Before you make any decision about these undervalued REITs, first rest assured that I’ll only be delivering facts to the table. Not only can you trust that these investment ideas are actually undervalued by a commonly gauged metric, but each of them also features overall bullish analyst support. This way, you’re improving your odds of securing a true bargain, not just a cheap security.
Second, affordable REIT stocks make plenty of sense because of their underlying diversification. With real estate investment trusts, you’re often dealing with multiple property operators. In addition, the best-value REITs on this list offer industry diversification. This way, you’re not stuck with one particular sector but can consider bargains across several markets and regions.
As well, as cheap REITs to invest in present relevance because of their passive income generation. According to the U.S. Securities and Exchange Commission (SEC), REITs “…must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.”
Faced with an ambiguous market cycle, it’s difficult to turn down passive rewards. Plus, you may be surprised to see some of these capital gains forecasts. On that note, below are REITs with high upside potential.
Ladder Capital (LADR)
An internally managed entity among undervalued REITs, Ladder Capital (NYSE:LADR) focuses on the commercial real estate market. According to its corporate profile, the enterprise commands over $6 billion in assets. Since the beginning of this year, LADR gained just under 1%. In the trailing one-year period, it’s down almost 7%.
Using data from investment resource Gurufocus, Ladder’s price-to-funds-from-operations (P/FFO) ratio sits at 7.45 times. In contrast, the sector median comes in at 12.58 times. This translates to Ladder ranking favorably compared to 78.24% of its peers.
Also, it’s a risky proposition but the company carries a forward yield of 8.92%. That’s well above the financial sector’s average yield of 3.18%. However, the payout ratio of 72.56% is rather hot (not in a pleasant way). Finally, analysts peg LADR as a unanimous strong buy. Their average price target lands at $11.25, implying over 9% upside potential. Thus, it makes a compelling case for affordable REIT stocks.
Chicago Atlantic Real Estate Finance (REFI)
Another commercial property focused enterprise, Chicago Atlantic Real Estate Finance (NASDAQ:REFI) manages a diversified portfolio of real estate credit investments in the cannabis space and is actively investing across the value chain, per its public profile. Since the start of the year, REFI gained just a bit over parity. In the trailing one-year period, REFI is down 4%.
Using data from Gurufocus, Chicago Atlantic’s P/FFO ratio sits at 7.66 times. In contrast, the industry median stat clocks in at 12.56 times. Therefore, the REIT ranks better than 73.4% of the competition. Also, the market prices REFI at a forward multiple of 6.32. As a discount to projected earnings, Chicago Atlantic ranks better than 92.48% of its rivals.
For passive income, Chicago Atlantic carries a forward yield of 12.49%. However, the payout ratio is quite elevated at 76.94%. Still, from the perspective of undervalued REITs, it makes you think. Lastly, analysts peg REFI as a unanimous strong buy. Their average price target comes in at $17.33, implying over 15% upside potential.
Ready Capital (RC)
An intriguing but risky entity among undervalued REITs, Ready Capital (NYSE:RC) is a multi-strategy real estate finance company that originates, acquires, finances, and services small to medium-balance commercial loans. Since the Jan. opener, RC lost just a hair over 5%. Presently, it features a market capitalization of $1.88 billion.
From Gurufocus, RC features a P/FFO ratio of 7.33, ranking better than 78.53% of the competition, including many other best-value REITs. In addition, the market prices RC at a forward multiple of 7.43. As a discount to projected earnings, Ready Capital ranks better than 89.38% of sector players. In addition, it features a lowly price-sales ratio of 3.19, under almost 80% of other REITs.
Moving onto passive income, Ready Capital offers a more modest forward yield of 5.24%. However, the benefit is that the payout ratio is far more sustainable at just under 35%. Thus, it’s one of the more compelling cheap REITs to invest in. To close, analysts peg RC as a moderate buy with an average $12.42 price target, implying over 16% upside.
