Post Properties, Inc. (PPS)

Post Properties is a Real Estate Investment Trust (REIT), which along with its subsidiaries develop, own and manage upscale multifamily apartment communities in selected markets in the United States. Post Properties owns 21,745 apartment homes in 61 communities and half of its portfolio is located in Atlanta, while the rest is located in Georgia, Dallas, Texas, the greater Washington, D.C. and Tampa, Florida

The U.S. housing market slowed down considerably after reaching its peak in 2005. Factors like slowing economy and lower job growth rates have weakened the demand for apartments. The apartment REIT were cashing on the hot condo market. However, the falling price in the single-family home market and relatively low mortgage rates makes owning a home more affordable. This has put brakes on the condo market, as for the third quarter of 2006, the industry saw a fall in condo conversion by 86.5% to 7,400 units.

For Q4’06, the company’s top-line saw a growth of 5.0% on the basis of increased average monthly rental rate per unit by 7.2%. However, this has negatively impacted average economic occupancy of its same store communities, which declined by 200 basis points to 93.7%. Further, the company is pushing for its condominium development plans despite a hold up of condo market. Moreover, this is done during the period when a large amount condo conversion plan had to be dropped due to lack of demand.

The company’s operating margin has been deteriorating on account of higher property tax and insurance expense. Further, the management expects that this rise in expense would persist in 2007. A dull outlook for condo market coupled with increasing pressure on operating margin makes Post Properties future less attractive.