Colonial Properties Trust Q3 2008 Earnings Call Transcript

Colonial Properties Trust (CLP)

Q3 2008 Earnings Call

October 30, 2008; 2:00 pm ET

Executives

Reynolds Thompson - Chief Executive Officer

Jerry Brewer - Executive Vice President of Finance

Weston Andress - President & Chief Financial Officer

Paul Earle - Chief Operating Officer

Analysts

David Bragg - Merrill Lynch

Dustin Pizzo - Banc of America Security

Nap Overton - Morgan Keegan

Michelle Ko - UBS

Rich Anderson - BMO Capital Markets

Steve Swett - KBW

Michael Bilerman - Citigroup

Rod Petrik - Stifel

Haendel St. Juste - Green Street Advisors

Presentation

Operator

Good afternoon. My name is Tiara and I will be your conference operator today. At this I would like to welcome to the Colonial Properties Trust third quarter earnings conference call. (Operator Instructions) I would now like to turn the conference over to your host Mr. Jerry Brewer. Sir, you may begin your conference.

Jerry Brewer

Thank you Tiara and welcome to everyone joining us today. We released our earnings this morning via Business Wire. A copy of this earnings release may be found on our website at www.colonialprop.com. We’re also webcasting this call and for your convenience. A replay will be available on our website for one week after the call.

Today’s call will be led by Reynolds Thompson, Chief Executive Officer; Weston Andress, President and Chief Financial Officer; and Paul Earle, Chief Operating Officer. On the call they will present an overview of our business developments to discuss our financial results for the third quarter and review our guidance for 2008. After their comments we’ll open up the call to take your questions.

Let me remind you that much of the information that we discuss on this call, including the answers we give in response to your questions, may include forward-looking statements regarding our beliefs and current expectations with respect to various matters. These forward-looking statements are intended to fall within the Safe Harbor provisions of the securities law. These estimates are also based on a number of assumptions, any of which if unrealized could adversely affect their accuracy.

Please see our latest SEC filings for the details and explanations of risk. Any non-GAAP financial measures that we discuss today are reconciled to the closest GAAP financial measure in filings that can be found on our website.

I will now turn the call over to Reynolds.

Reynolds Thompson

Thank you Jerry and good afternoon everyone. I’ll begin with a discussion of strategic and financial plans and recap our third quarter results. Paul will discuss operations and provide an update on our markets. Weston will review the balance sheet and investment activity and I’ll conclude the call with an update on 2008 guidance.

While we and others anticipated a slowing economy in 2008, we did not anticipate the ongoing crisis in the credit markets, continuing job losses in the prospect of a very weak economy for the foreseeable future. These factors have required us to make changes to our business plan. Our top priorities are the balance sheet, liquidity and the efficient operation of our properties.

Accordingly we are making the following changes. Starting today we will begin reporting operating FFO and transaction FFO separately. Operating FFO is defined as FFO before transaction income; which means it will exclude development and condo gains, land and outparcel gains, bonds and preferred stock repurchase gains, and the company has been very successful generating transaction income over the past few years. While it has provided excellent returns for our shareholders, the timing is unpredictable.

Given our environment today the prospects for producing this type of income are uncertain. Breaking the earnings into these categories will allow you to easily track the consistent earnings we produce by our operating business. Second, we are reducing our quarterly dividend from $0.50 per share to $0.25 per share, which is expected to be well covered by operating FFO. We’ll pay any required distribution related to asset sales in the form of a special dividend.

Third, we continue to cutback on development spending and have reduced our development personnel accordingly. Development spending for the remainder of this year in 2009 is related to the completion of projects currently under construction. The development pipeline is 60% complete and we expect to spend approximately $150 million in 2009.

Four, we continue to review our company’s organization and are making necessary changes to ensure the most cost effective structure is in place and fifth we’re lowering our multifamily same-store NOI guidance for 2008 to 2% to 2.5%. These steps will allow us to strengthen the balance sheet, enhance liquidity and provide for an efficient operating structure.

Over the past few years we’ve made strategic moves to exit the mall business and harvest value from our office and retail businesses. These transactions generated over $300 million in gains for the company and our shareholders. Today, the bulk of our assets are invested in high quality multifamily properties throughout the Sunbelt.

Obviously we are unhappy with our current stock price which does not begin to reflect the underlying value of our portfolio. While they are challenges we are well positioned to navigate this environment. We are in a solid liquidity position with $469 million available on our line of credit which does not expire until 2012. We have modest required development expenditures and no significant debt maturities in 2009. The retained earnings from the reset dividend will help insure that Colonial is in the right position when the economy of begins to recover.

Now Paul will now provide some details on our third quarter operating performance and market fundamentals.

Paul Earle

Thanks you Reynolds. For the third quarter for 2008 we recorded net income of $0.57 per share compare with $0.03 per share in the third quarter of 2007. FFO for the third quarter was $0.49 per share compared with $0.03 per share for the same period in 2007. Operating FFO for the third quarter was $0.41 per share and $1.35 per share year-to-date. Transaction FFO totaled $0.08 for the quarter and now stands at $0.29 year-to-date.

Third quarter, same property NOI growth of 2.9% was below our expectations by approximately 60 basis points. This variance was due to a delay in implementing our bulk cable program on 7,000 apartment homes. The revenue generated from cable was planned to offset expected increase in concessions. Same property NOI growth in our major markets representing 85% of our NOI was up 4.3% for the third quarter.

