In this article we will take a look at the top 10 REIT stocks under $10 that are currently very attractive. You can skip our detailed analysis of the real estate industry’s outlook for 2021 and some of the major growth catalysts for REIT stocks and go directly to the Top 5 REIT Stocks Under $10.
Analysts are hopeful about a sharp rebound in REITs thanks to the mass rollout of vaccines, President Biden’s ambitious infrastructure plan and an expected return to office of millions of workers. Real-estate investment trusts saw an overall increase of 9% during the three-month period ending April 6, compared to S&P 500’s 6% gain in the same period, according to data from Green Street. The major catalyst behind this rise was an 18% increase in shares of lodging owners and a 32% gain by mall owners.
Brookfield Asset Management Inc (NYSE: BAM) is a case in point highlighting the recovery in the real estate industry. In the fourth quarter, the real estate company made $2.1 billion from operations, helped by a massive rise in fee-related earnings, asset sales and a recovery in operations. The company’s distributable earnings per share in the quarter came in at 82 cents, compared to 57 cents in the same quarter a year ago. Brookfield Asset Management (NYSE:BAM) recently said it would acquire all of the existing limited partnership units of Brookfield Property Partners (NASDAQ:BPY) for $6.5 billion.
What is a REIT?
Understanding REITs is necessary before proceeding to the top 10 REIT stocks that are ideal for investors. Real estate investment trusts (REITs) allow investors buy shares in real estate portfolios that receive income from various properties. They allow investors to easily participate in the real estate sector, comprised of corporations of ownership, development, residential management, commercialization, and industrial properties. Most REITs generate their revenue primarily from the rents they collect on properties they own. To qualify as REIT, the company must distribute at least 90% of its taxable income to its shareholders. They are thus outstanding investments for investors seeking dividend income. That's why we are going to take a look at top 10 REIT stocks under $10 in this article.
Real estate investing was a very fruitful business until the COVID-19 pandemic struck the world, forcing thousands of layoffs in the REIT industry. However, several factors helped real estate investment trusts and the economy as a whole to stay on its feet. These factors included the U.S. government's $1.9 trillion stimulus package and a strong housing market. However, the perception of the market is that bond proxies such as real estate investment trusts are vulnerable in an environment of rising interest rates. We often see comments suggesting that they should be avoided at all costs. In a survey by Natixis Investment Managers, 68% of the 300 questioned financial advisers said that they have REITs in their portfolio and they use them for returns, diversification, dividends, and inflation hedge, with many yielding 6% or 7%.
Another notable REIT Simon Property Group Inc (NYSE: SPG) is showing a strong recovery. The stock has gained 41% year to date. Simon Property Group (NYSE:SPG) recently jumped after investment firm Evercore ISI upgraded the stock to Outperform from Inline, citing a recovery in shopping centers and malls. Evercore’s analyst Samir Khanal increased his price target for SPG stock to $128 from $112. The analyst said that Simon Property Group Inc (NYSE: SPG) would post upbeat FFO in 2021 and 2022 but the “bigger focal point” for investors would be in 2022 and beyond. The analyst expects the company to post strong rent collections and lower tenant fallout in the first quarter of 2021.
Can REITs be treated as bond proxies? Certainly not, because facts have proven the contrary.
Today, rates are on the rise because the economy is experiencing a V-shaped recovery. According to various estimates, the US GDP will have recovered by the end of this year already. That's very positive news for REITs because it allows them to increase occupancy rates, hike rents, and build new properties. Data also shows that REITs tend to perform better during 12 months following a rise in interest rates.
Colony Capital, Inc. (NYSE: CLNY)
Colony Capital, Inc. (NYSE: CLNY) recently sold its interest in The Three Building and Burlington Plaza and generated $102 million. Colony Capital, Inc. also revealed that its subsidiary known as CLNC Manager, LLC, agreed to terminate its management contract with Colony Credit Real Estate.
Colony Credit Real Estate, Inc. (NYSE: CLNC) recently decided to continue paying dividend on its 7.50% Series A Cumulative Redeemable Perpetual Preferred Stock on a quarterly basis at $1.875 per share annualized rate. The company's latest quarterly earnings revealed a GAAP net loss of $(52.5) million equivalent to $(0.41) per share. Colony Credit Real Estate, Inc. (NYSE: CLNC)’s adjusted distributable earnings amounted to $26.1 million, or $0.20 per share exclusive of fair value adjustments, losses on sales.
Real estate isn't the only sector that was clobbered by the coronavirus crisis. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Here are the top 10 REIT stocks under $10 that you should consider adding to your portfolio.
Top 10 REIT Stocks Under $10
10. Apartment Investment and Management Co (NYSE: AIV)
Number of Hedge Fund Holders: 17
Apartment Investment and Management Co (NYSE: AIV) is a publicly-traded REIT. 17 hedge funds had a stake in the company in Q4 2020 led by Millennium Management which had more than 6.5 million shares. Terry Considine, Apartment Investment director, paid $3.4 million for 600,000 shares at $5.72 per share. Considine’s total shareholding in the company is 6.3 million shares, including stock options and partnership units.
