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Executives

David P. Stockert – Chief Executive Officer, President

Chris Papa – Chief Financial Officer

Thomas Wilkes – President of Post Apartment Management

Thomas Senkbeil – Chief Investment Officer

Analysts

Robert Stevenson – Fox-Pitt Kelton

Stephen Swett of Keefe, Bruyette & Woods

David Bragg – Merrill Lynch

Michael Bilerman – Citigroup

Karin Ford – Keybanc Capital Markets

Dustin Pizzo – Banc Of America Securities

[Sveum Bolan] – Goldman Sachs

Haendel St. Juste – Green Street Advisors

[Michelle Cole] – UBS

Anthony Paolone - J.P. Morgan

Post Properties Inc. (PPS) Q3 2008 Earnings Call November 4, 2008 10:00 AM ET

Operator

Good day everyone and welcome to the Post Properties' third quarter 2008 earnings conference call. This call is being recorded. (Operator Instructions) At this time I will turn the call over to Post Properties' President and Chief Executive Officer, Mr Dave Stockert, for opening remarks and introductions. Please go ahead, sir.

David Stockert

Thank you and good morning. This is Dave Stockert. I would like to welcome you to Post Properties third quarter conference call. With me today are Tom Wilkes, President of Post Apartment Management, Tom Senkbeil, Chief Investment Officer, and Chris Papa, our Chief Financial Officer. Before we begin the business of this call I'll reference the Safe Harbor Statement.

Statements contained in this conference call regarding expected operating results, including expected same-store revenues and other events, are forward-looking statements that involve risks and uncertainties. Actual future events or results may differ materially from these statements. Such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, and are made based on management's current expectations or beliefs, as well as assumptions made by and information currently available to management.

A variety of factors could cause actual results to differ materially from those anticipated, including those discussed under the caption Risk Factors in our annual report from Form 10-K dated December 31, 2007. Post Properties undertakes no obligation to update any information discussed on this conference call. During this call we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measures can be found in our earnings release in our supplemental financial data.

Both documents will be available through the Investor Relations section of the company's Web site at postproperties.com. This call is now live on our website and will also be recorded and available for playback on our website.

For the third quarter same-store NOI came in within the range of our previous forecast, albeit at the lower end of that range. I will focus on sequential changes in same-store results from the second to the third quarter, because that is the most relevant gage of the current state of fundamentals in our market. Same-store sequential revenue grew 0.9% in the third quarter.

During the quarter and in this current economic environment we are focused on maintaining occupancy, and grew average occupancy on a sequential basis by 150 basis points to 95.3%. Average rents declined slightly on a sequential basis by 20 basis points. This type of dynamic, trading odd rental rate in order to maintain occupancy is what we expect to see for at least the next several quarters as national and regional unemployment levels continue to increase. Lower expenses put same store NOI growth on a sequential basis to more than 3%.

For the fourth quarter we expect same-store revenue to decline sequentially by 1.9% to 2.4% offset by sizeable sequential declines and expenses. This forecast in large part reflects seasonal patterns in our business, but we expect those seasonal patterns to be magnified in the current economic environment.

Turning next to our balance sheet, we made the decision some time ago to reduce our overall leverage, primarily through asset sales. As a result, we are relatively well positioned to navigate the current credit market. Leverage, including both debt and preferred stock as a percentage of un-depreciated real estate assets, was just under 43% at quarter end, and after giving affect to the build out of the seven active construction projects listed on Page 14 of the supplemental financial data, leverage including preferred stock is expected to remain below 50%.

We have less than $80 million of debt maturities through year-end 2009, and maintain a large pool of unencumbered assets. In October we completed a $185 million debt financing with Freddie Mac. In that financing we were able to optimize the leverage on the six mortgaged assets, obtain interest-only treatment for the entirety of the loans, and paid a small amount for prepayment flexibility at par in the last two years of the six-year terminal loans. With the proceeds we paid down our line of credit.

Combined with the proceeds from the recently announced sale of Post Woods, we now have just under $600 million of available line capacity, plus an additional $110 million of invested cash. Not withstanding our current liquidity, we continue to look ahead and plan for our debt maturities and other financial needs over the next few years. While agency debt is priced attractively relative to any other alternative, we are likely to pursue additional agency financings and favor maintaining a meaningful invested cash position regardless of the resulting short-term dilution.

We are having reasonable success selling assets. Year-to-date we closed sales of three communities, totally $111 million at an average per-unit price of $125,000, and at a blended Cap rate on 12-months trailing NOI of 6%. The trailing 12-month Cap rate on the most recent sale was approximately 6.3%, reflecting the upward trend in Cap rates. Page 18 in supplemental financial data contains more details.

Notably, the market price of our shares of last night's $21.51 closing price implies a valuation for the entire portfolio of less than $100,000 per unit, and a Cap rate of well north of 9%. That implied valuation is substantially less than what we just achieved for Post Woods, a more than 30-year old Atlanta Garden Apartment Community, by far the oldest property in the portfolio. Further information for deriving net asset values can be found on Pages 21 and 22 of the supplemental financial data.

