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How to use earnings to find hidden Reit bargains

Property value is important but there are other ways to discover cheap real estate stock
How to use earnings to find hidden Reit bargainsPublished on March 26, 2024

With interest rates looking like they've peaked and real estate investment trusts (Reits) looking to return to growth, this is the time many investors like to 'buy the dip'. Use this window to buy Reits trading at a discount to net asset value (NAV), so the thinking goes.

We have questioned the wisdom behind this idea before. NAV is a helpful metric for telling investors what a valuer has decided a Reit's buildings are worth minus its debt, but it does not tell you how well a Reit has managed those buildings.

There are other approaches. US Reit investors focus much more on earnings than NAV, and countless non-Reit investors use price/earnings (PE) ratios to find value. And while earnings are in some ways less relevant to Reits in that they have their own flaws from a valuation perspective, investors should not ignore them completely. Earnings analysis can unearth some hidden bargains.

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