Despite many real estate companies realizing record profits, the companies’ stocks are being hit hard from the Federal Reserve’s May announcement that it would taper off its asset repurchase program. Still, one of the following three companies stands out as a solid investment that will have you locked into profits.
Realty Income Corp (NYSE:O) has solid footing with its long-term leases. The company will focus on these while decreasing the number of new developments and acquisitions. This refining period will allow the company realize greater profit margins from the long-term leases, which often require less capital than many of the large-scale projects — and they’re more reliable.
Often, the sale-leaseback agreements with tenants garner long-term contracts (about 15 years) that ensure capital is consistently coming to the company. These types of agreements put the responsibility of property taxes, maintenance and insurance on the tenants, saving Realty Income Corp (NYSE:O) a pretty penny.
Analysts also like this system. Consensus agreement pegs earnings per share as rising by 18% this year, and another 6% in the next. Restructuring costs could increase operating expenses, as the anticipated earnings per share is just a small fraction of expected revenue growth this year (57.1%) and next year (11%.) This stock shows a lot of promise with its exposure to the rental market, and that could help it dodge a potential bullet with the expected increase in interest rates.
AIMCO is barking up wrong skyscraper
Apartment Investment and Management Co. (NYSE:AIV)‘s move to focus on more upscale locations that don’t have a lot of space to work with is a challenging move to support. By focusing on one segment, the company will slim its portfolio and reduce its diversification. Furthermore, the upscale market will suffer a swift blow during an economic downturn as people look for cheaper housing. For now, I say all the power to AIMCO for focusing on this market, but without an exit strategy into cheaper properties it seems that the firm is walking a tightrope across an open volcano.
AIMCO is likely distracted by several perks in the sector including rent that generally increases faster than inflation and a higher barrier to entry. Those perks are pointless if no one is able to afford the rent, however.
Analysts see AIMCO increasing its profits in the next couple years, but I caution investors to be prudent about what could be lurking after 2014. The economy is rainbows and butterflies right now, but you should always be cautious about what’s to come and not bank on a firm for its short-term potential growth. Analysts think the company will increase its revenue by 4.3% this year and 2.1% next year. Even the short-term profits aren’t something to go singing in the rain about.
