Tom Mitchell, Senior Analyst at Miller Tabak + Co., says Home Properties, Inc. (HME) remains one of his strongest recommendations. He says the stock is trading at a very large discount to other apartment REITs, but that the company’s underlying metrics and performance over the last several years has been outstanding.
“We think that sooner or later, one way or another, the market gap will close, either because someone decides to make a bid for them or because people recognize that the underlying value of this entity is considerably greater than where it’s been trading,” Mitchell says.
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Mitchell says Home Properties is fairly tightly configured. He says more than 90% of its funds from operations comes from the corridor between Virginia and Boston. However, the company has a major presence in Washington D.C., which Mitchell says is a negative. He believes there is a reason that Home Properties trades at a discount.
“The reason is that the properties that they own, which are apartment complexes, are by and large slightly lower rent,” he says. “They’re more in the C and B category than the A category, but the dollar amount of rent people pay is not necessarily an indicator of the quality of the underlying cash flows, and we think that they have at least equal quality of cash flows with the luxury rental, high-end REITs.”
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