Morningstar flags undervalued REITs

Morningstar’s latest screen of real estate investment trusts is really a map of where the market still does not believe the recovery. As of April 3, Morningstar said its covered REIT universe traded at a 12% discount to fair value, even after a strong first quarter. Park Hotels & Resorts topped the list, trading 47% below Morningstar’s fair value estimate and carrying a 9.62% forward dividend yield. Kilroy Realty, BXP, Healthpeak Properties, and Invitation Homes also made the cut as some of the cheapest names in the sector (morningstar.com, morningstar.com). That discount exists because REITs have spent two years being treated like interest-rate proxies. Morningstar says the sector has been moving largely in the opposite direction of rates, and that pattern snapped back into place in early 2026 as yields eased and listed real estate outperformed. Nareit’s industry data shows why the rebound has gotten attention: the FTSE Nareit All Equity REITs Index returned 10.52% year to date through February 27, while the S&P 500 was up just 0.68% over the same stretch. The same fact sheet put the equity REIT dividend yield at 3.72%, far above the S&P 500’s 1.10% (morningstar.com, reit.com). But the recovery is not broad confidence. It is selective disbelief. Park Hotels looks cheap because hotel REITs are still exposed to the most cyclical part of commercial property. Morningstar pegs fair value at $19.50 a share, versus a stock price a little above $10 in early April. The company owns 33 upper-upscale and luxury hotels with 21,042 rooms, and its own February results showed a fourth-quarter net loss driven by a $248 million impairment tied mostly to noncore hotels. That is the setup in one line: a high yield, real assets, and a market that still sees scars from weak properties and uneven travel demand (morningstar.com, morningstar.com, pkhotelsandresorts.com). The office names are even more blunt. Kilroy and BXP are cheap for the obvious reason: office is still the sector investors least want to forgive. Morningstar’s writeups for both companies say the core problem has not changed. Employees remain reluctant to come back, and physical occupancy is still only about 50% to 55% of prepandemic levels in Kilroy’s markets. That is why Kilroy can trade at a roughly 44% discount and BXP around 42% despite owning high-end buildings in supply-constrained cities and having meaningful life-science exposure. These are not broken portfolios. They are portfolios trapped in a business model the market no longer values the way it used to (morningstar.com, morningstar.com). Healthpeak and Invitation Homes show the other side of the screen. They are discounted too, but for reasons that look more like timing than decay. Morningstar argues Healthpeak’s medical office and life-science assets should benefit from an aging population and a shift toward care in lower-cost settings. In March, the company also pushed ahead with the IPO of Janus Living, its senior housing vehicle, a move meant to separate and surface value the market had been ignoring inside the larger company. Invitation Homes sits in a different corner of real estate entirely. It owns more than 86,000 single-family rental homes across 17 U.S. markets, and Morningstar says renting remains cheaper than homeownership in most of them, which helps support occupancy and rent growth even as housing affordability stays strained (morningstar.com, healthpeak.com, businesswire.com, morningstar.com). The backdrop is still fragile. On March 18, the Federal Reserve kept the federal funds target range at 3.5% to 3.75% and said inflation remained somewhat elevated. That matters because REIT rallies do not need low rates forever, but they do need the market to stop repricing property cash flows every time Treasury yields jump. Morningstar’s screen is really showing where that repricing may have gone too far. In early April, Park Hotels was still around $10.39, Kilroy around $28.45, BXP around $51.90, Invitation Homes around $25.55, and Healthpeak around $17.01 (federalreserve.gov, morningstar.com, morningstar.com, morningstar.com, morningstar.com, morningstar.com)