Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 7 stocks made the list for top value stocks in the REITs - Specialized industry. Those looking for value stocks to add to their portfolio may want to use this list as a starting point for further investment research.

Why Focus on Undervalued REITs - Specialized Stocks?

Value investors seek to buy stocks at a discount to their intrinsic value. Long-term returns show that such strategies are advantageous. Value stocks, as a group, tend to outperform growth stocks over extended periods of time. Typically, value investors perform financial analysis of numerous metrics, don’t follow the herd and are long-term investors.

AAII’s A+ Investor Value Grade is derived from a stock’s Value Score. The Value Score is the percentile rank of the average of the percentile ranks of the price-to-sales ratio, price-earnings ratio, enterprise-value-to-EBITDA (EV/EBITDA) ratio, shareholder yield, price-to-book-value ratio and price-to-free-cash-flow ratio. The score is variable, meaning it can consider all six ratios or, should any of the six ratios not be valid, the remaining ratios that are valid. To be assigned a Value Score, stocks must have a valid (non-null) ratio and corresponding ranking for at least two of the six valuation ratios.

What Goes Into AAII’s Value Grade?

Stock evaluation requires access to huge amounts of data as well as the knowledge and time to sift through it all, make sense of financial ratios, read income statements and analyze recent stock movement. AAII created A+ Investor, a robust data suite that condenses data research in an actionable and customizable way suitable for investors of all knowledge levels, to help investors with that task.

AAII’s proprietary stock grades come with A+ Investor. These offer intuitive A–F grades for more than just value. It is possible for a stock to appear cheap based on one valuation metric but appear expensive on another. It is also possible for one valuation ratio to be associated with outperforming stocks during certain periods of time but not others. Some stocks may even have null values for certain metrics like the price-earnings ratio or the price-to-book ratio but not others. An example of this would be a company with losses instead of profits or a negative book value because of heavy borrowing. Negative earnings or book value result in non-meaningful ratios that are left blank or null.

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7 Undervalued REITs - Specialized Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 7 undervalued stocks in the REITs - Specialized industry for Thursday, June 20, 2024. Let’s take a closer look at their individual scores to see how they measure up against each other and the REITs - Specialized industry median.

The Value Grade is assigned based on how each stock’s composite valuation compares to all other stocks.

The process for assigning grades starts with each variable for a given stock. The percentile rankings for all valid ratios that a stock has are calculated. So, for instance, a stock could have a price-to-book ranking in the 43rd percentile, a price-earnings ranking in the 67th percentile, a price-to-sales ranking in the 23rd percentile, etc. Then, those rankings are averaged for each stock. (A minimum of two valid variables are required, though all six will be used if available.)

Once the average of the individual variables is calculated, that average is ranked against all stocks. Put another way, each stock’s composite valuation is compared to all other stocks. These ranks are then sorted into quintiles from the cheapest 20% (a grade of A) to the most expensive 20% (a grade of F).

As always, we recommend that you conduct proper due diligence and research before investing in any security. We also suggest that investors utilize numerous grades, not just value, when it comes to deciding whether a company is a good fit for their allocation needs.

AFC Gamma Inc’s Value Grade

Value Grade:

AFC Gamma, Inc. is an institutional lender to the commercial real estate sector. The Company primarily originates, structures, underwrites, invests in and manages senior secured loans and other types of commercial real estate loans and debt securities, with a specialization in loans to cannabis industry operators in states that have legalized medical and/or adult-use cannabis. The Company’s objective is to provide attractive risk-adjusted returns over time through cash distributions and capital appreciation primarily by providing loans to real estate developers and state-law compliant cannabis companies. The loans it originates are primarily structured as senior loans secured by real estate, equipment, value associated with licenses (where applicable) and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties. The Company targets investing strategically across multiple real estate sectors.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

AFC Gamma Inc has a Value Score of 68, which is considered to be undervalued.

