When Your Multi-Family REIT Isn’t One Anymore

When we buy a REIT most of the time we make the purchase based upon the segment of the market the REIT is in.  When we want storage REITs we consider the numerous companies in that business.  When we want a data center REIT we can pick for a number of firms in that area of REITdom. When we want a multi-family residential REIT that is small with what we hope is some growth potential we have a couple of choices.  In our case we did want a small multi-family REIT–so we bought both Independant Realty Trust (ticker:IRT) and Preferred Apartment Communities (ticker:APTS). We liked both of these companies and they have generally served us well paying pretty hefty dividends which we believe are quite safe.  

Long time reader Howard P today let us know that Preferred Apartment Communities has just decided to purchase 9 grocery anchored strip malls. While the company has always stated that they may purchase non multifamily assets amounting to 10% of total assets they have now decided they will change this allocation to 20%.  We call Bullshit on this change and will sell our holdings tomorrow (Tuesday).  It is not that they can’t be successful making this change, it is simply that we don’t want little strip malls anchored by grocery stores.  This purchase is not a chump change purchase–it is $125 million!!!

Reseaching further APTS claims to have enlisted an ‘expert’ who led them to this deal–and he will join the company running the new division–then they will build it to ‘scale’ and then spin it off for big bucks. I think the real story is that they (APTS officers and the new retail genius) were golfing one day and had too many cocktails at the 19th hole and cooked up a deal totally out of their supposed area of expertise.  They figured the sucker public would go along with anything as long as they were getting their 7% dividend–and generally they are probably correct.  Too bad–too bad all holders don’t dump their shares making the market for future secondaries extremely expensive.  Too bad the sheep just continue to let themselves be used by management teams that are entirely self serving.  Well, screw them–we will be out tomorrow. A shareholder of any company simply can walk away from the company when they no longer agree with them–simply vote with your feet.