Post Properties’ cost structure
In fiscal 2014, Post Properties’ (PPS) consolidated cost was $271 million, which represents an increase of 2.8% over 2013. This increase came on the heels of a 9.7% rise in total costs in 2013. The company’s property operating and maintenance expenses made up 60.1% of its total costs in 2014, followed by depreciation and amortization at 31.3%, and G&A (general and administrative) expenses at 6.6%.
Property operating expenses
The company’s property operating and maintenance expenses increased by 5% in 2014 to $163 million. This rise in property operating and maintenance expenses was mainly due to an increase in expenses pertaining to fully stabilized, newly stabilized, and lease-up communities. In addition, Post Properties’ acquisition of an apartment community in 2013 also led to the increase in property operating expenses.
Post Properties’ depreciation expenses
Meanwhile, the company’s depreciation expenses declined by 1% in 2014 to $84.8 million, compared to its increase of 7.9% in 2013 to $85.6 million. This decrease in depreciation expenses was primarily due to Post Properties’ cessation of depreciation on three communities classified as “held for sale.”
In addition, the company’s cessation of depreciation on some of its fully depreciated assets at certain communities also led to its overall increase in depreciation in 2014.
General and administrative expenses
In 2014, Post Properties’ G&A expenses increased by 3.8% to $17.9 million over 2013. This increase in G&A expenses was due to higher legal fees, a rise in professional fees, and higher software expenses stemming from the implementation of new financial systems.
EBITDA margin versus peers
Post Properties recorded an EBITDA (earnings before interest, taxes, depreciation, and amortization) margin of 51.3% in 2014, compared to 51.7% in 2013 and 51.5% in 2012. The EBITDA margin recorded by the company is lower than the industry average of 57.7%, as reported by some its peers.
By comparison, Equity Residential (EQR) reported the highest EBITDA margin of 64.4%, followed by AvalonBay Communities (AVB) at 63.6%, and Essex Property Trust (ESS) at 58%. The SPDR Dow Jones REIT ETF (RWR) invests 0.55% of its portfolio in Post Properties.
Continue to the next part of this series for an in-depth discussion of Post Properties’ funds from operations.