What happened
Share of Preferred Apartment Communities (APTS), a real estate investment trust (REIT) that owns multifamily properties and other assets, rose a quick 20% or so at the opening of trading Thursday. That gain was related to rumors surrounding the future of the company, which seems like it might soon conclude with it being acquired.
So what
Preferred Apartment Communities at one point owned a diversified portfolio of retail, office, student housing, and apartment assets. It has been trimming down its holdings, though, so that its name better reflects what it actually owns. It now has a portfolio split between strip malls and multifamily housing. Both are actually pretty hot sectors in the REIT space today, but the portfolio overhaul is noteworthy in that it means the company has been making big-picture changes. Which is where Thursday's sizable price advance comes into play.
Image source: Getty Images.
"People with knowledge of the matter" have told Bloomberg that Preferred Apartment Communities has received "inbound interest." That could lead to a full or partial sale of the REIT, and could result in a premium being paid to the pre-offer stock price in the case of a full sale. Even in a partial sale, the cash from a large asset divestiture could strengthen the company's finances and improve its long-term outlook. Management is reportedly looking into its options. Either way, investors seem excited by the rumors and have bid the stock up.
Now what
Investing based on acquisition rumors is not a particularly great approach for most investors, given that such things can be hard to track and predict. And at this point, the stock has already experienced its rumor-driven rally, which diminishes the upside potential from here. Meanwhile, should a deal not take place -- an entirely possible outcome -- the stock would likely fall from its current levels. At this point, most investors should probably just watch this drama from the sidelines.