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Black Friday is regarded as the beginning of the Christmas shopping season in the U.S. and it’s routinely the busiest shopping day of the year. The major attraction for Black Friday are the promotional sales that create hysteria among the shoppers, scouting the shelves in search of the very best bargains.
While Black Friday isn’t known as a big day of bargains for REIT investors, the markets are open and there’s always an opportunity to capitalize on cheaply priced stocks .
I just finished writing the December edition of the Forbes Real Estate Investor and included in my monthly newsletter is a list of around 100 REITs that I call my Intelligent REIT Lab. I rank these REITs based on various fundamentals and then I score the companies based on their overall valuation attributes.
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Some of the REITs are cheap for a reason, and others are cheap because they are not being recognized for their underlying value.
The reality is that Mr. Market knows nothing about a specific stock , being the product of the collective action of thousands of buyers and sellers who themselves are not always motivated by investment fundamentals.
Whenever the financial markets fail to fully incorporate these fundamental values into securities prices, an investor’s margin of safety is high - it’s like having Black Friday everyday - as the legendary Ben Graham defined it, the margin of safety constitutes a “favorable difference between price on the one hand and indicated or appraised value on the other.”
It’s the essence of value investing because it is the metric by which hazardous speculations are segregated from bona fide investment opportunities, as such even when selecting sound REIT securities, one needs some kind of buffer to protect against market fluctuations.
Keep in mind, many REITs are trading at discounted prices because they are riskier than others: high leverage, external management, smaller market cap, poor diversification, high payout ratios, and many other factors can lead to weak share price performance.
It’s rare to see a “blue chip” on sale, but if you’re patient enough you can usually get a crack at a “sleep well at night” company on sale .
Although these REITs aren’t considered “blue chips” in context of their fundamentals, the following companies are all trading at substantial discounts based upon my quantitative research: W.P. Glimcher (WPG), Lexington Realty (LXP), New Senior (SNR), Chatham Lodging (CLDT), CorEnergy (CORR), and Ladder Commercial (LADR). Here’s how I value these REITs based on their discount to my target BUY price:
Here’s how the same REITs compare to their P/FFO (price to funds from operations) multiple:
Here’s how the same REITs compare based on their dividend yield:
As I explained, you can find these 6 REITs in my Intelligent REIT Lab. While I have BUY recommendations on all of these stocks, they are all exposed to higher risks that the SWANs (sleep well at night). Much like being a Black Friday shopper, the most beneficial time to be a value investor is when the market is falling – and that means capitalizing on today’s Black Friday REIT specials.
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Disclosure: I own shares in LXP, SNR, CLDT, CORR and LADR.
Disclaimer: The author's direct family member is General Counsel of Blue Harbor (owned by Fortress and also a tenant to SNR).
Brad Thomas is the editor of the Forbes Real Estate Investor and writes for Forbes.com and Seeking Alpha. He is also a frequent guest on Fox Business and he is currently writing a book, The Trump Factor, about U.S. presidential candidate Donald J. Trump.
