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Mid-America Apartment Communities Inc. Message Board

  • timburlane timburlane Mar 18, 1999 7:11 AM Flag

    why one buys back shares

    companies like maa who are constantly acquiring
    new properties, have to make disciplined decisions
    and buy what makes sense; sometimes, your own stock
    is cheaper and yields more than the apartment
    community you are considering for your acquisition; and
    there are no operating costs involved in investing in
    more of your own stock... ergo, if you buy ANYTHING at
    ALL, and your stock sells at p/ffo of 7.5 then WHY
    WOULD YOU buy an apartment community on a cap rate of
    8.5% instead?

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • Any apartment bought at 8.5% that is under 5
      years old has more options than buying stock-once stock
      is bought its bought for good.The return to the
      equity markets look a long way off. If mgt knows how to
      grow ffo it's not the highest irr for the shareholders
      money and Cates has grown ffo well. The apt could be
      sold, or refinanced (non recourse where most of the
      equity is pulled out)(or non recouse wehere part of the
      equity is pulled out.

    • the word RISK. Not only should management
      consider which one -share repurchase or property
      acquisition - is expected to provide the greatest return, but
      should evaluate the risks as well. With share
      repurchase, when the price is low as now, the only risk is
      weakening the balance sheet too much. With acquisitions the
      balance sheet concerns are also valid, but one other very
      real risk to be considered is OVERBUILDING or other
      factors that could decrease demand. I am concerned that
      with all the apartment building that is going on that
      many markets will become oversaturated and you will
      not get the originally planned cap rate or Byrne test
      result.
      I realize that once you start the pipeline
      rolling with buying the property, getting the designs and
      the permits you have invested a lot of money. At that
      point it may make sense to go on with the project, but
      at some point they should be able to turn the
      pipeline OFF.
      I would be interested in how management
      evaluates projects in terms of overbuilding in specific
      markets.

      For a REIT that may buy back substantial shares
      check out CLP - I am.

 
MAA
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