Apartments REITs Declined Despite Good Results

f99fb780-1e11-4b54-8c6c-e012f0fccafa.jpgIt was a bittersweet week for apartments REITs – at the same time they have posted strong fourth quarter 2015 results, they also suffered losses. On average, apartments stock prices fell by 4.1%, almost as much as timber, which fell by 4.3%. Increased supply and deceleration of the West Coast market growth are some of the reasons why the shares declined.

Together with Aimco, Mid-America Apartment and Post Properties, the following apartments REITs have released Q4-15 results:

  • AvalonBay Communities increased its quarterly dividend by 8% and released strong results. Core FFO grew 14.4% for the quarter and 11.4% for the full year. In 2016, Core FFO is expected to grow slightly below at 9%. However, this was not enough to excite the markets and its share price decreased by 3% last week. AvalonBay showed caution when referring to the West Coast. The company has seen slowing job growth and, although it still believes the West Coast will outperform the East Coast, the difference in growth will narrow.
  • Essex Property Trust, which is focused on the West Coast, fell by 5% last week. The company confirmed expectations of a less heated market on the West Coast due to a moderate job growth rate. Specifically, they believe market rents will increase by 7.5% in Northern California in 2016, down from the 2015 average of 10.9%. Nonetheless, Essex closed the year of 2015 with an impressive 15% Core FFO increase. Since its highest share price ever on December 29, 2015, the share price has declined.
  • UDR increased its dividend by 7%. Despite its strong results and not being as exposed to the West Coast as Essex, its share price fell by 5% last Friday.

Other highlights:

  • Armada Hoffler Properties increased quarterly dividend by 6%.
  • Hersha Hotels entered into a joint venture partnership with Cindat Capital to which they will sell a significant stake of seven hotels in Manhattan. The company intends to use the funds to invest in other locations and reduce its exposure to New York City. The stock went up by 7% last week.
  • After posting good Q4-15 results, DuPont Fabros went up by 4% this week. It appears that management has contained losses regarding the replacement of a bankrupt tenant.

Check the reports for Dividend Yield by Sector and Weekly Returns.

Source: AvalonBay Communities (NYSE:AVB), Essex Property Trust Inc.(NYSE:ESS), Armada Hoffler Properties, Inc(NYSE:AHH), UDR, Inc.(NYSE:UDR), Hersha Hospitality Trust(NYSE:HT), DuPont Fabros Technology, Inc.(NYSE:DFT), Apartment Investment and Manag(NYSE:AIV), Mid-America Apartment Communit(NYSE:MAA), Post Properties Inc.(NYSE:PPS)

Disclaimer: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best portfolio investment choice. The purpose of this report — which is essentially a snapshot of information available on February 5, 2016 — is to reduce your stock analysis by enabling you to compare stock and sector performance. Please do your own due diligence before making any investment decision.

As of January 31, 2016, the equity REITs are constituent companies of the FTSE NAREIT All REITs Index. Companies whose equity market capitalization is lower than $100 million have been disregarded.

This report is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Post Properties’ Concerning Factors

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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.

Stay tuned! Our US equity REIT ranking is finally close to release.

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.