NEWSWIRE - March 11, 2002

Topic: Dividend Policy, Equity Valuation

Source: "Is Post Properties Paying Too Dearly," by Shirley A. Lazo, Barrons, March 11, 2002, page 33.

Synopsis of Articles: Post Properties is a real estate investment trust, or REIT. Its board recently voted to sustain its 78 cent per share quarterly dividend although the firm's cash flows on a per share basis were only 32 cents. Post owns and manages apartment communities in 10 states. It uses a considerable amount of debt financing. AvalonBay Communities is another REIT, owning similar investements and also paying a significant dividend. However, Avalon appears to have a better cash flow relative to its dividend payout.

Questions and Teaching Note:

1. Explain the difference between dividend yield and payout ratio. In the context of Post Properties and AvalonBay, what are these values?

2. Post management has chosen to pay a dividend that exceeds its cash inflows. Why would they do this? How is this possible?

3. While the information in the article is incomplete, how would you compare Post and Avalon as potential investments? How would you expect the market to react to Avalon's dividend increase and Post's dividend reaffirmation?