Our best performing markets were Atlanta up 7.8%, Birmingham 7.3%, Raleigh 6.8% Dallas Fort Worth 5.1%, Charlotte 4.9% and Richmond was up 4.8%. Only two of our major markets experienced negative NOI growth in the third quarter. Orlando was down 2.7% and Charleston decreased to 3.2%. We anticipate both Orlando and Charleston NOI ending 2008 slightly negative.

Revenues increased 3% for the third quarter and expenses increased 3.2%. Year-to-date our NOI growth is 3.4%, with revenues growing 2.6% and expenses increasing only 1.4%. Physical occupancy of our same property portfolio closed at 96.1%. Although, our year-to-date NOI growth is a solid 3.4%, weakening fundamentals would put downward pressure on our performance going forward.

The extraordinary events in the credit markets have created significant uncertainty and will likely accelerate job losses in most of our markets well into 2009. Accordingly, we feel it is necessary to revise our annual property revenue guidance by a 100 basis points to a range of 2% to 2.5% and as Reynolds mentioned our 2008 annual NOI guidance will now be 2% to 2.5%.

Revenue growth in the third quarter was 3%. Half of this growth was from rental rate increases and the remainder coming from ancillary income, mainly our Colonial Vision

Cable program. Although we experienced implementation delays in the third quarter we’ll see significant revenue increases from Colonial Vision Cable.

We now have 84 properties participating in this program with 17 more properties to be added over the next two quarters. Of these 101 properties full subscriber implementation has occurred at 44 properties, eight more will stabilize by year end and the remaining 49 properties during 2009.

Same property traffic was up for the quarter 6.4% and year-to-date its up 5%; however, weakening traffic trends are starting to emerge. September was up only 1% and traffic so far in October is down 3%. The success of our internet leasing efforts continues to expand with leads up 68% and new leases up 65% as compared to the same period in 2007 and 41% of our internet lease are coming to us pre-qualified.

Overall resident turnover is up 20 basis points as compared to last year. Turnover related to homebuyers drop this quarter to 15% which is our historic run rate. However, turnover from finance and job related reasons jump 800 basis points to 26%. This negative trend emerged in August.

We recognized real estate fundamentals are weakening, but Colonial’s 35 year history; throughout this 35 year history, we have managed through these challenging times before, many times before. Colonial will now get through this economic storm with quality people, quality properties and great market diversification.

Weston will now provide details on our investment and financing activities.

Weston Andress

Thank you, Paul. In September, we completed the sale of Colonial Grand at Hunters Creek in Orlando for sales proceeds of $57.7 million. This was an 11 year old unencumbered property. The GAAP rate over the sale was an attractive 6.3% and proceeds were used to repay debt. We completed our state objective of reducing our ownership percentage and the tenancy in common on the nine office assets in Huntsville, Alabama to 10% in the third quarter.

Although, the transaction to market is difficult, Fannie Mae and Freddie Mac are still active lenders and there has been interest in the properties we have remaining on the market. Also Colonial Promenade Fultondale, our retail center in Birmingham is under contract and we’re negotiating with buyer Colonial Promenade Smyrna in Nashville.

To be conservative we have reduced our sales guidance for 2008 by $200 million.

Moving onto our development activity, first I’ll speak to the third quarter activity and then the overall reduction and development spending. As of September 30, we had five multifamily developments totaling 1,546 apartment homes under construction with unfunded commitments remaining of only $39 million. For the properties that have begun to deliver units, the lease up is progressing well.

We have five retail projects totaling 1.4 million square feet of company owned space under construction, of which a $128 million is left to be spent. We completed Colonial Promenade Fultondale which is 99% leased in the third quarter and are on track to open the Colonial Promenade Smyrna in the fourth quarter which is 97% leased. Both properties highlight our focus on achieving strong free leasing results in our new developments.

The Colonial Promenade Tannahill development in Birmingham, which is a target anchored center is scheduled to be completed in the second quarter of 2009 and is currently 82% leased. In our mixed use project in Charlotte Metropolitan, we opened a 162000-square-foot Class-A office property, 88% leased. Our key retail merchants that are now open include Trader Joe’s, Best Buy, Staples and West Town. The retail portion of the development is currently 70% leased.

With respect to our for-sale projects, we closed down 27 condos in the third quarter including 21 units in Metropolitan Midtown in Charlotte, recognizing approximately $0.001 a share in gains for the quarter.

As we discussed on the last call, the loss at Metropolitan which contain 60 of the total 101 units opened in June of this year. We have closed down 35 units we expect to close on four more leaving 21 to be sold. We have 18 of the 41 units under contract at the Metropolitan Terrace condos which will be completed at the end of this year. Upon opening of our office building and retail anchors, traffic at our Metropolitan condos has increased.

Lastly we have eight additional for-sale residential projects comprised of five condo and town home developments and three lot developments. There are a total of 156 condominium and town home units available. This represents a total book investment of $83 million which represents less than 3% of the company’s assets. As sales over the past few months have been challenging as a result of the credit crisis, we have implemented a short-term self financing program that is structured to assist qualified buyers in obtaining financing during this difficult environment.

Regarding future development activity with the current state of the economy in capital markets, we continue to reduce our development spending as well as our construction and development personnel. We have retained a core group of developed staffs to complete the projects under construction and to maintain a shadow pipeline for the future. At this point in time it is our intention to retain the land that is classified is held for future development and developed properties when the economy recovers.

