Are These REITs Undervalued?

The stocks are down more than 40% this year

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Nicholas Kitonyi
Nov 01, 2020
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The reals estate market has been one of the most affected by the coronavirus pandemic. This has left some of the companies operating in the sector underperforming the leading U.S. indexes. Real estate investment trusts have not been spared.

This has resulted in a massive undervaluation of some real estate stocks. Here are some REITs that could be significantly undervalued following their most recent quarterly results and this year's decline in market value.

New Senior Investment Group

New Senior Investment Group Inc. (

SNR, Financial) is one of the biggest senior housing property owners and operators in the U.S. The company operates a portfolio of 103 senior housing properties across 36 states.

In the most recent quarterly results, New Senior Investment Group posted funds from operations of 17 cents per share, which beat analysts' expectations of 16 cents per share.

The company's top line of $83.17 million also surpassed Street estimates despite falling from the $115.59 million reported a year ago.

New Senior Investment's stock is now down 48% this year. Factoring in the latest quarterly FFO per share, this has pushed the price-earnings ratio to 13.64. It indicates a modest undervaluation based on the Peter Lynch earnings line.

From a financial perspective, the company recently entered into a five-year interest rate swap, which increased its fixed-rate exposure from 52% to 72%. Given the current level of bank lending rates and with the economic recovery expected to continue, this decision by New Senior Investment could work out to the company's advantage should the Federal Reserve choose to hike the federal funds rate in the near future.

Office Properties Income Trust

Shares of office REIT Office Properties Income Trust (

OPI, Financial) are down 41% this year. The company's diluted earnings per share for the trailing 12-month period now stand at $1.52. This values the stock at around a price-earnings ratio of 12.11 based on Friday's closing price of $18.41. Again, this suggests the company could be undervalued compared to the Peter Lynch earnings line.

However, the company's earnings for the next five years are still highly unpredictable following last year's performance compared to this year. It is difficult to tell whether the turbulence has ended.

In the company's most recent results, rental income for the nine months ended Sept. 30 fell to $441 million from $518 million reported for the same period in 2019. Despite the decline in the top line, Office Properties posted a bottom line of 17 cents per share compared to a net loss of 72 cents per share reported in the same period a year ago.

Net loss for the third quarter came in at 8 cents per share, which was unchanged year over year. On the other hand, rental income for the quarter declined to $145.8 million from $167.4 million.

Disclosure: No position in the stocks mentioned.

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Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites. Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.