Some of my favorite real estate investment trusts (REITs) have just reported earnings, and the results are pretty solid so far.
Although the housing market is not booming the way some had hoped, real estate markets are a lot better than they were a couple of years ago. But I place real estate in the same classification as I do the broader economy in that sits better than it was, but it’s still not great.
Despite that, I still see pockets of opportunity, and I have been buying REITs for several years now at very low prices relative to asset value in anticipation of a long-term recovery. While many of the larger REITs are fully priced (and even overpriced) right now, I’d like to talk about three smaller ones that still offer significant value propositions: Apollo Residential Mortgage Inc. (AMTG), Summit Hotel Properties Inc. (INN) and Preferred Apartment Communities Inc. (APTS)
Bargain REITs to Buy: Apollo Residential Mortgage Inc. (AMTG)
AMTG Dividend Yield: 10.7%
Apollo Residential Mortgage Inc. (AMTG) has been among my favorite REITs for a couple years now.
Mortgage REITs (or mREITs) have been out of favor as investors fear the impact of higher rates and tighter interest spreads, but Apollo just seems to keep cranking along.
Apollo Residential has the benefit of being affiliated with Apollo Global Management (APO) — one of the largest private equity and asset management firms in the world today — and I think that gives AMTG a huge advantage over other firms in the marketplace for residential mortgage-backed securities.
AMTG reported third-quarter results this week and had decent but unspectacular results, with operating profits of 51 cents per share coming a penny under analyst estimates. However, AMTG did raise its dividend by 5% over the previous quarter and 10% higher than the payout in Q1 2014.
Shares currently trade at less than 70% of asset value.
Bargain REITs to Buy: Summit Hotel Properties Inc. (INN)
INN Dividend Yield: 4%
Summit Hotel Properties Inc. (INN) released results Monday morning, and the hotel REIT had another strong quarter.
Summit reported funds from operation of 30 cents per share, beating Wall Street estimates by 3 cents. Revenues of $109 million for the quarter also were higher than the analyst guess of $103 million.
It was a solid performance for the company as revenue per available room rose by more than 15% and the average daily rate increased by 7.4%. Same-store revenue per available room grew by more than 11% in the quarter. Summit also spent $89 million in the third quarter to acquire two new hotels that add 399 rooms to the portfolio.
Summit shares now trade at 1.25 times book value.
Value REITs to Buy: Preferred Apartment Communities Inc. (APTS)
APTS Dividend Yield: 8.1%
Preferred Apartment Communities Inc. (APTS) also reported late Monday, and funds from operations came to 26 cents per share for the quarter — a penny less than estimates, but 2 cents per share more than the year-ago period. Meanwhile, revenues were up by an impressive 51% for the three-month period to $13.18 million.
Preferred Apartment Communities added 1,397 units in the Kansas City, Dallas, Nashville and Houston markets during the quarter and now boasts a total of 3,326 multifamily units (the company also has an option to buy another 3,663 units). APTS also bought nine grocery-store-anchored shopping centers in the quarter.
The company raised its dividend by 9.4% over the prior quarter, and shares now trade at less than 75% of book value.
As of this writing, Tim Melvin held shares of AMTG, APTS and INN.