First-quarter earnings show that landlords continue to have pricing power as REITs in the apartment segment still offer strong numbers and opportunities for investors, despite some bearishness from potential raises in rates and competition from rental homes, says Alexander D. Goldfarb, a Managing Director and the Senior REIT Analyst at Sandler O’Neill + Partners, L.P.
“While they are seeing move-outs because of rent increases, they are also seeing those move-outs backfilled by new tenants who are paying those rents, so you are seeing a cycling out of the trough renters who are being replaced by people where the rent is more commensurate with their incomes,” he said. “And as far as competition from houses, it’s still not there.”
Goldfarb likes Post Properties Inc. (PPS), an Atlanta-based apartment company, which he says has been operating on all cylinders over the past several years, while its management has been delivering strong portfolio performance. He says despite a weak performance in the 2000s, coupled with getting a bit over their skis with developments and two condo projects, Post continues to weigh on the stock, so it still trades at a healthy discount to NAV.
“Post still has another two years or so of runway to continue to put down strong numbers, plus, again, management wants to improve the balance sheet. They never lost their investment-grade rating during the downturn, which is a credit to them, but they do want to move it up a notch, and moving it up will lower their cost of funding. Again, another positive for the stock,” Goldfarb said.