When you look at AFC Gamma Inc’s price-to-sales ratio at 4.18 compared to the industry median at 2.13, this company has a higher price relative to revenue compared to its peers. This could make AFC Gamma Inc’s stock less attractive for value investors.

AFC Gamma Inc’s price-earnings ratio is 23.23 compared to the industry median at 23.23. This means it has a similar share price relative to earnings compared to its peers. This could make AFC Gamma Inc less attractive for value investors.

Now, let’s assess AFC Gamma Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 6.5, when compared to the industry median of 16.5, the company may be considered undervalued in relation to its peers. Value investors could use the enterprise multiple to identify stocks that are considered overvalued or undervalued relative to their industry.

Shareholder yield is the sum of a stock’s dividend yield (paid over previous 12 months minus special dividends) and the percentage of net share buybacks over the previous 12 months. AFC Gamma Inc’s shareholder yield is higher than its industry median ratio of 5.03%. Value investors may look for an attractive shareholder yield because it can be a powerful tool for identifying if the company has a good management team.

As one of the most common value metrics, the price-to-book ratio evaluates a company’s current market price relative to its book value. AFC Gamma Inc’s price-to-book ratio is lower than its industry median ratio of 0.91. This could make AFC Gamma Inc more attractive to investors looking for a new addition to their portfolio.

Claros Mortgage Trust Inc’s Value Grade

Value Grade:

Claros Mortgage Trust, Inc. is a real estate investment trust. The Company is focused primarily on originating senior and subordinate loans on transitional commercial real estate (CRE) assets located in markets across the United Sates. Its objective is to provide debt capital for transitional CRE assets and, in doing so, to generate risk-adjusted returns for its stockholders. It seeks primarily to originate, co-originate and acquire senior and subordinate loans on transitional CRE assets located in the United States markets and generally intend to hold its loans to maturity. In addition to its primary focus on the United States markets, it also seeks to originate senior and subordinate loans on transitional CRE assets located in other markets. It also focuses on mortgage loans secured by a first priority or subordinate mortgage on transitional CRE assets, and subordinate loans, including mezzanine loans. The Company is externally managed and advised by Claros REIT Management LP.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Claros Mortgage Trust Inc has a Value Score of 95, which is considered to be undervalued.

Claros Mortgage Trust Inc’s price-to-book ratio is higher than its peers. This could make Claros Mortgage Trust Inc less attractive for value investors when compared to the industry median at 0.91.

You can read more about Claros Mortgage Trust Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

KKR Real Estate Finance Trust Inc’s Value Grade

Value Grade:

KKR Real Estate Finance Trust Inc. is a real estate investment trust. The Company primarily originates or acquires transitional senior loans collateralized by institutional-quality commercial real estate (CRE) assets that are owned and operated by sponsors and located in liquid markets with underlying fundamentals. The Company's target assets also include mezzanine loans, preferred equity and other debt-oriented instruments with these characteristics. The Company's investment objective is capital preservation and the generation of attractive risk-adjusted returns for its stockholders over the long term, primarily through dividends. Its portfolio of diversified investments consists of performing senior and mezzanine loans. It focuses on originating and acquiring senior loans that are secured by CRE properties and evidenced by a first-priority mortgage. The Company is externally managed by KKR Real Estate Finance Manager LLC, an indirect wholly owned subsidiary of KKR & Co. Inc.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

KKR Real Estate Finance Trust Inc has a Value Score of 88, which is considered to be undervalued.

KKR Real Estate Finance Trust Inc’s price-to-book ratio is higher than its peers. This could make KKR Real Estate Finance Trust Inc less attractive for value investors when compared to the industry median at 0.91.

