Post Properties (NYSE: PPS) certainly provides investors with an amazing presentation that features photos of upscale, luxury, multi-family properties located in the Sunbelt and Mid-Atlantic regions. Based in Atlanta, Post has shown excellent results during the past five years. The company is one of our highly ranked Real Estate Investment Trusts (REITs) in terms of dividend generation potential in the Apartments sector. Post Properties continues to reveal strong numbers in the third quarter per their November 2, 2015 release.
The company has certainly improved over the past year. Compared with Q3 in 2014, Post is paying less interest expenses, distributing more dividends, and making larger investments in real estate development and construction. The company’s total debt to total capitalization is one of the more conservative in their sector. Standard & Poor’s rates senior debt a triple B. In addition, their dividend rate increased ten percent in Q3 year over year, and the company plans to invest $383 million to develop five apartment communities. Post also increased their 2015 FFO per share from 20 to 22 percent over the prior year’s figure.
Although Post Properties has been on track for a good finish this year, there are some concerning factors to consider. Their slow growth of revenues raises the questions regarding the company’s ability to keep up with their aggressive cash flow growth rates. Total revenues has increased less than one percent for the nine months period that ended on September 30th, and is currently at 1.4 percent for the third quarter. Post’s same store net operating income has been a concern as well. Its growth rate is currently under three percent, while the Apartments sector median for Q2 came in above six percent.
Despite the company’s stock buyback, the valuation metrics indicate that Post Properties is on the higher side when compared to the Apartment sector’s median figures. The company’s Price-to-FFO is currently at 20x with a dividend yield of 3.0 percent versus the sector’s median of 19x, and 3.4 percent. On the other hand, it is most defiantly interesting that Post has incorporated a twelve-month share repurchase program of US$100 million, with US$27 million being deployed in Q3 opportunistically.
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Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.