Real estate investment trusts (REITs) slumped last year, weighed down by the impact of the COVID-19 outbreak. While the pandemic did affect rental collection rates, some REITs sold off more than what seems necessary. This means they're much cheaper right now, making them compelling buys for value investors. Three that stand out are EPR Properties (NYSE: EPR), STAG Industrial (NYSE: STAG), and W.P. Carey (NYSE: WPC).
Specialty REIT EPR Properties has gotten clobbered over the past year. Shares of the entertainment property owner have tumbled more than 50% because of the outsized impact the pandemic has had on its theater and attraction tenants. Overall, it only collected 28% of the rent it billed during the second quarter, 42% in the third, and 46% in the fourth.
However, while the stock has gotten crushed, the underlying value of its real estate has held up reasonably well. That value proposition was on full display recently as it sold 10 educational properties for $201 million and four experiential properties and two land parcels for $23 million, recognizing gains of $40 million and $10 million, respectively.
As a result of those sales, EPR ended the year with more than $1 billion of cash. To put that into perspective, EPR Properties' entire current market cap is $2.5 billion, implying 40% of its value is cash. With vaccines expected to give entertainment venues a shot in the arm this year, shares of this cheap REIT could soar in 2021.
A low-cost way to play this premium market
Industrial REIT STAG Industrial has lost about 3% of its value over the past year. That decline comes even though the REIT has operated very well in a challenging environment. Same-store cash NOI was up 1.8% year over year through the third quarter, while core FFO increased by 3.7%. Because of that growth, the REIT ended the year cheaper than it entered.
Currently, shares of STAG Industrial trade at around 16 times FFO. That's well below the industrial REIT average of about 29 times FFO. The main reason for the disconnect is that many of its peers focus solely on logistics properties like warehouses -- crucial to supporting the growth of e-commerce -- while STAG Industrial operates across the entire industrial sector. Still, such a deep discount seems unwarranted, enabling investors to get in on the ground floor of this red-hot sector at a much lower value.
A diversified real estate portfolio for a much lower price
Shares of W.P. Carey have lost more than 18% of their value over the past year. That sell-off comes even though the diversified REIT has weathered the current storm in the real estate market relatively well. Thanks to strong rental collection rates, the REIT expects to generate between $4.65 to $4.75 per share of AFFO in 2020. While that's about 6% below 2019's level at the midpoint of 2020's guidance range, it was a solid result given all of the turmoil in the real estate market last year.
With shares of W.P. Carey declining by more than its earnings, it trades at a much cheaper price these days. Given its recent stock price of around $67 a share, it now sells for about 14 times AFFO. That's cheap, considering that 47% of its portfolio is made up of warehouse and industrial properties, which trade at a premium value these days.
Compelling value propositions
Most REITs entered 2021 trading at lower prices after selling off last year. This means value-conscious real estate investors have lots of interesting options, led by EPR Properties, STAG Industrial, and W.P. Carey. Given their relative cheapness, these REITs have more upside potential as the real estate market recovers in the coming quarters.