Who Purchased Preferred Apartment Shares Before Christmas?

chart01In the middle of last year’s December holiday season, something major happened to the small cap REIT Preferred Apartments Communities. The Multifamily REIT that had only approximately $300 million in market cap came out under everybody’s radar. It’s worth noting that its stocks have been going below the sector’s median valuation and yielding more than it should.

The stock’s share price had an increase of 12 percent in the month of December. Between the 15th and 22rd of the month, the stock began to soar to higher than normal prices. The peak of this increase came on Dec. 18, when the stock was traded at seven times the stock’s average volume. The rally was unannounced, but there are reasons for this trend.

The fall-out of this came threefold:

First: The increase of the stock put Preferred Apartments at the top of the pack. More specifically, in the top three REIT stocks for 2015. The returns for the company came at 44 percent during the past year. It only trails the stars Extra Space Storage and CoreSite Realty. Even in the top three, Preferred Apartments showed some weak numbers such as their flat AFFO per share and leverage higher than the sector’s average.

Second: This puts a multifamily representative in the top three, which was deserved. This sector itself has seen a boom in recent years. Multifamily units are especially profitable in areas with good job prospects. Preferred Apartments competition, namely Mid-America Apartment Communities, UDR, and Essex Property Trust made their mark in a specific portion of the country, whether it be the U.S. South or West Coast. By contrast, Preferred Apartments invests all across the board, giving them a unique rise to fame. Another difference is their investments in shopping centers with grocery stores.

Third: The AFFO multiple had an increase from 12.3x to 13.5x. It looks good, but it’s still far below the sector’s best performing stocks. Mid-American Apartment Communities trades at 19x, UDR at 25x, and Essex Property at 27x.

It is possible for Preferred Apartments to rally yet again, but not without its possible setbacks. Still, the REIT is smaller than most and has been in the race the least amount of time. There is a chance to catch up.

Source: Preferred Apartment Communities (NYSE:APTS), Mid-America Apartment Communities Inc. (NYSE:MAA), Essex Property Trust, Inc. (NYSE:ESS), UDR, Inc. (NYSE:UDR).

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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