park Hotels & Resorts’ dividend yield is 5%. In September, the company declared a quarterly dividend of 15 cents a share, in line with its previous dividend. 

After strong summer performance for hotel stocks, the market began cooling off in August, as investors fretted about weaker-than-expected quarterly results for numerous hotel REITs. Park Hotels & Resorts posted declines in the past three months, along with the wider REIT industry.

Ventas

The Chicago-based REIT owns and leases healthcare-related properties in 47 states, the District of Columbia, Canada and the U.K.

The company has several categories of properties within its portfolio, including senior housing communities; medical office buildings; life science, research and innovation centers; inpatient rehabilitation and long-term acute care facilities; health systems; skilled nursing facilities; and loans and investments. 

MarketBeat’s Ventas dividend data shows a yield of 4.43%. 

Ventas’ earnings data show the company missed net-income views in the most recent quarter, despite earnings increasing to 26 cents a share, versus a loss of 10 cents a share in the year-earlier quarter. 

Despite the miss, MarketBeat’s Ventas analyst ratings show a “moderate buy” on the stock, with a price target of $50.54, an upside of 24.48%. The stock is down 15.96% in the past three months, suggesting that the price could bottom out in the not-so-distant future. 

Meanwhile, as with all REITs, investors get paid while they wait for the stock to rally.

Healthpeak Properties

S&P 500 component Healthpeak acquires, develops, owns, leases, and manages healthcare real estate across the U.S.

In 2021, the company completed the sale of its senior housing properties. In conjunction with the disposal of those portfolios, the company focused on investing in a diversified portfolio of healthcare properties in the categories of life science, medical offices, and continuing care retirement communities.

MarketBeat’s Healthpeak dividend data shows a yield of 6.86%. 

Wall Street has a consensus view of “hold,” as you can see using Healthpeak analyst ratings. Wall Street has pegged the price target at $25.73, a potential upside of 47.10%. 

As with Ventas and Park Hotels & Resorts, analysts have a strong view of the possible price gains here, indicating the widespread estimates for uptrends throughout the REIT industry.