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After a sizable run over the last few years, real estate investment trusts have slowed down. Real estate values have rebounded nicely, yet the market value of REITs haven’t kept pace. The broad-based Vanguard REIT Index Fund (NYSEArca: VNQ) is now flat year-to-date.
But REITs could be set up for a strong run over the next few months as interest rates should remain low for a longer period than expected. And even with the threat of higher rates, REITs still offer some of the best dividend yields in the markets. (Some of our very favorites can be found right here.)
I’ve talked before about the various ways to profit from REITs, including buying wireless towers and health care facility REITs. Investors could look to foreign REIT markets, but dividends there are lower and cash flows less stable.
Yet, there are better opportunities in the current market.
With real estate values unalligned from REIT market values, many REITs are trading at hefty discounts to their net asset value. Historically, REITs have traded close to NAV, suggesting that these three discounted REITs should have big upside as we head into a strengthening holiday season:
CBL & Associates Properties (NYSE: CBL)
CBL is trading at a near 50% discount to NAV and is paying a hefty 7% dividend yield. Shares are down 23% year-to-date.
CBL is a REIT that owns and operates regional malls and shopping centers in the Southeast and Midwest. It’s one of the largest – albeit underrated – shopping center owners in the U.S. Its focus is on mid-sized markets where there’s less competition.
WP Glimcher (NYSE: WPG)
This REIT trades at a 40% discount to NAV and has an even higher dividend yield, coming in at 8.2%.
WP Glimcher has been pushed down 29% for the year. The company owns various malls, community centers and lifestyle centers. It has a mix of top-tier and mediocre locations, aiming to be a one-size-fits-all REIT landlord.
WP is the result of the Washington Prime Group acquisition of Glimcher Realty Trust earlier this year. And there are still some synergies to be realized as the two companies integrate and work down costs.
Pennsylvania REIT (NYSE: PEI)
Pennsylvania REIT is trading at a near 40% discount to NAV and is offering a 3.8% dividend yield.
This REIT, which owns and operates various retail shopping malls and strip centers, has an advantage in its geographical positioning. It has a stronghold on densely populated regions in the Mid-Atlantic and also has relationships with various large and established retailers.
REIT Roundup
All three of the above REITs could be takeover targets, given the steep discounts they trade at.
We’ve already seen a pickup in acquisition activity, with Blackstone Group (NYSE: BX) agreeing to buy Strategic Hotels (NYSE: BEE) last month. Just this month, Blackstone announced it would buy BioMed Realty Trust (NYSE: BMR).
And there’s also the chance that these REITs could buy back shares of their cheap stock to further close the discount gap, making CBL & Associates, WP Glimcher and Pennsylvania REIT attractive plays in the current low interest-rate climate.
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