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Mid-America Apartment Communities Inc. Message Board

  • vmhkaufman vmhkaufman Aug 16, 2005 9:21 AM Flag

    Re condos

    Has the company sold off any of their properties as condos in tne last year?

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      This article says that if the housing bubble pops, due to rising rates, that will help REITs. True, in that it will help operations. Not true, IMO, in that higher interest rates will push cap rates up which will hurt valuations. In other words, even if occupancy rates and rents increase a bit, as higher rates decrease affordability for marginal home buyers and push them into renting, the market value of income property will more than be offset because the currently very low cap rates will go up.

      For example: If you have property that throws off $1,000,000 a year and the market will pay a 6% cap rate for that, your property is worth about $16.7 million. If the property starts throwing off $1.1 million a year when occupancy and rents move up a bit, but cap rates move up to 7.5%, your property is now worth about $14.7 million.
      So, even though income is up your value is way down.
      And, if you are a dividend paying REIT, like MAA, even though you have more cash to pay out, the intrinsic value of your portfolio is down, so your stock price probably does not go up even with the dividend increase (especially if it is at very high levels to start).

      Of course, if you think that rates may drop further, then housing affordability will probably increase, and occupancy and rent levels will sag even further.

      I don't see how either scenario will help the stock move higher or even support it at current levels.

      Moreover, since cap rates are so favorable to sellers now, even with market conditions being relatively weak, it is a particularly lousy time to go buy apartment properties. This does not help MAA's growth outlook, in terms of buying more properties to increase the base to support higher dividends.

    • It is almost inevitable that REITs are tethered to the realities of intrinsic value and yield. Right now, MAA trades significantly above its intrinsic value and is priced to yield a rate that is not much above 10 year treasury rates. That certainly caps any upside and makes it vulnerable on the downside - not a good prospect for a stock, regardless of honest management, marginal dividend increases, etc.
      Good company, bad stock at this juncture.

    • "To want to own this stock now you would really have to be a long term investor who is happy holding a stock that will yield in mid-single digits [...] isn't it smarter to wait and buy after the inevitable correction?"

      It's a subject we've debated before, and I think our points of view are clear. I just want to make it clear that I don't have a crystal ball and I can't make claims that a correction is "inevitable" or claim that I know interest rates may rise. They might rise, or they could drop to japanese levels and stay there for a decade. Nobody knows for certain. I choose not to gamble, instead I invest in great businesses.

      The facts are thus:
      * Honest management who continuously makes improvements to the business.
      * Reasonable management of debts.
      * Rising dividends per share for owners.

      Unless those facts change I see no reason to sell this or any good business (public or private).


    • The tiny dividend increase, while a confirmatory sign about current dividend coverage, sure doesn't support the large rise in the stock price over the past year. The stock is trading way above NAV (which I estimate to be in the mid- to high 30s - and that is based on current highly-favorable cap rates).
      For many years, when REITs and dividend stock were out-of-favor, these stocks sold for 10-20% below NAV.
      When interest rates start heading up, the real estate bull market reverses, cap rates will return to more normal levels, and these valuation excesses will quickly recede -
      So, again, IMHO, much more downside here than upside. To want to own this stock now you would really have to be a long term investor who is happy holding a stock that will yield in mid-single digits for years to come, while yo-yoing in value. But, isn't it smarter to wait and buy after the inevitable correction?
      And, if you are mostly here for the yield, with rates having recently gone up, a 5 year CD would give you almost the same income without any downside.

    • I'm glad you two made up. We've got business to talk about.

      Looks like I finally got my dividend increase. Hopefully this will be the trend instead of the half penny increases of the past.

    • If you bought MAA years ago, and have been at this board much, you would not be calling me 'zebrashorty' and assuming anything of the kind about me.
      (look back over the past few years on this board).However, I am not someone who chases stocks after they have doubled, buys REITs at yields almost equal to medium duration government bonds, and arrogantly pay no heed to significant insider selling.
      You seem to take offense at that sensible strategy(see the first post of our exchange, where you started with the disparging remarks about me), so I assumed you were one of the new arrivals who came in chasing momentum (mo-mo).

      Anyway, back to sleep Rip.

    • Mo-Mo strategies are basically stupid.
      If you rely on mo-mo strategies, it does not necessarily make you stupid, but it sure doesn't rule it out, either.

    • The only thing I am short is what you seem long on: mo-mo stupidity. Good luck with that.

    • >>Insider sales meant diddly-squatooche. <<

      $12 Million plus insider sales in late August...for whom does the bell (signalling the top) toll? It tolls for thee!

    • You should have figured that out a couple of years ago, before the stock doubled. It pays to buy before the good news, not after -- Investing 101.

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