As that table shows, depending on the cap rate used, the company trades at a significant discount to its real estate's underlying value. Because of that, it's a great option for investors looking for a high-quality office REIT at a value-based price.
Trading at a healthy discount
Healthcare REIT Medical Properties Trust hasn't sold off quite as steeply as Boston Properties this year. However, the roughly 5% decline in its stock price makes it quite cheap, especially since its FFO is on the rise despite the pandemic.
Heading into 2020, the hospital owner expected to generate between $1.65 to $1.68 per share of FFO. However, after acquiring $3.1 billion in properties already this year, it has pushed that range up to $1.68–$1.71 per share. The stock currently trades at around $20 apiece, implying a price-to-FFO (P/FFO) ratio of less than 12 times. That's pretty cheap for a REIT, which typically sell for more than 15 times their FFO. Because of that, it has lots of upside potential.
A large pile of cash, with some dirt-cheap office properties
By some measurements, office REIT Equity Commonwealth is expensive. The company's shares -- which are down about 5% this year -- currently trade at around $31.11 apiece. Since it only generated $0.78 per share of normalized FFO last year, it sells for an implied P/FFO ratio of nearly 40 times.
However, after backing out the cash on the balance sheet -- which currently totals more than $27.50 per share after it sold off most of its portfolio in recent years -- the REIT trades at less than five times its FFO. That cash is an important asset because the company can use it to acquire undervalued office properties. If it finds the right deals, they could significantly boost the REIT's FFO and potentially its stock price.
Undervalued real estate
Most REITs trade at lower stock prices this year because COVID-19 is having a significant effect on their operations. While many of those selloffs seem justified, others don't. Because of that, REIT investors can scoop up some bargain-priced real estate, with Boston Properties, Medical Properties Trust, and Equity Commonwealth currently looking quite undervalued.