One industry that is benefiting from the collapse in residential real estate is the apartment business. Apartment REIT Post Properties, Inc. (PPS) is no exception. The company has delivered 7 consecutive positive earnings surprises as rents have increased and vacancies have fallen.
Earnings estimates have been rising over the last several months, sending the stock to a Zacks #2 Rank (Buy). Based on current consensus estimates, analysts are projecting 37% earnings growth in 2011 and 12% growth in 2012.
Post Properties also pays a dividend that yields 1.9%.
Housing’s Loss, Apartment’s Gain
Post Properties is an apartment REIT that develops and operates upscale multifamily communities. The company owns interests in 21,431 apartment units in 57 communities.
Potential home buyers have become increasingly gun-shy about buying real estate as home prices have collapsed across the country. Additionally, credit is harder to come by than it was a few years ago, and lenders are also requiring bigger down payments to mitigate their risk. These factors are driving more and more households into the rental market.
With homeownership rates declining, apartment vacancy rates have been declining. This has led to an increase in rental rates, a trend that should continue for the next several years.
First Quarter Results
On May 2, Post Properties reported first quarter funds from operations (FFO) of 37 cents per share, beating the Zacks Consensus Estimate by 2 cents. It was a 19% increase over the same quarter in 2010.
Results were driven by year-over-year growth in average rents, occupancy rates and net operating income.
Average occupancy at the company’s “same-store” communities increased from 95.0% to 95.3%. Total revenues for these communities increased 3.6% while operating expenses fell 2.3%. This led to a 7.9% increase in net operating income.
The average monthly rental rate per unit rose 2.3% year-over-year.
Raised Guidance
Management raised its FFO guidance for the full year after reporting solid first quarter results. The company now expects FFO between $1.54 and $1.68, up from previous guidance of $1.49 and $1.67. Same-store revenue is expected to increase 3.9% to 4.3%.
Analysts raised their estimates too, sending the stock to a Zacks #2 Rank (Buy). The 2011 Zacks Consensus Estimate rose to $1.66, within guidance. This corresponds with FFO growth of 37%.
The 2012 consensus estimate also moved higher and currently stands at $1.85. This represents 12% FFO growth.
Post Properties will release its second quarter earnings after the market closes on Monday, August 1.
Dividend
As a REIT, Post pays out essentially all of its earnings in the form of dividends. PPS slashed its quarterly dividend from 45 cents per share to 20 cents back in late 2008. The company hasn’t raised it since.
It currently yields 1.9%.
Valuation has risen over the last several months as the apartment industry continues to garner attention. Shares trade at 24.9x 12-month forward earnings, a premium to its 10-year median of 18.3x, and a premium to the industry average of 15.2x.
Its price to book ratio of 2.3 is also above the industry average of 1.5.
Post Properties is headquartered in Atlanta, Georgia and has a market cap of $2.2 billion.
The Bottom Line
With favorable industry trends, Post Properties should continue to deliver solid results due to higher occupancy rates and rising rents.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.
POST PPTYS INC (PPS): Free Stock Analysis Report
Zacks Investment Research
