This column is for investors willing to take more risk and potentially receive more reward.  The stocks mentioned in this column are not recommended to buy or sell.  They're brought to your attention so you can investigate them further to determine if they fit your risk profile.  Most of the stocks will have less than $1 billion of market capitalization, have more volatility than other stocks, and oftentimes no earnings.  And some will have tremendous stories.

August 28, 2009 - Associated Estates Realty (AEC-NYSE) operates as a self-administered and self-managed equity real estate investment trust (REIT) in the United States. It engages in property acquisition, advisory, development, management, disposition, operation, and ownership of multifamily residential units.

This one is small. Only for the most adventurous. It's volatile. Only for the most aggressive. Having said that, it's got a great yield and has performed admirably over the last month.

First consideration: yield. At current writing, that's 8.10% with the stock trading at $8.35. Actual payment is 68 cents a year or 17 cents per quarter. Last payment was on August 3. Ex-dividend date was July 15. If everything goes as planned, the next ex-dividend (the date by which you must own the stock in order to get the dividend) would be October 15 and payment would be on November 3, exactly 3 months from the last dates.

About the small factor: the stock has a market cap of $140 million and on average, trades about 140,000 shares a day. There are 16.70 million shares outstanding and a float of 14.87 million. Insiders own 10.60%. Institutions have 50.40%.

This company specializes in blue-colllar apartments in the Midwest. Nothing fancy here. Management has been actively selling off older buildings and buying newer ones but still keeping the occupancy levels high. It will continue to upgrade its portfolio as well as grow internally as cash flow permits. Or it's the kind of company that would fit nicely into a larger one looking to have a presence in the Midwest apartment market, one of the more stable sectors in the country.

Because of its small size, only 2 analysts cover the company. Their consensus for earnings this year is $1.20, down from $1.35 in 2008. Next year, they see $1.06. Revenues for this year are estimated at $127.44 million, down 5.5% from last year's $134.88 million. Next year, they see another small drop to $122.47 million. (Remember, REIT's pay dividends from cash flow so the fact that earnings are going down doesn't necessarily mean dividends will be reduced because earnings are affected by depreciation which is not a cash flow item and doesn't impact cash flows except for capital expenditures which may or may not be the same as depreciation.)

More numbers: Price to sales is 1.03. Price to book is 2.26. Operating margin for the last 12 months was 19.81% while Profit margin was 5.80%. Return on Equity was negative 6.84% while Return on assets was 2.48%.
Total debt is $524.91 million. Current ratio is .582. Book value per share is $3.76.

The one caveat on this stock is employment numbers. If the economy starts to improve, more people go back to work and that creates more demand for apartments as people living with too many other people seek to move on their own or divorced couples can finally split. But if unemployment gets worse, occupancy rates will have to fall, affecting cash flow. As of this writing, it seems employment may be stabilizing with still a chance of a few more jobs lost.

If you're looking for yield as well as appreciation potential, AEC will be worth more of your time to investigate. And when the economy picks up, this company may be in the cross hairs of larger apartment owners.

- Company Web site: www.AssociatedEstates.com

 Ted Allrich