Smaller companies might be your best chance at making it in the apartment sector. In 2015, since fundamentals have held up, Apartments was one of the best performing sectors in the REIT industry, and there are high chances that this moment will still prevail this year. The only issue at hand is the fact that most AFFO multiples have surpassed 20x apart from the smaller REITs. It goes without saying that there are uncertainties when you invest in companies on the low side of the small cap spectrum.
The companies that are part of this ‘club’ include BlueRock Residential Growth, NexPoint Residential, Independence Trust and Preferred Apartment Communities. They are still rookies in the publicly traded arena and their market capitalization is in the range of $200-300 million. Not only is their leverage on the higher side, they also have the highest dividend yields and the lowest AFFO multiples.
These are the profiles of two companies:
NexPoint Residential had spun off from NexPoint Credit Strategies Fund before the REIT began trading first half of 2015. The company targets the middle income residents in the US Southeastern and Southwestern. The insider ownership of the company is high at 16% despite the fact that it is externally managed by an affiliate of Highland Capital Management. They believe their NAV is between $15-20 and have traded around $13.
Independent Trust has recently acquired Trade Street with its shareholders holding 68%. When we looked at the two companies separately right before the merger, Trade Street was one of the fastest growing FFO per share and Independence Trust was one of the slowest. The performance of the combined company is yet to be seen. Trade Street leadership joined the board and the Independent Trust management team has been maintained. The new company has a portfolio $ 1.4 billion, mainly financed through debt, 73%, the highest among these four companies.
Source: NexPoint Residential Trust (NYSE:NXRT), Independence Realty Trust (AMEX:IRT), Bluerock Residential Growth (AMEX:BRG), Preferred Apartment Communities (NYSE:APTS), Fast Graphs
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