You can read more about KKR Real Estate Finance Trust Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Lument Finance Trust Inc’s Value Grade

Value Grade:

Lument Finance Trust, Inc. is a real estate investment trust (REIT). The Company is focused on investing in, originating, financing and managing a portfolio of commercial real estate (CRE) debt investments. It primarily invests or originates in transitional floating rate CRE mortgage loans with an emphasis on middle-market multifamily assets. The Company also invests in other CRE-related investments including mezzanine loans, preferred equity, commercial mortgage-backed securities, fixed rate loans, construction loans and other CRE debt instruments. It finances its investments in transitional multifamily and other CRE loans primarily through matched-term non-recourse secured borrowings, including collateralized loan obligations (CLO). Its mortgage loan investment portfolio consists of approximately 88 senior secured floating rate loans with an aggregate unpaid principal balance of $1.4 billion. The Company is externally managed by its manager, Lument Investment Management, LLC.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Lument Finance Trust Inc has a Value Score of 79, which is considered to be undervalued.

Lument Finance Trust Inc’s price-earnings ratio is 8.1 compared to the industry median at 23.2. This means that it has a lower price relative to its earnings compared to its peers. This makes Lument Finance Trust Inc more attractive for value investors.

Lument Finance Trust Inc’s price-to-book ratio is higher than its peers. This could make Lument Finance Trust Inc less attractive for value investors when compared to the industry median at 0.91.

You can read more about Lument Finance Trust Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Seven Hills Realty Trust’s Value Grade

Value Grade:

Seven Hills Realty Trust is a real estate investment trust that originates and invests in first mortgage loans secured by middle market and transitional commercial real estate (CRE). The Company's primary investment strategy is to balance capital preservation with generating attractive, risk adjusted returns by creating customized loan structures tailored to borrowers specific business plans for the underlying collateral properties. It invests in first mortgage loans with principal balances ranging from $15 million to $75 million. It invests in floating rate first mortgage loans that provide bridge financing on transitional CRE properties. These investments typically are secured by properties undergoing redevelopment or repositioning activities that are expected to increase the value of the properties. The Company is managed by Tremont Realty Capital LLC.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Seven Hills Realty Trust has a Value Score of 72, which is considered to be undervalued.

Seven Hills Realty Trust’s price-earnings ratio is 7.7 compared to the industry median at 23.2. This means that it has a lower price relative to its earnings compared to its peers. This makes Seven Hills Realty Trust more attractive for value investors.

Seven Hills Realty Trust’s price-to-book ratio is higher than its peers. This could make Seven Hills Realty Trust less attractive for value investors when compared to the industry median at 0.91.

You can read more about Seven Hills Realty Trust’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Sunstone Hotel Investors Inc’s Value Grade

Value Grade:

Sunstone Hotel Investors, Inc. is a real estate investment trust. The Company owns approximately 14 hotels, comprised of 6,675 rooms, located in six states and in Washington, DC. The Company’s portfolio consists of luxury hotels located in convention, resort destinations and urban markets. It is the owner of Long-Term Relevant Real Estate (LTRR) in the lodging industry, specifically hotels in urban and resort destination locations. The Company's hotels are operated by third-party managers under long-term management agreements with TRS Lessee or its subsidiaries. It is operated by third-party managers under long-term management agreements with the TRS Lessee or its subsidiaries. Its third-party managers include subsidiaries of Marriott International, Inc.; managers of six of the Company’s hotels; Hyatt Hotels Corporation, manager of two of its hotels; and Four Seasons Hotels Limited, Highgate Hotels L.P. and an affiliate, Hilton Worldwide, and Interstate Hotels & Resorts, Inc.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Sunstone Hotel Investors Inc has a Value Score of 65, which is considered to be undervalued.

Sunstone Hotel Investors Inc’s price-earnings ratio is 11.2 compared to the industry median at 23.2. This means that it has a lower price relative to its earnings compared to its peers. This makes Sunstone Hotel Investors Inc more attractive for value investors.

Sunstone Hotel Investors Inc’s price-to-book ratio is lower than its peers. This could make Sunstone Hotel Investors Inc more attractive for value investors when compared to the industry median at 0.91.

