Associated Estates Realty Corp (AEC) recently delivered its third consecutive positive earnings surprise, prompting analysts to revise their estimates higher. This propelled the stock to a coveted Zacks #1 Rank (Strong Buy).
This apartment REIT also pays a dividend that yields an attractive 4.3%.
Company Description
Associated Estates Realty Corp is a real estate investment trust specializing in the ownership and management of apartment communities. The company’s portfolio consists of 52 properties in eight states throughout the Midwest, Mid-Atlantic and Southeast regions of the U.S.
It is headquartered in Richmond Heights, Ohio and has a market cap of $662 million.
Fourth Quarter Results
The company recently reported results for the fourth quarter of 2010. Funds from operations (FFO) came in at 24 cents per share, beating the Zacks Consensus Estimate by 2 cents. It was the company’s third consecutive positive earnings surprise.
Total revenue was up 2.1% year-over-year. Physical occupance was up from 93.9% at the end of 2009 to 94.7% at the end of 2010. Average rent collected per unit increased 2.1% to $866 per month.
Meanwhile, net operating income increased 5% over the same quarter in 2009.
Outlook
The apartment REIT industry has certainly benefited from a weak housing market. Home ownership rates have been declining over the past few years as the housing market has yet to find a bottom and credit is harder to come by.
This has resulted in increased demand for apartments, as reflected in the company’s higher occupancy rates and average rents. Estimates have been rising for AEC over the last few months as the company has delivered three consecutive positive earnings surprises.
Management expects 2011 FFO between $1.02 and $1.06 per share. The Zacks Consensus Estimate is within this range at $1.05, representing 23% growth over 2010. The 2012 estimate is $1.18, equating to 13% growth.
It is a Zacks #1 Rank (Strong Buy) stock.
Fundamentals
Associated Estates pays a dividend that yields an attractive 4.3%. It has paid the same 17 cent dividend every quarter since 2003.
Shares trade at 15.4x forward estimates, a slight premium to the industry average of 14.6x. Its price to book ratio of 2.1 is also above the peer group multiple of 1.5, but is still within reason.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
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