Post Earnings Warning Hits REITs
Post Properties Inc., one of the largest apartment developers in the Southern U.S., dropped an earnings bomb on Wall Street on Monday--and the sound rattled many other real estate investment trust stocks.
Post (ticker symbol: PPS) said it expects profit for the rest of the year to fall below analysts’ estimates due to construction delays and higher interest costs.
Atlanta-based Post said in a prepared statement that it expects funds from operations--a key measure of cash flow--of $3.87 to $3.89 a share this year. That would be about 3% below the $4.01 average estimate of analysts polled by First Call/Thomson Financial.
Post shares slid $5.31, or 12%, to close at $38.25 on the New York Stock Exchange.
Though the shortfall might seem small, this is a market in which investors forgive no corporate misstep, analysts noted.
Post’s problems also sparked fear of more of the same from other REITs. Many REIT stocks have rallied sharply since March as investors have hunted for relative values in the market.
On Monday, many other REITs suffered profit taking, including Avalonbay Communities (AVB), down $1.13 to $46.56; Apartment Investment & Management (AIV), down $1.31 to $44.75; and Spieker Properties (SPK), down $1.56 to $56.
Three years ago, Post expanded from its Atlanta base into markets such as Dallas and Denver. Now, the firm’s problems might be the result of trying to build in too many markets, an analyst said.
“Post has run one of the biggest development pipelines in the past three years, and maybe now they realized they pushed it a little too far,” said Louis Taylor, real estate analyst at Prudential Securities, who downgraded the shares to “hold” from “buy.” “The whole project management team is spread a lot thinner.”
Post said apartment communities in Charlotte, N.C.; Denver; and Orlando, Fla., have suffered from construction delays and are being leased to tenants more slowly than expected. Also, higher short-term interest rates will add between 9 cents and 11 cents a share to expenses this year, Post said.
On a conference call, Post executives said nationwide demand for real estate appears to be slowing, and they are cutting their development plans to avoid overbuilding. The annual budget for new apartment complexes will be lowered to between $200 million and $250 million from between $350 million and $400 million.
“A malaise is starting to occur in the economy,” said Chief Executive John Williams. “The real estate industry is going through a little bit of a slowdown. We think this is the time to think about how many markets we’re in.”
The company also said it will fund future developments internally, by selling off older properties. It has earmarked almost $1 billion worth of communities it could possibly sell.
