With reference to his discussion on premiums to NAV(where the writer opines that 5-15% is not too crazy, given current market conditions)MAA is currently trading, what, about 10% over NAV? (comments from management here would be appreciated)
Personally, I expect the trading range of the stock to be between $27-32 over the next year --$27 if/when we get a general market sell-off, which I expect is likely at some point soon, and/or we get significantly higher interet rates. I think we(apartment REITs) are somewhat insulated in the long-run from rising rates since higher rates mean less homebuyers, more tenants.
So, all in all, a good hold at current prices, though not really a compelling buy.
Good chat about relative yields. Z, you're last post is hinting at the other end of the yield question. If there is a sell-off in the equity mkt & the high yield (equity-proxy) window closes to new issues, REIT's may enjoy a bump.
As an over-weighted holder of REIT common & pfd's, I think the case for this group remains solid: Relatively high yield 2) Tax advantages 3) Inflation protection 4) And all those institutions with visions of pretty new shopping malls in their eyes...
And, four of the apartment REITs I track(AVB, BRE, EQR, SMT) are now trading at high-5% yields. And some of these companies have had more problems than MAA in this downturn.
I'm starting to think perhaps we could soon get to at least 6.5%, which is $36 or so. Probably some of that ($150 million) redeemed pfd. money has been sitting impatiently on the sidelines waiting for a pullback and, since that isn't happening, some of it may still come on in, keeping demand strong. Sure seems to be more buyers than sellers almost everyday lately.
Few investors buy 30 year bonds. Individual and institutional investors buy 10 year bonds (give or take a little) and those yield 3.95% MAA yields 7.33% presently, so the comparison is really 3.95% vs. 7.33%. Now MAA can raise it's dividend in the future. The bond can't. Last, I do not know what the ten year will be yielding when MAA hits 6%, if it does. It won't be the same rate it is yielding now. I agree that 6% REITS are a stretch, but did you ever think Lucent ($2.29 today) would sell at $68?
Well, first off, I didn't say it should or would go to 6%..only that that wasn't out-of-the-question. My original post that started this off was that it would mostly likely trade 27-32 looking ahead.
That said, investors may prefer paying up a bit for REIT yield because they also get equity exposure in something that historically goes up in inflationary times - unlike bonds or preferred stocks. What is riskier if people are concerned about rising rates and inflation, real estate or fixed-income securities? And apartment REITs actually benefit by rising rates in that tenants stay tenants more when mortgage rates are climbing.