APTS Stock: REIT Yielding 6.9% & Share Price Rising Fast
APTS Stock Is Bullish on Solid Financials & Streamlining
It’s fair to say that 2020 was not kind to many businesses, what with mandated quarantines shutting down much of the economy. Real estate was one sector that took a big hit. In particular, real estate investment trusts (REITs) helped lead the unfortunate downward charge.
Investors were worried that out-of-work Americans and shuttered businesses wouldn’t be able to pay their rent. That would be the death knell of REITs, since rent collection is their lifeblood.
One REIT that was caught up in the February/March 2020 sell-off was Preferred Apartment Communities Inc. (NYSE:APTS). In this case, the sell-off was overdone. Preferred Apartment Communities stock was great before the COVID-19-fueled sell-off, and it has remained a great stock during the economic recovery. All the sell-off did was put APTS stock in a better trading range.
As you can see in the chart below, Preferred Apartment Communities stock cratered by more than 55% in early 2020. It then struggled for much of the year—at least until November, when the company reported strong third-quarter financial results that outperformed in all of its property types.
Preferred Apartment Communities Inc.’s rent collections were in excess of 99% for multi-housing, 96% for anchored retail, and 99% for offices. At the time, the company noted that its suburban Sun Belt focus, coupled with broad positive economic drivers, provided ongoing stability to its portfolio.
Investors responded favorably, sending APTS stock up by more than 50%. Since then, it has built on those gains. As of this writing, Preferred Apartment Communities stock is trading up by:
- 40% year-over-year
- 95% over the 2020 low
- 36% year-to-date
If history is any indicator, APTS units have more room to run, needing to climb by more than 20% to get to their pre-coronavirus stock market crash level and more than 70% to reach their November 2017 record level.
Admittedly, past performance isn’t an indicator of future gains, but the company has been taking strides to strengthen its property portfolio even further. That might not prevent knee-jerk investors from kicking Preferred Apartment Communities to the curb during the next market sell-off, but APTS stock should, like this time, come roaring back.
Chart courtesy of StockCharts.com
Why the optimism?
Preferred Apartment Communities is a REIT that, as its name suggests, invests in apartments. But it’s more than that. The Atlanta, GA-based company also invests in office properties and grocery-anchored shopping centers. A few of its commercial anchors are Harris Teeter, LLC, Kroger Co. (NYSE:KR), Publix, and Walmart Inc (NYSE:WMT). (Source: “Portfolio,” Preferred Apartment Communities Inc., last accessed July 6, 2021.)
As of this writing, the company owned 101 properties in 15 states, predominantly in the southeast region of the U.S. That said, Preferred Apartment Communities has been making strides to simplify its portfolio and realign its balance sheet. The company is focusing its efforts on its suburban Sun Belt multifamily housing and grocery-anchored retail investments.
To that end, in November 2020, the company completed the sale of its student housing assets for $478.7 million. In April 2021, it completed the sale of properties from its office portfolio for $717.5 million. (Source: “Preferred Apartment Communities, Inc. Continues Simplification Strategy With Agreement for Transformational Office Portfolio Sale,” Preferred Apartment Communities Inc., April 19, 2021.)
Preferred Apartment Communities intends to use the cash from its property sales to realign its balance sheet through calls and/or redemptions of its Series A preferred shares in order to grow its core portfolio through acquisitions and real estate loan investments (and for other corporate purposes).
A strengthened balance sheet and strong rent collection rates throughout the pandemic have helped Preferred Apartment Communities continue to report solid financial results. Its first-quarter revenue was down by 11.6% year-over-year at $115.7 million, but that was primarily due to the sale of its eight student housing properties. (Source: “Preferred Apartment Communities, Inc. Reports Results for First Quarter 2021,” Preferred Apartment Communities Inc., May 10, 2021.)
The company reported a first-quarter net loss of $0.73 per share, compared to a net loss of $4.44 per share in the same prior-year period.
Its funds from operations (FFO) were $0.16, compared to an FFO loss of $3.42 in the first quarter of 2020. The company’s core FFO went down slightly to $0.25 from $0.29 in the first quarter of 2020, while its adjusted FFO (AFFO) decreased to $0.18 from $0.47 in the first quarter of 2020. The decline in AFFO was due to the sale of its student housing properties in the fourth quarter.
Moreover, Preferred Apartment Communities Inc.’s board of directors declared a quarterly dividend of $0.175 per share ($0.70 on an annualized basis), for a yield of 6.9%.
Before the pandemic, Preferred Apartment Communities stock had a history of raising its dividend on a pretty regular basis. But in an effort to shore up the company’s bottom line, it cut its payout in the second quarter of 2020 to $0.175 per unit from $0.262 in the first quarter of 2020.
While there’s no guarantee that Preferred Apartment Communities will raise its quarterly payout, it’s pretty likely. The streamlined company has a stronger portfolio and, as a REIT, it’s legally obligated to distribute at least 90% of its income to unitholders. More cash coming in should result in this dividend stock once again increasing its payout.
The Lowdown on Preferred Apartment Communities Inc.
Preferred Apartment Communities Inc. is an excellent REIT with significant long-term growth potential. Its rent-collection figures are at pre-pandemic levels, its balance sheet is rock solid, and the company is simplifying its portfolio.
All that should help APTS stock continue to trend higher in price. And as that happens, investors can take solace in its 6.9% dividend yield.