Although it is a very challenging transaction environment, we are continuing to pursue additional sales, even at Cap rates somewhat higher than those we've achieved on sales in 2008, and not withstanding our current liquidity; however, we will determine the ultimate level of asset sales by accessing alternative financing sources, levels of cash on hand, and further movements and asset pricing against our priority of maintaining capacity and balance sheet strength.

Give the current state of the capital markets and the economy we have deferred all of our remaining planned development starts until such time as conditions improve. In connection with this decision we have ceased the capitalization of interest on the projects deferred. During the quarter we completed an agreement with Ritz-Carlton to brand our co-owned Buckhead condominium development as the Ritz-Carlton Residences Atlanta Buckhead. We have made an additional preferred equity investment in the joint venture that owns the project.

This investment will be used principally to enhance the building common area and unit finishes, and for other improvements consistent with the Ritz-Carlton brand. As with our Four Seasons residences in Austin, we believe that the internationally known Ritz-Carlton brand will distinguish the project and broaden its appeal beyond the local land market. The venture expects to begin writing contracts on condominium units in December.

During the past several months we have been undertaking third-party engineering assessments, and establishing for mediation programs for each of our stucco and synthetic stucco-clad communities. As part of due diligence conducted during the company's sale process, we and certain bidder groups conducted invasive testing, meaning we cut into exterior walls in roughly a dozen communities to evaluate potential water penetration issues.

Since that time we decided to engage third-party experts to complete assessments and invasive tests in all 30 of our properties with such exteriors. Over the next two years we expect to spend approximately $40 million to $45 million to remediate any issues of these properties. The scope of the work will vary considerable from property to property.

Turning now to our expense control efforts, we incurred severance costs in the second and third quarters related to 40 eliminated positions. Combined with the effects of asset sales, attrition, and outsourcing the number of associates is down more than 10% from the more than 770 associates at year-end 2007.

Annualized savings in corporate overhead property management and development functions are expected to be approximately $4 million. Post associates are performing well and I appreciate their ongoing dedication and professionalism. In the past few months we also added two new independent directors to our Board; each brings significant real estate industry and financial experience.

And finally with respect to the common share dividend, we expect to continue to use it to pay out capital gains from asset sales. To the extent that we are unable to sell assets at acceptable prices, the Board would continue to assess the appropriate level of the dividend against our other capital and financing priorities.

The capital markets – and by extension the real estate business – are in the midst of a significant restructuring that is likely to produce lasting changes in company business models, both public and private. In the near term this will challenge many companies. Longer term, however, it seems likely that housing supply will continue to contract. The more highly levered competitors will not have the staying power to thrive, and in some cases survive, and then companies like Post with strong balance sheets and operating platforms will see new opportunities.

We have been and continue to position the company to persevere through the current environment, and to prosper as conditions improve. That concludes our prepared remarks. Operator, please open the phone lines for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Robert Stevenson – Fox-Pitt Kelton

Robert Stevenson – Fox-Pitt Kelton

Dave, in terms of the remediation stuff on the assets, is this just age? Is this construction defects, is this material defects, is there some insurance remedy on this?

David Stockert

This issued is that there's a construction type; there's ethers and some synthetic spectral systems that were pretty prevalent in the 90's construction, particularly with urban projects, and there are issues related to that construction type and in some cases the application. It could be door penetrations, window penetrations, flashing and things like that, so that's really what it's about. It's about a construction type.

Robert Stevenson – Fox-Pitt Kelton

So, this is basically not subject to any sort of insurance or anything else from a reimbursement standpoint?

David Stockert

In very limited cases it may be, but very limited cases

Robert Stevenson – Fox-Pitt Kelton

What are you guys seeing in terms of foreclosure activity in the Atlanta condo market?

Tom Senkbeil

This is Tom Senkbeil. I think most of the foreclosure activity that's in Atlanta is related to single-family homes. I haven't seen any specific reports of significant foreclosures in condominiums at this point.

Robert Stevenson – Fox-Pitt Kelton

I was just a little curious given the boom in construction in the condo market down there over the last few years as to whether or not some of that stuff's being leaked on and is going to cause any sort of overhang on the Ritz Carlton project.

Tom Senkbeil

The Ritz Carlton is such a different project and different price point and different customer base than that kind of entry level is I think where you would find more distress and more foreclosure activity and what you are seeing in that price point is more dropped contracts and there clearly is an overhang.

Robert Stevenson – Fox-Pitt Kelton

In terms of the expectations for initial sales pace at the Ritz Carlton condo project is this sort of typical percentages going forward or do you send them out at the beginning and then taking a while to sell out the back half of the units?

Tom Senkbeil

Our current schedule is we should have the building complete at stage to begin the initial closings a little less than a year from now in October of next year. We expect the closing process to take up to two years beyond that point. We would hope to have somewhere between 15 and 20% sold by then and I think we should do better than that pace. We are already taking reservations and we just started doing that two weeks ago and are seeing a lot of interest. Again, this product location and price point is probably the thing. Although everything's affected by the economy today it's least affected at more than an entry level.

