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Post Properties, Inc.

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Post Properties, Inc. (PPS) continues to benefit from a decline in home ownership rates in the United States.

The apartment REIT delivered a 21% positive earnings surprise for the first quarter on higher occupancy rates and average monthly rents. It was Post's 11th consecutive positive earnings surprise.

Management also raised its guidance higher for 2012, prompting analysts to revise their estimates significantly higher. It is a Zacks #2 Rank (Buy) stock.

In addition to strong earnings growth potential, Post pays a dividend that yields 1.7%.

Company Description

Post Properties is an apartment REIT that develops and operates upscale multifamily communities. The company owns interests in 21,622 apartment units in 58 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 occupancy rates have been rising. This has led to an increase in rental rates, a trend that should continue for the next several years.

First Quarter Results

Post Properties, Inc. delivered impressive first quarter results on May 7. Funds from operation (FFO) came in at 64 cents, beating the Zacks Consensus Estimate by 11 cents. It was a stellar 73% increase over the same quarter last year.

Total revenues rose 9% to $80 million, ahead of the consensus of $78 million. This was driven by higher occupancy rates and rents. Same-store occupancy rates rose from 94.8% in the first quarter of 2011 to 95.8% while the average monthly rental rate increased a solid 6.2%.

Meanwhile, net operating income rose 11% as the company leveraged its fixed expenses.


Following strong Q1 results, management raised its guidance for the remainder of 2012. The company now expects FFO per share of $2.26-$2.38, up from previous guidance of $2.12-$2.28. This prompted analysts to revise their estimates higher, sending the stock to a Zacks #2 Rank (Buy).

As you can see below, consensus estimates have been soaring over the last few months as the company has delivered 11 straight earnings beats:

PPS: Post Properties, Inc.

The Zacks Consensus Estimate for 2012 is now $2.27, within guidance, and representing 16% growth over 2011 FFO. The 2013 consensus estimate is currently $2.43, corresponding with 7% growth.


As a REIT, Post Properties must pay the majority of its income to shareholders in the form of dividends to avoid paying taxes on that money.

The company slashed its dividend during the Great Recession but raised it by 10% in 2011. It currently yields 1.7%.


Shares of Post Properties are not cheap, trading at 21x 12-month forward earnings. But this is only slightly above its 10-year historical median of 20x, so it's not unreasonable.

The Bottom Line

As more and more Americans choose to rent rather than buy, apartment companies like Post Properties should continue to benefit for years to come. With rising earnings estimates, strong growth projections, a 1.7% dividend yield and reasonable valuation, Post offers plenty to like.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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