The continued resurgence of the U.S. housing industry, in addition to a new real estate sector of the S&P 500, has promoted the exposure of real estate investment trusts on a level, the likes of which have never been seen.
As a result, the exponential increase in popularity has seen the most popular REITs adopt a price tag significantly larger than just a few short months ago. For better or for worse, REITs are firing on all cylinders, and the cost to take part has increased considerably.
Some would go so far as to say that valuations are overextended, and the cost of admission isn't worth the entry fee. But that doesn't look like the case.
It is hard to argue that REITs haven't overextended their valuations, but great deals can still be had if investors know where to look.
Let's look at two REITs that are undervalued, yet boast significant potential.
The first, Kimco Realty (KIM) , is held with high regard in the commercial industry and is recognized as North America's largest publicly traded owner and operator of open-air shopping centers.
The company's portfolio boasts "537 U.S. shopping centers comprising 86 million square feet of leasable space across 36 states and Puerto Rico," according to its website.
Having specialized in shopping center acquisitions, development and management for more than 50 years, Kimco Realty's 4,200 tenants serve as a testament to a sound business model.
With a market capitalization of $12.16 billion, Kimco Realty is anything but small, but sentiment regarding the commercial mall REIT has increased in this bull market.
It is worth noting, however, that Kimco Realty has yet to become overextended like many of its peers. In fact, at just over $26 a share, Kimco Realty is relatively cheap and overlooked.
What's more, the high-end mall REIT comes complete with a dividend yield of 4.14%. In a market where REITs have found themselves at the top of every investor's wish list, Kimco Realty remains a bargain with potential upside.
As a result, many analysts rate the REIT strong buy.
Kimco Realty has demonstrated an increased propensity toward durable cash flow from operations.
"Leasing spreads in the U.S. same-space portfolio remained strong in 2015 and 2Q16 at 11.1% and 16.2%, respectively, compared to 8.8% in 2014," according to Fitch Ratings.
It is worth noting that spreads are expected to increase in congruence with near-term exposure.
The company appears to be gearing up for a development push. After curtailing development efforts during the last recession, Kimco Realty is ready to focus on expansion projects and redevelopment.
In addition to potentially larger lease spreads, development could work in favor of this mall REIT for the foreseeable future.