2 REITs To Buy Before Rate Cuts

Market Overview - REITs are regaining popularity as the market realizes it overreacted to rising interest rates, with expectations of a significant drop in rates over the next year [1] - The debt market anticipates a 200 basis point decrease in interest rates, which is beneficial for REITs that have been undervalued after a prolonged bear market [1] Dream Industrial (DREUF / DIR.UN) - Dream Industrial reported a 10.1% growth in FFO per share last year, marking the third consecutive year of over 10% growth [2] - Current rents are approximately 30% below market rates, allowing for lease renewals with over 40% rent increases, contributing to an 11% same-property NOI growth in 2023 [3] - The REIT's portfolio is valued at $7 billion, with rents about 34% below market, providing a strong organic growth outlook [3] - Dream Industrial is currently priced at a P/FFO of 13.6x, significantly lower than the average of ~20x for US industrial REITs, attributed to its external management structure [3] - The REIT has a leverage ratio (LTV) of 36% and a BBB investment grade rating, with expectations of mid-single-digit FFO growth in 2024 as interest rates decline [4] Clipper Realty (CLPR) - Clipper Realty, focused on NYC properties, reported record revenue, NOI, and AFFO in Q2, with new lease rates up 11% and renewals up 7% [5] - AFFO per share increased by 30.8% year-over-year, largely due to tax abatements at a major property [5] - The REIT is priced at 8.5x AFFO, lower than the average of ~16x for US apartment REITs, and offers an 8% dividend yield with a low payout ratio of 60% [5] - Clipper has a higher leverage ratio (LTV of about 50%) but no major debt maturities until 2027, allowing for gradual debt reduction [5] - The REIT faces uncertainty with two office leases expiring next year, but management is actively negotiating renewals, which could mitigate risks [5]