Shares in REIT stocks have recently fallen on hard times for a few reasons. First, investors fear higher interest and mortgage rates will negatively impact real estate valuations. Second, with a recession pending, the odds of higher vacancy rates and delinquencies are more acute. Lastly, with risk-free U.S. Treasuries recently eclipsing 5%, why buy riskier REITs, many of which have similar yields as Treasury notes?
While the concerns are valid, some REITs are being unjustly sold off with the entire sector as investors focus on reducing exposure to the industry. This week’s screen focuses solely on Residential and Healthcare REITs as they are real estate sectors with solid growth prospects and are somewhat recession-proof.
REITs are commonly assessed using Price to FFO (funds from operations) instead of price to earnings or price to cash flow. FFO is the cash generated by the REIT, which factors in depreciation, an essential factor in REIT management.
Screening Criteria
We considered the following factors when screening:
- Residential or Healthcare
- Stock down over 15% from 50-day high
- Dividend Yield > 5%
- P/FFO below the industry average (59.3)
Company Summaries
Centerspace (CSR)
Global Medical REIT Inc. (GMRE)
Healthpeak Properties, Inc. (PEAK)
Sabra Health Care REIT, Inc. (SBRA)
Universal Health Realty Income Trust (UHT)
Five for Friday
Five for Friday uses stock screens to produce five stocks that we expect will outperform if a particular investment theme plays out in the future. Investment themes may be relevant to the current or expected market, industry and/or economic trends. Investment themes may not always represent our current forecast.
Disclosure
This report is not a recommendation to buy or sell the named securities. We intend to elicit ideas about stocks meeting specific criteria and investment themes. Please read our disclosures carefully and do your own research before investing.
Michael Lebowitz, CFA is an Investment Analyst and Portfolio Manager for RIA Advisors. specializing in macroeconomic research, valuations, asset allocation, and risk management. RIA Contributing Editor and Research Director. CFA is an Investment Analyst and Portfolio Manager; Co-founder of 720 Global Research.
Follow Michael on Twitter or go to 720global.com for more research and analysis.
Customer Relationship Summary (Form CRS)