There has been a sell-off among some of the real estate investment trusts recently, which analysts argue is creating a buying opportunity.
I've selected two research reports published this week that make the case that the trusts in question have been oversold and are now worth a look for investors.
Let's see who the analysts like.
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HomeCo Daily Needs REIT (ASX: HDN)
HomeCo is down nearly 20% on a 12-month basis and is trading not far above its low for the period.
The shares have been sold off, particularly since the release of HomeCo's results on 13 August.
Bell Potter has run the ruler over the company and believes the shares now represent good value.
One major selling point is the dividend yield, which is now sitting at 8.2%.
Bell Potter also argues that the sell-off in the shares has been overdone.
The broker said:
The stock has fallen 13.3% since results and underperformed peers over 3 months, a reaction we view as disproportionate to the underlying 2.2% FY27 earnings decline.
Bell Potter said they expected earnings to trough this financial year, with growth returning in FY28 as the cost of debt reduces, assets are sold, and developments are completed.
The broker added that retail supply was lagging demand, "driving vacancy down and rental growth up''.
Bell Potter has a buy recommendation on HomeCo shares with a price target of $1.20 compared to $1.08 currently.
Charter Hall Group (ASX: CHC)
UBS believes Charter Hall has been oversold since early August and calls the company a "top pick" in the real estate sector.
The broker said:
Of the large cap REITs, CHC's relative returns are most negatively correlated to bond yields which are up ~50bp in the past two months. While rising yields are clearly a headwind for the business (e.g. via lower valuations and transaction volumes), we think the market is assigning too much weight to a downside outcome despite a more resilient earnings base this cycle.
UBS said the market was likely wary of the shares, which were heavily sold off during the last interest rate increase cycle in 2022-23.
But the broker said the current rate cycle is far less dramatic, and "property values should hold up better given sharp devaluations booked across 2022-24''.
UBS has slightly reduced their price target on Charter Hall from $24.50 to $24, but that's still well above the current level of $18.56.
Charter Hall is valued at $8.38 billion.
