Changing of the Guard

It's never easy to step into the shoes of a CEO who has long been an industry icon. But the job becomes far more difficult when the company is caught in the downdraft of a soft market that has bogged down financial performance.

That, however, is the hand dealt to David Stockert, who replaced John Williams as CEO of Post Properties Inc. (NYSE: PPS). In the 30 years since he founded Post, Williams built the Atlanta-based REIT into a powerhouse, which has an equity market cap of $1.16 billion and holds a portfolio of nearly 31,000 upscale garden and high-rise units. Williams, who continues as chairman, is known as a leader of the new urbanism movement, which involves development of apartments in urban, infill areas.

Like other multifamily REITs, Post has felt the effects of the soft economy. In first-quarter 2002, the company reported a 24% slide in funds from operations (FFO) to $30.2 million from $39.7 million in first-quarter 2001. The average occupancy rate of Post Properties declined more than five percentage points from 95.4% in first-quarter 2001 to 90.3%. The stock closed at $26.51 on July 24, below its 52-week high of $38.95.

Stockert, age 40, arrived last year from Indianapolis-based Duke-Weeks Realty Corp. (now Duke Realty Corp.) as COO and president, a title he will retain. He acknowledges that these are trying times. “The fact is that we and every other company in Corporate America are facing a challenging economic environment,” he says.

In February, New York-based Moody's Investors Service lowered its senior unsecured debt and preferred stock ratings for Post to Baa2 from Baa1 and to Baa3 from Baa2, respectively. “The ratings outlook continues to be negative,” noted the Moody's report. “The negative rating reflects the uncertainty surrounding the impact of the deteriorating fundamentals of the Class-A multifamily property market on the REIT's operating performance and credit profile in 2002.”

To make up for deteriorating fundamentals, Post is trimming overhead. “We've shed some ancillary businesses that were not important parts of our core business, and we're scaling back development activity,” says Stockert.

Since last fall, Post has sold its third-party landscaping, general contracting and property management businesses. It also has scaled back its development pipeline from 4,385 units in May 2001 to 2,609 units a year later, abandoning proposed projects in Long Beach, Calif., and Austin, Texas, Stockert says.

Stockert is less upbeat about the prospects for increasing occupancy rates as a way to generate more revenue. To fill units, he says, Post would have to discount rents too much.

On the other hand, the company is forging ahead with several high-profile projects. For example, it recently opened the first phase of Post Luminaria, a $51.5 million apartment complex located at 23rd Street and First Avenue in Manhattan that will feature 138 units when complete. Post developed the property with The Clarett Group, based in New York.

Stockert says Post, which is concentrated in the Southeast and Dallas but has spread to 13 cities, may reduce the number of markets it's in to seven or eight. “My guess is that we'll be less spread out,” he says, “but have a bigger presence in the cities that we're in.”

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