I rarely buy REIT IPOs unless I'm strongly convinced that the shares are undervalued on day one. The problem is, most REIT IPOs aren't priced at a discount and I'm a bargain shopper, explains Brad Thomas, the editor of Forbes Real Estate Investor.
One bargain I'm chasing now is Preferred Apartment Communities (APTS). The Atlanta-based REIT listed in 2011, and since that time, the shares have traded down by around 13%.
I try picking stocks like Ben Graham and that means that I pay close attention to fundamentals and I look for hiccups that could cause shares to collapse.
Accordingly, as any value investor would believe, a company must demonstrate a track record in order to see the value.
The small-cap REIT (market capitalization of just under $175 million) has total assets of $688 million.
For the third quarter, APTS paid $0.16 per share in dividends to all common stockholders of record as of September 15, 2014.
This represents a 28% overall growth rate from the initial common stock dividend of $0.125 per share. Recently, the REIT approved another increase to the quarterly dividend for the fourth quarter 2014, from $0.16 per share to $0.175 per share or 9.4%.
Given the high-paying dividend offered today (8.1%), I believe APTS is worth a closer look. Based upon the current P/FFO multiple, the company looks cheap (9x P/FFO).
It seems apparent that APTS stock value has considerably more intrinsic value than its current price of $8.65.
In addition, I have confidence in APTS management team and its strategy of investing a modest portion of assets in the grocery anchored (high-yielding) asset category.