Our third quarter interest coverage ratio was 2.4 times and our fixed charge coverage was 2.0 times. The ratio of net debt plus preferred to gross asset value was 56.4%. Reducing our leverage remains a priority. Our liquidity remains strong with $469 million of availability on our $675 million line of credit. I’ve talked at length about liquidity last quarter; we will remind you that we are a very discipline company in managing our balance sheet and liquidity.

We have the $469 million of availability as I mentioned on our line of credit. $175 million of unfunded vertical construction and the $150 million of rainy day operating reserve as required by our board that means us with another $44 million available to continue repurchasing bonds, preferred stock or to pursue other opportunities. Additionally, I would like to point out that we have a high quality multifamily portfolio that is over 90% on encumbered. This unencumbered asset percentage compares favorably with our multifamily peers.

We are in early discussions with Fannie Mae and Freddie Mac about the $350 million secured facility, the proceeds of which would ultimately be used to repay the $320 million in bond maturities in 2010. We do not have any loans for which Colonial is entirely responsible maturing in 2009.

We do have $136 million in debt maturities, which represents our pro-rata portion of this secured debt in our joint ventures. We are working with our joint venture partners on the refinancing options available on these loans and we’ll keep you updated as to our progress. 70% of the loans maturing in 2009 have extension options.

During the third quarter we repurchased $57.8 million of unsecured bonds and an average discount of 5% to par, which represents a 7.4% yield in maturity. Our repurchases this quarter were concentrated on the earlier maturities. Additionally, we repurchased our 105,000 shares or $2.3 million of our Series-D Perpetual Preferred Stock at a 13% discount. We recognized a net gain of $0.05 in earnings per share and FFO from our bond and preferred purchases in the third quarter. For the first nine months, we have repurchased $139.6 million of bonds at an average discount to par of 8.75%.

As noted in our earnings release this morning, our Board of Trustees has authorized the repurchase of an additional $25 million of our Series-D Preferred shares in open market transactions. At the current pricing levels, this is very attractive investment opportunity.

Now, I’ll turn the call back over to Reynolds, to discuss our dividend policy in 2008 guidance; Reynolds.

Reynolds Thompson

Thank you, Weston. As I mentioned earlier in the call, the board has declared a dividend of $0.25 per share for the third quarter to be paid in early November. Based on our projected taxable income for 2008, the fourth quarter dividend combined with the previous 2008 dividends is expected to meet the REIT distribution requirements, if additional asset sales occur and there are additional distributions required, we would declare a special dividend to satisfy the distribution.

We’ve revised our FFO guidance range for 2008 as follows: earnings per share of 103 to 123, in total FFO of 195 to 215 per share. For the full year the guidance for our operating FFO per share is 166 to 173. As discussed earlier, some of our underlying assumptions have changed as well. Multifamily same property net operating income revenue and expense growth is now expected to be 2% to 2.5%. The full-year guidance would imply the flat NOI growth for the fourth quarter.

Developments spending in the fourth quarter will be $20 million to $30 million, bringing the year to $300 million to $310 million. We have not committed to any new development since the fourth quarter of last year and as a result, the size of our development pipeline has been reduced by over 50% from $906 million at this time last year to $425 million today with only $175 million left to complete it. Dispositions of $250 million to $300 million with a $198 million completed today.

Transaction gains of $0.29 to $0.42 per share. To date we’ve recognized $0.29 of gains from development, condos, land, outparcels and the repurchase gains on bonds and preferred stock. The remaining gains would the primarily associated with a sale of Colonial Promenade Fultondale as expected to occur in the fourth quarter.

If the sale does not close in the fourth quarter, we’d be at the low end of this guidance. Corporate G&A expense is expected to be $23 million to $25 million, which includes approximately $0.02 of severance charges related to organizational changes expected in the fourth quarter.

Additionally, the guidance reflects an income tax indemnity payment of approximately $1.5 million or $0.03 per diluted share related to the decision not to reinvest sales proceeds from a previous tax deferred property exchange. The payment was a requirement under our contribution agreement to the company’s operating partnership with existing common union holders. We plan to provide 2009 guidance in December.

In summary, the balance sheet and liquidity will continue to be priorities. The reset dividend, declining development expenditures and manageable debt maturities leave us well positioned to work through this difficult environment.

Operator, we’ll now open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of David Bragg - Merrill Lynch.

David Bragg - Merrill Lynch

Can you talk about the multifamily transaction environment? What trends you saw during the course of the quarter and the conversations that you have been having?

Reynolds Thompson

David, the sales environment has obviously gotten to be increasingly difficult. Fannie Mae and Freddie Mac are still out there, but there is a long line at their door to obtain financing and the financing that’s provided by them has become more and more expenses. So, it’s a very challenging environment I’d say at this point and pricing has backed up 50 to 75 basis points from where we were probably earlier this year.

David Bragg - Merrill Lynch

And embedded in the disposition guidance for the fourth quarter, are the multifamily asset sales assumed in that or is that just Fultondale?

Reynolds Thompson

Yes, just Fultondale and Smyrna at this point.

Weston Andress

And potentially the high end would take us up to maybe one additional multifamily property.

David Bragg - Merrill Lynch

And then as you think about keying up potential dispositions for 2009, how are you adjusting your targeted properties.

Reynolds Thompson

Not so much adjusting the properties that we’re -- yes, we’re adjusting our expectations on pricing and adjusting our expectations on how long it’s going to take to get those types of transactions done and year-to-date we’ve been successful with some all cash buyers that have been in the market.

