G&A and employees not capitalized are running at 9% of revenues , 6% assuming only direct G&A!Post is bloated ,inept, and concentrated in bad markets.Return on new construction was 6.8%. Why bother? The good news is NOI didn't decline.
FAD is running at $1.44 share-the dividend at $1.80 or 125%. Mgt can't keep self liquidating (ie selling assets) without hurting affo/FAD as every sale only make the spread between FAD and the dividend larger. I expect there may be about an 8% pickup to FAD in 4Q 2005 as $200 plus million in high cost (7.8%) debt is refinanced but not enought.To bad the balance sheet and structure does not allow Post to recut the high cost senior debt.
Plus I think FAD may be overstated as cap ex is cut ie. bleeding some properties to keep cash flow up. In stick and bricks this is a mistake you either pay cap ex now or more later.
The only salvation may be condo conversion.I think they could sell some assets at 5.5 caps to converters.
I think builders are great potential shorts.My favoite would be Centex as they are in the low end of the market , verticaly intergrated, .sell at the bigest mutluipe to BV ever, and have picked al the low fruit off the tree.
Since builders stocks move inveresly with apt stocks you can get killed going long apts short builders.
Some hotels (not trophy stuff) are trading at 7.5% caps at low occupancys that could provide upside if one is an optomist.You can buy apts all day long in the mid to high 6's and third grade stuff in the high 7's.You can buy office buildings in the 7-9' depending on the tenant base and quality.Non credit retail in the 9's.
Thats why buying preferred at 7.5% fixed returns with underlying leverage and no upside makes little sense to me.
Don't buy on insider activity..insiders are idiots and have the a long term track record to prove it ....use any valuation metric u want , ie ROE/leverage/stock price/analyst ratings/competitors ratings.
I think interst rates will trend up and a preferred buyer has poor risk adjusted returns at 8.3%-heck you can buy unlevered hotel at 7.5 cap rates, ..for 650 basis points whyh buy preferred that has a lot of debt ahead of you and no get inflation hedge?
A longer term problem Post and most apt reits have is deferred maintainance costs/cap ex.
To keep earnings, mgt has squeezed out or reduced reoccuring expenses. In the long run this is a mistake but allows mgt to hit street consensus ffo. In the meantime const costs are flat and new properties are at a competitive advantage-new apts can obtain debt at low rates and are new.
Post and most reits need, job growth, rising interest rates(keeps would be house buyers as renters) and a modest inflation that allows rents to go up as new construction becomes less competitive.
I think Post has bottomed but see no catalyst nad urgency to buy.
Generally I think apts will recover faster than other reit sectors.Retail has had a great run for the last year but that party may be over.
Hard to find good deals.
The compnay says."Mr. Williams' recent legacy at Post is one of overly rapid geographic expansion into unfamiliar markets, substantial cost overruns and missed schedules on new developments with lease-up rates below projections, and a series of quarterly earnings disappointments beginning with Post's Oct. 2, 2000 pre-announcement and continuing through 2001,"
This sounds true to me....they forgot to add that a lot of earnings growth was an illusion from capitalizing overhead costs.The analysts fell for it, like many growth stories because growth creates banking fees for their bosses.
Williams did great tax planning, but when you contribute property for sharers and lose control there is not a lot he can do if the new guys want to sell. The properties that offer some of the largest gains for shareholders will likley cause him the most tax pain and phantom income.
The continued inability to execute a CMBS months after wasting $7 million, says a lot about the quality of the rents. If secured lenders can't get comfortable with huge amounts of preferred stock as a cushion ,I remain perplexed why the common stock is a screaming buy.
How much stock has mgt bought since the window opened?
It will be interesting to see the institutional ownership Williams has on his side. I doubt if he would take on this fight without having at least 25% in the bag on the front end but who knows. That said he was captain of the ship and the attempt to blame others seems disconnected from reality..It was obvious the development pipeline was a disaster when the stock was 36 and that was Williams baby.
I never ceased to be amazed at how so many investors(and analysts), believe what mgt tells them at face value, falls in love with what they own, have so little idea what is really happening and hate to have anyone question value. Many still think that auditors approve mgts values and that mgt malfeasance is a thing of the past if mgt owns a lot of stock.Willimas stock is now worth 40% what is was 3 years ago.
Many small investors are now chasing dividends just like they chased growth 3 years ago without any idea of how the dividend is funded. Gads. No wonder we have volitile bubble markets. The technology gets better as some investors get dumber.
Fortunately the SEC and Justice Dept seem to be slowly starting to get a handle on the disclosure and valuation problems and seems to have real interest in bringing back integrity to the system. It may take a long time and will require a huge mindset change for many managers.
My son lives in DC and tells me your analysis of the DC apt market & Park Row etc is right on.