You can read more about Sunstone Hotel Investors Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Two Harbors Investment Corp’s Value Grade

Value Grade:

Two Harbors Investment Corp. is a real estate investment trust (REIT) that invests in mortgage servicing rights (MSR), residential mortgage-backed securities and other financial assets. The Company, through its operational platform, RoundPoint Mortgage Servicing LLC, is a servicer of conventional loans. The Company, through its subsidiary, Matrix Financial Services Corporation, holds the requisite approvals from Fannie Mae and Freddie Mac to own and manage MSR. Its Agency residential mortgage-backed securities portfolio is comprised of fixed rate mortgage-backed securities backed by single-family and multi-family mortgage loans. Its other assets may include financial and mortgage-related assets other than its target assets, including non-Agency securities (securities that are not issued or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac), other Agency securities and certain non-hedging transactions that may produce non-qualifying income for purposes of REIT gross income tests.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Two Harbors Investment Corp has a Value Score of 72, which is considered to be undervalued.

Two Harbors Investment Corp’s price-earnings ratio is 6.8 compared to the industry median at 23.2. This means that it has a lower price relative to its earnings compared to its peers. This makes Two Harbors Investment Corp more attractive for value investors.

Two Harbors Investment Corp’s price-to-book ratio is higher than its peers. This could make Two Harbors Investment Corp less attractive for value investors when compared to the industry median at 0.91.

You can read more about Two Harbors Investment Corp’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Other REITs - Specialized Stock Grades

Value is just one of the five Stock Grades included in our A+ Investor service. AAII members can see the top-graded stocks—those with grades of A or B for value, growth, momentum, earnings estimate revisions and quality—on the A+ Stock Grades Screener.

Also, if you want full access to all of AAII’s premium services, you can subscribe to one convenient bundled plan called AAII Platinum where you can try out A+ Investor, AAII Dividend Investing, the Stock Superstars Report, Growth Investing and VMQ Stocks. With the other premium services, you can dive deep into additional metrics, portfolios, commentary and information about REITs - Specialized stocks as well as other industrys.

Choosing Which of the 7 Best REITs - Specialized Stocks Is Right for You

Choosing which value stocks to invest in will ultimately depend on your individual goals and allocation; however, comparing similar value stocks in the same industry can help you analyze which might be better investments for you in the long run. So, let’s take a look at the Value Grade for all of our stocks.

• AFC Gamma Inc stock has a Value Grade of B.
• Claros Mortgage Trust Inc stock has a Value Grade of A.
• KKR Real Estate Finance Trust Inc stock has a Value Grade of A.
• Lument Finance Trust Inc stock has a Value Grade of B.
• Seven Hills Realty Trust stock has a Value Grade of B.
• Sunstone Hotel Investors Inc stock has a Value Grade of B.
• Two Harbors Investment Corp stock has a Value Grade of B.

Now that you have a bit more background about each of the 7 undervalued stocks in the REITs - Specialized industry as well as their overall grades, it’s time for you to conduct additional research to see if these could fit your portfolio needs based on your goals and risk tolerance. AAII can help you figure out both and identify which investments align with what works best for you.

We do so through a program of education that teaches you to invest for yourself and become an effective manager of your own wealth—no more relying on others for your financial independence. You can rely on AAII for timeless articles on financial planning and stock-picking, unbiased research and actionable analysis that makes you a better investor.

A+ Investor adds to that qualitative teaching by giving you a powerful data suite that helps you whittle down investment decisions to find stocks, exchange-traded funds (ETFs) or mutual funds that meet your needs.

Additional Resources About REITs - Specialized Stocks

Want to learn more about REITs - Specialized stocks to see if they could be the right investment for you? Check out some additional resources and articles to help you on your financial journey.

• 7 Undervalued REITs - Specialized Stocks for Thursday, June 20
• 4 Undervalued REITs - Specialized Stocks for Wednesday, June 19
• 5 Undervalued REITs - Specialized Stocks for Tuesday, June 18
• 6 Undervalued REITs - Specialized Stocks for Monday, June 17

AAII Disclaimer

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