David Bragg - Merrill Lynch

And then just move onto operations; Paul could you just help me understand the change in the revenue growth guidance; you mentioned the cable income, what drove the delay of the implementation there? How much of that drove the reduction in guidance at the top line and how much is what you are seeing on the ground?

Paul Earle

It cost us $400,000 in the third quarter regarding the cable delay, the implementation delay. We have three primary cable providers Comcast, Charter and Time Warner. The Comcast portfolio is the last to roll out and that’s why we’re experiencing some delay. All of our slippage from our guidance all year relates to the delayed cable implementation.

David Bragg - Merrill Lynch

What was same store revenue growth without the impact of the cable program in the third quarter?

Paul Earle

We would have been 4.4% if we had fully deployed the cable effort.

David Bragg - Merrill Lynch

Okay and if it did not exist versus the 3% growth.

Paul Earle

About 1.5%.

David Bragg - Merrill Lynch

And then roughly how much is the program expected to contribute to the flat NOI growth in the fourth quarter?

Paul Earle

We should pass $580,000 to the fourth quarter revenue number. The flat NOI in the fourth quarter is primarily coming from tax accrual adjustments and are heavily weighted towards Texas, some coming out of Orlando.

David Bragg - Merrill Lynch

Just one last question on Orlando; I believe last quarter you talked about looking for the bottom there, this quarter sequentially we saw a drop-off in occupancy. Could you update us on that market?

Paul Earle

Well, you’ll notice we’re slightly up on our revenue. Our primarily problem in Orlando the last half the year is coming from our tax appeals; we’re not having the same level of success, we’re challenging on Texas. You’ll notice that there is a slight positive trend in Orlando, but we don’t think we’ll get much traction until deep in 2009 because of job losses.

Operator

Your next question comes from line of Dustin Pizzo - Banc of America Security.

Dustin Pizzo – Banc of America Security

Paul, just to continue on the sort of same store in the markets, can you talk a bit about your outlook for Charlotte given the relative strength you guys have seen recently in the face that everything that’s been taking place in the banking industry post the end of the quarter?

Paul Earle

Well, as you know Charlottes one of our strongest markets and I would tell you, after the July financial crisis and what’s happened to Banc of America, Wachovia and Merrill Lynch, Charlotte is paralyzed. We’re not ready to give guidance on how the fourth quarter will look or how it will look in 2009, but leading up to this July crisis, we were really pleased with our performance. A lot will be based on the wells Cargo Wachovia merger and what will be maintained in Charlotte. So, it’s unfolding as we speak.

We have a great portfolio, we’re as far north as Huntersville, which is a controlled market that is under supply and then we’re in the Northeast, where we have a lot of college students we have a back office infrastructure platform and about 10 million square feet of office and so we think we’re positioned well, but it is just too early to tell what’s going to happen with the downtown banking environment.

Dustin Pizzo – Banc of America Security

Okay and then I know you don’t want to talk about ’09 at this point and even though turnover from the homebuyers is down today, at some point the housing market will ultimately stabilize and given what’s happened to housing prices in many of the markets where you guys operate and the government’s kind of desire to make the mortgages more affordable; are you at all concerned as a landlord that the next sort of leg of pressure on the operating side could actually come from the reemergence of the for-sale buyer just as owning potentially once again becomes a more attractive alternative in certain of your markets?

Reynolds Thompson

We’re not sure what the credit quality will be for a homebuyers going forward. I think the sub-prime fiasco was really going a limit a lot of people moving from for-rent into homeownership. Certainly, we’re going to lose some in our old historic trend was always 15% of our move house because of homebuyers and that did peak in ’05 at 38%. We don’t feel it’s going to grow to a significant number going forward because of the credit standards that are going to imposed on homebuyers.

What will probably influence having number more than anything going forward is the amount of job growth. Our business is really driven by a healthy economy and positive job growth and so while we work through these on certain times, we’ll just have to all be aware of the overall job market.

One more point is, our portfolio is diversified across many, many markets. We have the second newest portfolio in the REIT sector and we don’t really have anyone market that can influence our number dramatically and so, I think we’re positioned to whether this economic storm. We’ll just have to wait and see what happens with job growth and that will be the main driver, not home move out.

Dustin Pizzo – Banc of America Security

And then since you mentioned it Weston, can you talk a little bit more about the seller financing program and the sort of credit standards and requirements that you guys have for potential perspective buyers?

Weston Andress

We are essentially working with the local mortgage banking concern that has to be in Charlotte using the same underwriting standards for Colonial that they do for Banc of America and Wells Fargo and other mortgage lenders that they work with. So, while we might be a little more aggressive as it relates to rate given that we own the property and are anxious to generate some income from a non-income producing asset than Wells or Banc of America might be.

I think we’re basically using the same underwriting standards that they would, but one major difference is that the term on our loans that we we’re offering is about five year. I mean that’s the maximum term whereas we’re not offering a 30 year mortgage.

Reynolds Thompson

And we’re also requiring industry standard down payments as well.

Dustin Pizzo – Banc of America Security

And these are Fultondale loans or I mean like adjustable loans?

Reynolds Thompson

They are fixed rate loans.

Dustin Pizzo – Banc of America Security

And then just lastly on the Fultondale, is it currently under contract?

Reynolds Thompson

It is, yes.

