As we approach one of the longest-running economic recoveries in modern history and the latter stages of the economic and market cycle, APTS' Preferred Series A and M Shares offer a unique opportunity for investors to diversify away from risk assets and obtain durable and predictable income without giving up an attractive return.
Preferred Apartment Communities (NYSE: APTS) Overview
Preferred Apartment Communities is a publicly traded Real Estate Investment Trust (REIT) and trades on the New York Stock Exchange with a $657 million market cap as of 4/12/2019. APTS' primary business strategy is to acquire and operate multifamily communities in select target markets throughout the United States. APTS' current portfolio also includes student housing, grocery-anchored, necessity-based retail, office, investments in development projects and real estate loans.
APTS was created in 2011 and started with zero properties or assets. By the end of 2011, APTS had $92 million in total assets with $7 million in total revenues and was listed on the NYSE. By 2018, the REIT had $4.4 billion in total assets, $397 million in revenues, 32 multifamily assets, 7 student housing assets, 45 grocery-anchored shopping centers and 7 office properties in 35 markets across 14 states. Below is a chart of APTS since its IPO in 2011.
10-Year Monthly Chart of APTS
10-Year Performance Chart of APTS Since IPO
The Market Opportunity
There are several contributing factors that drive demand for multifamily apartments in the US. First, homeownership has been declining for over a decade, which is a primary factor for increasing the demand for multifamily apartments. For example, according to the U.S. Census Bureau, the level of homeownership declined from 69.1% in 2005 to 63.4% in 2015. The decline in homeownership can be attributed to the lack of affordability by millennials who are faced with higher student debt levels, higher prices for entry-level homes, strict mortgage qualification standards and a fragmented job market. The trend of declining homeownership rate is likely to continue.
Second, more Millennials seem to prefer to reside in an urban area and are more mobile than in past generations, all leading to lower homeownership rates and a higher number of individuals and families renting instead of buying.
Third, besides Millennials pushing up the demand for multifamily apartments, Babyboomers are also moving to apartments downsizing their living space as empty-nesters, for financial reasons or to be closer to their family.
Preferred Apartment Communities Preferred Series A Shares Summary:
The dividend yield is 6.42% gross for 5 years. The price for 1 unit is $1,000. 1 unit includes 1 warrant to buy 20 shares of common stock. Series A and M Preferred Shares rank senior to the Common Stock with respect to the payment of dividends.
After two years, shares redeem less 10% redemption fee.
After three years, shares redeem less 5% redemption fee.
After four years, shares redeem less 3% redemption fee.
After five years, shares redeem 100% of value with no redemption fee.
Warrant grants the investor the right to purchase Common Stock at a fixed price.
20% above the prior 20 trading days' weighted-average price of APTS' common stock on the date of issue
Exercisable after 1 year.
Expires after 4 years.
Detachable and fully transferrable.
Preferred Apartment Communities Preferred Series M Shares Summary:
The dividend yield is 5.75%. The price for 1 unit is $1,000. M Share Class does not include any warrants like Series A Shares. Series A and M Preferred Shares rank senior to the Common Stock with respect to the payment of dividends.
Final Dividend Rate:
7.5% - Rate increases .25% per year for 7 years after issuance. Dividends are intended to be paid monthly.
During year one, 100% of the stated value less 2% redemption fee, plus any accrued but unpaid dividends.
During year two, 100% of the stated value less 1% redemption fee, plus any accrued but unpaid dividends.
After year two, 100% of the stated value less 1% redemption fee, plus any accrued but unpaid dividends.
While preferred shares, in general, are typically considered to have less risk than common shares, preferred shares, like any investment do have many risk factors investors must consider before investing. Please refer to APTS' prospectuses and website to review risk factors:
Disclosure: I am/we are long APTS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.