It's always a smart time to buy top-quality real estate stocks, but some look particularly attractive as we head into the second half of 2021. In this article, I'll discuss one of the more unique real estate companies in the market as well as two real estate investment trusts (REITs) that look especially well-positioned to win in 2021 and beyond.
Buy the dip in this unique real estate company
Howard Hughes Corporation (NYSE: HHC) has certainly come a long way since the early days of the COVID-19 pandemic. Rent collection has improved dramatically, and most tenant properties are finally reopened for business (the NYC Seaport was a particular laggard). After raising capital in 2020, the company's balance sheet is arguably in better shape than it was before the pandemic.
Not only have things improved but the company's business is also firing on all cylinders, thanks to the hot real estate markets in its focus areas. Home sales in the company's master-planned communities jumped 35% year over year in the first quarter. The company is accelerating plans for about 2 million square feet of commercial development and recently received approval for a high-rise project in a vacant lot in the Seaport.
Best of all, Howard Hughes' stock price has fallen by about 10% over the past month -- and with no negative news related to the business itself. Now could be a great time to add shares as the company ramps up its efforts to grow.
This REIT is accelerating its efforts
Many investors don't really know what to make of Seritage Growth Properties (NYSE: SRG). It's a REIT, but it doesn't pay a dividend, the majority of its portfolio is unoccupied, and it's losing money at a rapid pace.
However, Seritage recently had a leadership shake-up that could kick the company's efforts into overdrive. Specifically, new CEO Andrea Olshan recently revealed plans to pare down the portfolio significantly by selling 40 to 50 noncore properties. The goal is to raise capital to redevelop the rest of the portfolio into premier income-producing assets.
Given how hot the real estate market is right now and that most of Seritage's properties are in desirable retail locations, now is a great time to have an extra few dozen properties to sell. If Seritage completes its asset sales and puts the money to good use, it could become cash-flow positive within a couple of years.
The current share price represents a valuation of about $30 per square foot for Seritage's portfolio. Meanwhile, some of its already-redeveloped properties rent for several times that amount. In short, this is a bargain-basement REIT with tons of potential just waiting to be unlocked.
The second half of 2021 could be great for this REIT
As a final idea, it's tough to make the case that any real estate stock could benefit more from the reopening than EPR Properties (NYSE: EPR). EPR Properties is the only publicly traded REIT focused on building a diversified portfolio of experiential properties. For example, TopGolf is a major tenant of EPR's, and so is Vail Resorts (NYSE: MTN).
For the duration of the pandemic, EPR's biggest flaw has been its high concentration of movie theater properties, which account for nearly half of the company's contractual rental income. However, the recent "meme stock" craze has changed this dramatically. Now, top tenant AMC Entertainment (NYSE: AMC) can not only avoid bankruptcy but has also raised about $2 billion and is arguably in better shape now than it was before the pandemic.
Despite the surge in demand we've seen recently for in-person experiences and the greatly improved fundamentals of its largest tenant, EPR still trades for about 25% less than it did at the start of 2020. And I don't think it deserves to.
The Millionacres bottom line
All three of these real estate stocks look like excellent opportunities going into the second half, but I wouldn't exactly call any of them "low-risk" investments. So, while I think all could be excellent investments for the long term, be prepared to ride out some ups and downs along the way.