Dustin Pizzo – Banc of America Security

And can you just talk about the nature of the buyer at all?

Reynolds Thompson

The buyer is an all cash buyers, so well known domestic investor out there who buys retail properties.

Operator

Your next question comes from Nap Overton - Morgan Keegan.

Nap Overton - Morgan Keegan

A couple of brief things; what would you says the biggest reminder in your budgeting process for next year, but what would you say the biggest remaining kind of outstanding issue is looking at 2009 from what you know today are that you kind of want to get resolved?

Reynolds Thompson

Nap, it’s really looking at markets and job growth, that’s going to be the biggest driver, and there has been such a moving target and that’s something we’re going to be keeping our eye very closely and looking at what kind of forecast people are putting together for 2009.

Nap Overton - Morgan Keegan

Okay and then Weston, could you give us a little bit of color on the $340 million or so that does mature in 2010; is that early in the year or late in the year and what is that?

Reynolds Thompson

It’s essentially is one mark-to-market $275 million bond issue that matures in February and then series of medium term notes that mature throughout the rest of the year. As I mentioned we are pursuing this line with Freddie Mac and Fannie Mae right now, that would cover those bond maturities.

Nap Overton - Morgan Keegan

Okay and then on the retail assets I think you said you had Fultondale under contract you’re in discussions on Smyrna?

Reynolds Thompson

That’s right.

Nap Overton - Morgan Keegan

Okay and so that obviously more difficult than you anticipated it would be earlier in the year, as all assets overall?

Reynolds Thompson

Let me stop you there, I mean Smyrna is a little bit behind Fultondale in the development standpoint and it’s sort of just being completed and we also have some tax related issues with our partner which really don’t allow us to sell it until the very end of this year. So it’s not that we’re having more trouble selling it is, there are some reasons related to property later in the process.

Nap Overton - Morgan Keegan

Is there a set of circumstances that would cause you to decide to retain any of the retail developments underway as opposed to asylum?

Reynolds Thompson

If the pricing got to be just completely ridiculously or at the buyers went away, it’s not our strategy to hold these retail assets for an extended period of time.

Nap Overton - Morgan Keegan

Okay and then in terms of cash flow for 2009, what would be a reasonable stab at the sales volume of your for-sale residential business that’s not being concerned about the gains just the sales volume?

Weston Andress

Nap, we’re going to wait and play out the fourth quarter to see how the sales go there and again it’s just a little too early for us to make a prognostication on that at this point. I appreciate you’re trying to dig that out on this.

Operator

Your next question comes from Michelle Ko - UBS.

Michelle Ko - UBS

I was wondering, when you cut your 2008 revenue growth from 3%, 3.5% to 2%, 2.5%, what particular markets were you anticipating the most slow in going forward?

Reynolds Thompson

The reduction in our guidance was all relating to the Colonial Vision Cable rollout program. So, our markets are behaving, as we expected however the cable rollout program has been delayed.

Michelle Ko - UBS

And aside from Charlotte, what markets did you see the negative trend from turnover from the finance and job losses emerge in August?

Reynolds Thompson

Well, we started to see a noticeable drop-off in August across our entire platform; Orlando, Charlotte, Raleigh, Atlanta, Dallas, Austin. I mean it just was a kind of uniform loss of jobs that started in August and looks like it does continued in September and October.

Michelle Ko - UBS

And also in terms of the short-term seller financing, I know that last quarter I believe you had given a sense of what kinds of rates you are offering and I believe that it was about 6%; are you offering the same type of rates now or --?

Weston Andress

We’ve only done one transaction today that was 6.5%.

Operator

Your next question comes from Rich Anderson - BMO Capital Markets.

Rich Anderson – BMO Capital Markets

I guess I’m confused; you’re talking about how you have to play it slow given the stresses around you and around everybody and you lowered your revenue guidance for same-store and now you’re saying that it was all due to the cables slow down. I thought that the reason for the reduction in the same-store revenue growth was to account for the fact that you’re seeing job loss potential in front of you? Is there a disconnect there; what did I miss?

Reynolds Thompson

We’re experiencing job losses and we are seeing some pressure on concessions and some pressure on occupancy, but the cable program was all designed to offset any pressure we were going to experience from concessions in job losses and we are delaying some of those roll outs and so we don’t have an offset.

Rich Anderson – BMO Capital Markets

In fact it is the core business, but you’re not getting the offset. So the math works out that it’s the cable that’s doing, is that right?

Reynolds Thompson

Yes, the reason we maintained our guidance in July on the call was simply the fact that we have an aggressive cable roll out program that we’ve been working with for the last 12 months. Our third and the last provider of cable was slow in delivering the customers to us and that has resulted in pressure on our same store revenue and NOI guidance.

Rich Anderson – BMO Capital Markets

And so is this going to be a problem, the slowness in delivering customer from Comcast or is it something that’s been resolved or what’s going on there?

Reynolds Thompson

We now are in full implementation mode. We’ll pick up $580,000 in the fourth quarter, and we will add another $6.2 million in 2009. So, we’re now in full implementation mode with all the units that are available to us.

Rich Anderson – BMO Capital Markets

In terms of the development gains business, five other besides the Fultondale retail projects that are consolidated still; all of those will be sold overtime, is that the plan?

Reynolds Thompson

Yes, yes.

Rich Anderson – BMO Capital Markets

Either to a third party or into a joint venture?

Reynolds Thompson

Exactly.