Apartment Income REIT (AIRC)
One of the riskiest ideas among undervalued REITs, Apartment Income REIT (NYSE:AIRC) deserves a closer look because of its relevance. Per its corporate profile, Apartment Income is a real estate investment trust focused on the ownership and management of quality apartment communities located in the largest markets in the U.S. However, AIRC took a beating in the market recently.
Still, if you can overlook the red ink, AIRC could entice speculators. According to Gurufocus, the market prices shares at a trailing multiple of just over 10. As a discount to earnings, Apartment Income ranks better than 65% of its peers. It’s also consistently profitable, featuring a trailing-year net margin of 64.27%.
For passive income, the REIT carries a forward yield of 5.35%. That sounds decent, although here’s the thing: the payout ratio stands at a whopping 265.07%. Still, analysts are willing to give AIRC a shot, pegging it a consensus moderate buy. Their average price target clocks in at $39.67, implying nearly 18% upside potential. For gamblers, AIRC could be one of the cheap REITs to invest in.
BRT Apartments (BRT)
Based in Great Neck, New York, BRT Apartments (NYSE:BRT) is one of the undervalued REITs focused on owning and operating multi-family properties. It aims to achieve this ambition through either direct ownership or through joint ventures. Currently, the company carries a market cap of a little over $366 million. Since the start of the year, BRT slipped 1%.
According to Gurufocus, BRT Apartments features a P/FFO of 5.38 times, ranking better than 86.7% of sector players. Also, the market prices BRT at a trailing multiple of 10.32. As a discount to earnings, the company sits favorably below 64.85% of its rivals. Notably, BRT trades at a sales multiple of 4.19, under the sector median stat of 6.36 times.
On a per-share basis, BRT’s three-year revenue growth rate clocks in at 32%, outpacing 94.23% of other REITs. Also, during the same period, the company’s EBITDA growth rate impresses at 74%, above 92.62%. Turning to Wall Street, analysts peg BRT as a unanimous strong buy. Their average price target lands at $24, implying almost 26% upside potential. Therefore, it’s one of the REITs with high upside potential.
AFC Gamma (AFCG)
Another speculative but tempting idea for undervalued REITs, AFC Gamma (NASDAQ:AFCG) is an institutional lender to leading cannabis companies with strong operations and cash-flow prospects, real estate security, and other collateral. Per its corporate profile, AFC features locations in states with favorable supply-demand fundamentals and legislative environments. Still, as with many cannabis entities, AFCG is subject to volatility.
Looking at the financials, AFC Gamma’s P/FFO ratio sits at 7.19, favorably below 79.17% of its peers. Also, the market prices AFCG at a forward multiple of 7.37. As a discount to projected earnings, AFC Gamma ranks better than 90.71% of the competition. Also worth pointing out is that AFC enjoys a relatively strong cash-to-debt ratio.
Onto the passive income front, the REIT offers a whopping forward yield of just under 15%. Of course, the payout ratio stands at 82.69%, which is lofty.
Overall, analysts peg AFCG as a moderate buy. Their average price target clocks in at $16.25, implying nearly 27% upside potential. Thus, it’s another example of REITs with high upside potential.
Sachem Capital (SACH)
Rounding off this list of undervalued REITs is Sachem Capital (NYSEAMERICAN:SACH). Per its public profile, Sachem specializes in originating, underwriting, funding, servicing, and managing a portfolio of first mortgage loans. It offers short-term (typically three years or less) secured, nonbanking loans to real estate investors to fund their acquisition, renovation, development, rehabilitation, or improvement of properties located primarily in Connecticut.
Currently, SACH features a P/FFO ratio of 6.83 times, ranked favorably below 80.93% of its peers. Also, the market prices shares at a forward multiple of 7.97. As a discount to projected earnings, Sachem ranks better than 87.17% of the competition. It’s worth mentioning that despite its strong revenue trend, SACH trades at a sales multiple of only 4.38, below 67.23% of rivals.
On the passive income front, Sachem features a forward yield of 15.66%. While tempting, investors should note that the payout ratio soars into the stratosphere at 130%. On a final note, analysts peg SACH as a moderate buy. Their average price target stands at $4.75, implying just over 43% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.