Levi & Korsinsky kicked off an investigation on Apartment Investment and Management Co (NYSE: AIV) for alleged violation of fiduciary duties.
AIV announced that it generated $21.76 million in revenue in Q4 2020, representing a 5.8% YOY drop.
It also reported an 85.68% decline in its one-year return.
9. CoreCivic, Inc. (NYSE: CXW)
Number of Hedge Fund Holders: 18
Corecivic Inc (NYSE: CXW) is a REIT company that owns and operates private correctional facilities on behalf of government agencies. It also provides a variety of services as part of those correctional services, including recreational, food service, work, dental and healthcare services. 18 hedge funds had a stake in the company in Q4 2020.
The company announced the offering of 8.25% senior unsecured notes due in 2026. The offering will generate $450 million, which will be used to redeem 5.00% senior notes whose principal amount is $250 million, due in 2022.
The company announced that it signed an agreement to settle a class action lawsuit against it and some of its officers in the U.S.
The company announced the appointment of Dr. Glenda Baskin Glover to its board of directors which now has 12 directors.
CoreCivic generated $1.91 billion in total revenue for the full year 2020
It reported a $54.2 million net income for its shareholders who hold common shares.
Corecivic Inc (NYSE: CXW) achieved a $0.45 diluted EPS while its adjusted EPS was $1.32, representing healthy earnings, especially for a stock under $10.
8. MFA Financial, Inc. (NYSE: MFA)
Number of Hedge Fund Holders: 22
This is a U.S-based REIT whose playground is residential mortgage assets such as residential whole loans, credit risk transfer securities, agency MBS, and non-agency backed mortgage securities. 22 hedge funds held a stake in MFA Financials in Q4 2020.
The company reported a $37.6 million, or $0.08 per share net income for Q4 2020.
It paid out a regular cash dividend of $0.075 per share cash dividend on January 29.
MFA finalized two transactions with Athene and Apollo, reducing the risk of diluting its warrants in the future.
The first transaction featured the repurchase of $33.7 million worth of warrants while Apollo and Athene exercised the remaining warrants.
The company’s GAAP book value reduced by $0.18 as a result of the warrants exercise and repurchase.
MFA Financial, Inc. (NYSE: MFA) was one of the 380 companies that had investments spread out across the 11 sectors part of the 2021 Bloomberg Gender-Equality Index (GEI).
7. Two Harbors Investment Corp (NYSE: TWO)
Number of Hedge Fund Holders: 18
Two Harbors Investment Corp (NYSE: TWO) operates as a REIT, which solely invests in mortgage-backed securities in the residential segment. PRCM Advisers, LLC is Two Harbors’ appointed management firm and advisor. 18 hedge funds had stakes in Two Harbors in Q4 2020 led by HBK Investments, which had 46.7 million shares in the company. Two Harbors Investment Corp (NYSE: TWO) ranks 7th in the list of top 10 REIT stocks under $10.
The company announced a $25.00 per share dividend payout for unpaid and accrued dividends. The payout was for the outstanding shares of the company’s 7.75% Series D and 7.50% Series E preferred shares.
The company closed the issuance of underwritten 6.25% convertible senior notes that will mature in 2026. The notes are worth $287.5 million, including notes worth $37.5 million on aggregate issued to the underwriter.
The notes will deliver a 6.25% per annum interest rate to be paid out semiannually. The company plans to use the proceeds to fund private repurchase of 6.25% Convertible Senior notes whose principal amount was $143.7 million and are due in 2022.
6. Diversified Healthcare Trust (NASDAQ: DHC)
Number of Hedge Fund Holders: 14
Diversified Healthcare Trust (NASDAQ: DHC) operates as a REIT whose investments focus on life sciences and healthcare. The company acquires and owns properties that strategically aim to leverage demographic trends, as well as properties that facilitate medical services implementation and biological breakthroughs. Diversified Healthcare Trust (NASDAQ: DHC) controls an investment portfolio with properties worth $8.2 billion. The properties are spread out in Washington D.C, and 36 states. DHC ranks 6th on the list of top 10 REIT stocks under $10
14 hedge funds of the 800 funds tracked by Insider Monkey had a stake in DHC in Q4 2020.
The company announced a quarterly cash dividend payout of $0.01 per share. It has the dividend payout earns it a spot in the top 10 REIT stocks under $10.
DHC recently agreed to make some changes to its management agreement with Five Star Senior Living Inc. (NASDAQ: FVE). The changes will facilitate collaboration between the two companies aimed at transitioning 7,500 living units for 108 communities for seniors. The transition means the units will be sold to other operators, and Five Star will no longer manage them. The latter will continue to manage the properties on behalf of Diversified Healthcare Trust (NASDAQ: DHC), and there will be no termination fees.
The RMR Group (NASDAQ: RMR) will take over Five Star's management activities after the transition.
DHC announced the issuance of $500 million worth of senior notes at 4.375%, which will expire in 2031. The company plans to use the proceeds for general administrative processes. Some of the funds will be used to pay $300 million worth of 6.75% Senior Notes scheduled to mature in June this year.
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Disclosure: None. Top 10 REIT Stocks Under $10 is originally published on Insider Monkey.