Rich Anderson – BMO Capital Markets

Three office buildings are consolidate, they will all be sold at some point?

Reynolds Thompson

Correct.

Rich Anderson – BMO Capital Markets

And then also I think three developments that are retail maybe two or three retail developments they will be sold well, correct?

Reynolds Thompson

Yes, eventually our game plan is to have all of those commercial assets sold or rolled into a joint venture.

Rich Anderson – BMO Capital Markets

The market will dictate how long that takes, but I just wanted to understand that was the ultimate plan that there won’t be anything held for any length of time beyond what was necessary?

Reynolds Thompson

Now, you’ve got the strategy, right.

Rich Anderson – BMO Capital Markets

Now I knew the strategy, I just want to see the change; sometimes that happens. Now in terms of residential gains the plan there is to completely exit that business entirely overtime. You sell these condos, you sell these lots and then you are done, right?

Reynolds Thompson

That will be correct.

Rich Anderson – BMO Capital Markets

In terms of the timing, that you don’t know.

Reynolds Thompson

As fast as we can get it done.

Rich Anderson – BMO Capital Markets

I just wanted to make sure I was connecting all of the dots; I just wanted make sure that we’re on the same page in terms of the direction of the company?

Reynolds Thompson

We are.

Rich Anderson – BMO Capital Markets

In terms of the dividend, now turning topics, you always talked about how you had $30 million of asset sale gains and that you had to maintain your dividend because of that and so on and so forth; now suddenly you don’t have to do that. What happens to those $30 million of annual gains that the rational behind maintaining your $2 dividend.

Weston Andress

Where we are today, on the sales that have closed to-date, we’ve generated approximately $19 million in investment gains year-to-date and when you look at the distributions acquired from those sales, plus the distributions that we have made in the previous quarters, we would have distributed roughly $1.75 per share in dividends for the full year of 2008 and based on all the transactions that we’ve done we believe that will satisfy our distribution for 2008.

We have backed up our sales guidance as Weston mentioned and if we get more of those sales done than we anticipate, there could be additional gains there that we would have to address and deal with, but being conservative we’re looking at that, it was where we are today and believe we have distributed or will have distributed once the November dividend is paid, the right amount of capital to satisfy the rate distribution requirements for this year.

Rich Anderson – BMO Capital Markets

So, the function of pulling back on dispositions and also maybe not earning the bigger gains that you had saw previously in this marketplace that were driving factors, a combination of it?

Weston Andress

Your statement is totally correct. The second one is somewhat true. We’ve seen more of a pricing pressure in our disposition of the for-sale, like the retail developments; we have seen a little bit of pricing pressure in the multifamily side naturally what’s driving the distribution requirements. The retail is held in the tax per rate subsidiary which is actually not part of the required distributions there.

Rich Anderson – BMO Capital Markets

Okay understood and then the last question is I guess simple math, but the dividend cut will save you about $56 million a year, is that right?

Weston Andress

That’s correct.

Operator

Your next question comes from Steve Swett - KBW.

Steve Swett - KBW

Paul, if I look at your full-year revenue growth rate for the nine months it’s 2.6, so your full-year revenue guidance of 2 to 2.5 isn’t too far below what you’ve really booked year-to-date in the revenue side. What looks more different is the 3.4% nine months NOI growth down to 2 to 2.5, so if I’m thinking about fourth quarter being flat, I think that’s what you said, it’s more from the expense side than the revenue side. Is that right?

Paul Earle

Yes, Steve we have some tax accrual adjustments occurring in Texas. Primarily in Texas and there are few dollars coming out of Orlando, but that is driving the fourth quarter flat number.

Steve Swett - KBW

Okay and then the physical occupancy number for the end of the quarter at 96.1%, I don’t know if you can speak at all to fourth quarter, October; but was there a larger than normal move out just after all these financial issues kind of cropped up late quarter. Did you see more move outs into October than normal?

Paul Earle

Well, it appears that the trend is growing, we don’t have numbers yet that will indicate to us where we will provide a forecast, but there is some upward pressure on move outs because of the job losses or financial reasons.

Steve Swett - KBW

And then the income tax indemnity payment, is that paid in the fourth quarter Weston?

Weston Andress

It will be accrued for in the fourth quarter certainly don’t know if it will actually be paid or not.

Steve Swett - KBW

And then last question; the developments, are there any completed developments that are fully reflected on the balance sheet, but not yet stabilized from an income perspective?

Weston Andress

Yes, the Town Park 400 in Orlando, office building that was completed just recently and it’s currently 30% occupied.

Operator

Your next question comes from Michael Bilerman - Citigroup.

Michael Bilerman – Citigroup

It’s Toby here with Michael. A couple of questions; most of my questions have been answered. Can you talk a little bit about your thoughts around cutting the dividend at the same time approving the buyback of preferred shares in debt, in terms of the sources and uses sort of logic?

Reynolds Thompson

I mean clearly we can all agree that cutting the dividend in this environment is a prudent course of action that allows us to keep as just mentioned $57 million in the company to help us with our balance sheet in other corporate purposes.

We view the debt and preferred buybacks sort of in conjunction with our line as really just liability management. We have a lot of capacity in our line right now and even after looking at the unfunded construction commitments and still have almost $150 million of cash to spend on either buying back securities are buying assets, and right now as we look at it these preferreds that are trading at $13 a share, almost yield of 13% to 14% look ridiculously cheap and very attractive from a return standpoint.

Given that we’ve got four years on line of credit, some amount of trading a 4% liability to takeout something you can get it 13%, which helps us with our fixed charge coverage or buying the bonds back get 8% or 9%. We think at some level that makes some since, not do it with our entire line of credit or whatever, but what we’ve done to-date and to continue to pick at that, we believe it’s prudent to the company standpoint.

Also we had a discharge, which is mentioned that we’re taking from and it related to a tax obligation that we had for some of our OP unit holders that we’re going to pay in the fourth quarter. There is $15 million of 1031 money out there that we had intended to buy an apartment complex with to replace an asset that had been sold. We decided not do that because we think cap rates are backing up. So, we’ve got an additional $15 million that we hadn’t planned for and we’ll use that money probably to buyback the preferred.

Michael Bilerman – Citigroup

I guess what we’re having a hard time understanding is why spend any liquidity especially if you’re going to have such dramatic reduction in the dividend which clearly your over funding before. Why use up any capacity that you have to buyback debt and leaving that capacity to be operating your business and hopefully as liquidity get built, you’ll be able to increase the dividend going forward, but not try using equity of the shareholders to buyback debt?

Reynolds Thompson

Well we still have an objective of improving our balance sheet and while we are using some liquidity to do that, we are improving our balance sheet and those are two things were balancing. We’re not taking big bites of this; we’re not talking about calling the preferred or anything. We’re taking an opportunity or taking advantage of an opportunity to call, to buy some stuff back that’s got a very attractive return associated with it.

Weston Andress

As Reynolds said we are focused on the leverage, but the company’s liquidity frankly is in pretty good shape, is in very good shape and so as we look at it have a small amount of capacity to take advantage of these opportunities and that’s the way we look at it.

Michael Bilerman – Citigroup

Aren’t you making an argument that you could have been buying back stock and eliminating the dividend on those shares, that would have been...

Weston Andress

We’re doing on the debt side, the preferred side is leveraged neutral, buying back stock is levering up to the company.

Michael Bilerman – Citigroup

Leverage neutral, but it chews up capacity.

Weston Andress

I just told you, we have some amount of liquidity that we feel is reasonable for us to use. Buying back stock would be using up capacity as well.

Reynolds Thompson

And putting more pressure on the overall company leverage.

Michael Bilerman – Citigroup

A couple more questions relative to the shadow pipeline; is there any risk to any of those projects being shelved with the subsequent write-offs?

Reynolds Thompson

We don’t know. As we look at that today, we’re going to continue to look at those markets and those opportunities and we think it will be sometime before we are able to putt any of those into projection, but at this point we feel comfortable with the outlook on those and we’re just waiting till the operating environment looks better.

Michael Bilerman – Citigroup

And then just one real last quick question with regards to Phoenix; you guys had some unusual numbers in the quarter, big expense savings, something sort of aberrational happening in that market?

Paul Earle

Phoenix is a 180 unit property sold.

Reynolds Thompson

This is Rey; we actually had payroll adjustment in the third quarter, which is the one-time adjustment in third quarter which doesn’t change the real run rate for the fourth quarter and beyond.

Michael Bilerman – Citigroup

And then just lastly, retail concessions or leasing commissions jumped a bit, so any color around that?

Weston Andress

It’s all tied to deals, transactions; it’s just the timing.

Operator

Your next question comes from Rod Petrik - Stifel.

Rod Petrik - Stifel

The 2009 maturities, I think last quarter they were around $83 million and now they’re $136. What accounted for that increase?

Weston Andress

There was some debt in ’08, that was maturing that was pushed or that was extended into ’09, so that’s what.

Rod Petrik - Stifel

Wouldn’t we have known that last quarter?

Reynolds Thompson

We would have known, but they were executed in the quarter. It actually expired in the third quarter and was extended in the third quarter.

Rod Petrik - Stifel

The $57.8 million that you repurchased, what was the maturity date on that?

Reynolds Thompson

There were split between the 2013s and the 2014s.

Rod Petrik - Stifel

The $296 million you have held for sale, are all of them listed with brokers today?

Reynolds Thompson

Yes, not all the same broker, but --

Rod Petrik - Stifel

Now, are you having deals that are falling through?

Weston Andress

Yes, I mean we’ve had a series Rod of deals that exist. As you know it’s a very difficult transaction environment and whereas a year and a half ago you would’ve had 10 guys lined up to buy all our retail and multifamily assets. Today financing is a challenge, particularly on the retail side, so we’ve repeatedly had people fallout, but that’s just you have stick with it and ultimately we have found some all cash buyers both in multifamily and on the retail side that have allowed us to close some transactions.

Rod Petrik - Stifel

How long do you classify something held for sale before you bring it back on your books as an operating property?

Weston Andress

Until we look at that particular asset and making determination that it’s likely we’re going to sell it within the next 12 months.

Rod Petrik - Stifel

How often does that happening?

Weston Andress

We look at every quarter.

Rod Petrik - Stifel

So, you bring stuff back?

Weston Andress

Yes, we have bought stuff back and really the only impact would be the catch up on depreciation. It would have no effect on FFO. You move something from one section of the balance sheet to another.

Rod Petrik - Stifel

Are you marking any of them down or was it depreciation?

Weston Andress

Yes, the depreciation is put on hold, when they are moved into held for sale.

Operator

Your next question comes from Michelle Ko - UBS.

Michelle Ko - UBS

Just a follow-up; when you had cut your 2008 revenue growth and you had said it was because the delay in the cable rollout, you also mention that the cable rollout revenues are supposed to help offset some concessions that were increased. Can you tell us more about the concessions in one particular market you increased the concessions in?

Weston Andress

We’re billing concession pressure across the whole platform, so Richmond, Raleigh, Atlanta, Orlando, Tampa and then some additional pressure in Austin and out in Phoenix. It’s really a uniform across the platform. We’re not seeing the job growth and so when you lose job growth in your market, you start pulling in customer’s better coming from competing properties and so we just puts little more pressure on your revenues stream.

Operator

Your next question comes from Haendel St. Juste - Green Street Advisors.

Haendel St. Juste - Green Street Advisors

I got a couple of questions here for you. Can you clarify for me and perhaps, I didn’t quite catch how much more room for asset sales you have for this year before special dividend could be required?

Reynolds Thompson

In our guidance range that goes from 250 to 300. If we execute up to the 300 level, we believe we ought to be very close to having distributed everything that we need to distribute this year. So, if it went beyond that, we could be in a situation where we’d have to look at something.

Haendel St. Juste - Green Street Advisors

And given your profits for pursuing secured debt currently, can you assume that maintaining your investment grade rating is just in the longer priority?

Weston Andress

No, I mean you look out there at all of our peers, they’re all pursue in these lines. Every single one of them and if you also look at the percentage of secured debt we have today, it is very attractive in comparison to a lot of our peers.

When we sold a lot of our commercial assets a year ago, we paid off the secured debt associated with our multifamily portfolio. So, today we have a 90% unencumbered multifamily portfolio, which again is very attractive in comparison to our peers. So we have some capacity to go out and get some secured debt and even in fact the last time we met with Moodys and they mention that to us that we had that capacity.

Haendel St. Juste - Green Street Advisors

My question is more geared towards that you’ve been on downgrade watch for a while so I figured at some point that would start to be concern. Next, can you help me understand the impact of dramatically lower development pipeline on your income statement? Some of the costs that were just formerly capitalized; how that comes back onto your income statement?

Jerry Brewer

Well as several of us mentioned in the call, we have to take steps to right size our development team and that process has been going on for sometime now and what we’re doing is set sizing the development effort to the projects that we currently have in our pipeline. So, it’s not our intention to carry a bunch of extra overhead when we don’t have the projects for those people to be working on. The unfortunate side effect of having to downsize the development pipeline.

Haendel St. Juste - Green Street Advisors

Lastly, can you also help me understand how I should think about your strategic goal. It seems the balancing and meeting your shorter term FFO targets versus longer term value creation, what’s the thought process? How do you go about thinking balancing the two?

Reynolds Thompson

I’m not sure I get specifically what you’re asking Haendel?

Haendel St. Juste - Green Street Advisors

Well, certainly if you look at buying back in bond, recognizing certain gains, but to a certain degree sacrificing liquidity, I wanted to get a follow-up on an earlier question, just understanding how you’re prioritizing the two?

Reynolds Thompson

Well, let me first of all Haendel, the reason we’re buying back the bonds is because we think that’s an attractive use of a small amount of capital. Now the byproduct of buying back the bonds and getting yields north of 8% is that we don’t really like the accounting treatment. You’d rather take it and generate that 8.5% return overtime than would take a gain up front if nobody gives you any credit for one.

So, we’re not doing this to generate those gains, we’re just doing it because as we look at our alternatives for spending our disposable capital that we have right now. After everything else is taken into consideration, that looks to be the most attractive.

Reynolds Thompson

Haendel, that’s another reason we wanted to start talking about operating FFO and transactional FFO. The way we see it today, we’re not getting a lot of credit for that transactional FFO. When people start thinking about FFO being generated by our core business and just you look at that transactional FFO if you will; we’re creating some value there and we’re trying to distinguish between that’s two things, so it’s easy for people to see where the core company earnings are being driven.

Haendel St. Juste - Green Street Advisors

Last question; I just want to get some additional color on pricing power. For new leases versus renewals; can you give us any impact, any color on the differential?

Paul Earle

I think we’re going to find that new leases will probably start coming into the system flat from last quarter and we still have some growth that we’re going to achieve on the renewal side, but on the new lease side I think we’ll see fourth quarter somewhat flat to the third quarter.

Operator

Your final question comes from Nap Overton - Morgan Keegan.

Nap Overton - Morgan Keegan

Yes, just a quick question. If I have done math right, I think that your fourth quarter implied operating FFO number is between $0.31 and $0.38 per share based on your annual guidance and the year-to-date amount and that would include the negative impact of nickel from non-recurring item or unusual items there in the fourth quarter. That’s a pretty wide range for the next three months. What would cause you to hit the upper end or lower bounds of that range?

Reynolds Thompson

Better multifamily, same property, more fee income from the office group on the upside and exactly the opposite on the downside.

Nap Overton - Morgan Keegan

So, same-store NOI growth from multifamily and fee income on the office side?

Reynolds Thompson

Correct.

Nap Overton - Morgan Keegan

And what could impact the fee income on the office side?

Reynolds Thompson

Leasing velocity.

Operator

And there are no further questions; do you have any closing remarks.

Reynolds Thompson

Well thank you everyone for joining us on the call today. We look forward to seeing you at NAREIT and talking to you at the end of the fourth quarter. Thank you.

Operator

Thank you for participating in the Colonial Properties Trust third quarter earnings conference call. You may all now disconnect.

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