Robert Stevenson – Fox-Pitt Kelton

Can you run through the big picture sources and uses of cash? It looks like from the comments and from the supplemental and all it looks like just a sort of rough numbers if I'm doing this correctly about $700 million of cash and borrowings available, potentially another $350 or so from asset sales versus $270 or so left to fund on the development pipeline and $75 million between redevelopment and the remediation. What else am I missing there?

David Stockert

The other thing you didn’t mention was the maturities. We have just under $80 million in maturities in '09 and in the development pipeline if you take out the amount that's subject to committed construction loan, financing, it's roughly about $220 million. So, $220 there another $80 for the debt obligations next year plus the other remediation and renovation obligations that you also mentioned will take us to probably just under $400 billion in total.

Operator

Our next question comes from Steve Swett – KBW.

Stephen Swett - Keefe, Bruyette & Woods

On the joint venture investment that you've made I assume that's because you brought in Ritz to work with you guys. Did your partner make any incremental investment and how does your preferred return work?

Tom Sinkbeil

The answer to the first question is no, we put all the incremental money in and for that reason it's got a pref that runs at 12% through the end of this year, which was a few months, and then it kicks up to 16% and then we also get an incremental 25% of the project profits and it's got liquidation preference over current equity.

Stephen Swett - Keefe, Bruyette & Woods

Chris, maybe I could ask you about the insurance damages in Houston? It seems like a substantial amount. Could you just talk a little bit about what that's related to? Where there any insurance recoveries? Is it related to down units and lost revenue or just damage?

Chris Papa

It was damage at all of our properties including the condominium property down there. For the most part our wind deductibles are 5% of value so those were not met at the condo project. We estimate that there may be some damage over that deductible limit, but for the most part this was uninsured casualty losses.

David Stockert

Steve, I want to point out you saw all those pictures of that Chase building in downtown Houston, well Post Rice is across the street so we don't know for sure but it seemed like maybe there was tornado activity or something so we got hit pretty hard.

Stephen Swett - Keefe, Bruyette & Woods

Could you just comment on the leasing pace within the development pipeline and the rents and whether or not you are still on track for your targeted yields?

David Stockert

Sure, over the last quarter at Post Alexander our pace has dropped off a bit from around 22 per month to 15 per month. At this point over the last 12 weeks we're leasing at $1.53 so we're still within range. We're using one month up front as a concession but that's budgeted as part of our lease up budget.

At Post Eastside, although the pace has dropped off to 12 per month part of that is a delivery issue where we had 135 units delivered initially and then there's a bit of a lag before the rest of the units will be delivered. So, of the current units delivered from construction we're 82% and we anticipate resuming the delivery of apartments and a more significant leasing pace in January. Likewise at this point we're at about $1.27 per foot on our leasing pace and so we're within range of the targeted yield.

Operator

Our next question comes from David Bragg – Merrill Lynch.

David Bragg – Merrill Lynch

Could you please talk about the Charlotte market and what you saw during the course of the quarter there in terms of traffic through October?

Tom Wilkes

David, on a sequential basis you saw that our revenues went up .5% that's driven primarily by occupancy. As far as effective rents are concerned, we did not push our effective rents they're basically flat. As it stands today, the occupancy at the close of November 1 was at 91.4% so that you can see it's dropped off about 170 basis points from one month ago.

There is some uncertainty as we move forward with respect to the impact of Wachovia that hopefully will be partially mitigated by Bank of America's growth. At this point we anticipate that there will be more decline in our effective rental rates in Charlotte as we strive to push the occupancy back up towards 94%.

David Bragg – Merrill Lynch

Tom, do you have an idea of what percentage of your tenants in that market work in the financial services industry?

Tom Wilkes

Well, we have four assets there, two are more urban in contacts two are more suburban and in terms of those related to the financial industry we don't have specific numbers. They are more employer oriented numbers.

David Bragg – Merrill Lynch

So, nothing specific on Wachovia and BofA perhaps combined?

Tom Wilkes

We would have to get that for you.

Chris Papa

I would be happy to get back with you on that specific number, David.

David Bragg – Merrill Lynch

Can you talk about anticipated concession activity in that market on renewals that we might see versus a couple of your other challenged markets such as Tampa?

Tom Wilkes

Again, using the revenue management system there's little use of concessions. As you can see from the supplement our concessions amounted to $7.00 per unit per month on average rents of over $1,200. So, the more telling factor is the change in the effective rents which as Dave referenced, was down 20 basis points sequentially. And so that's the better indicator of what rental rates are doing. Concessions are not a significant factor. We use them on a very limited basis and primarily on lease up properties.

Operator

Our next question comes from Michael Bilerman – Citigroup.

Michael Bilerman - Citigroup

It's David Toody here with Michael. Just going back to the wall repairs, did you guys uncover anything else during the due diligence process relative to construction or existing conditions?

David Stockert

No.

Michael Bilerman - Citigroup

Was there anything else?

Tom Sinkbeil

Just for your information, when we're doing these repairs it includes walls, windows, doors, roofing. We've looked at the whole system so that includes everything related to those flashing, so we're looking at the entire exterior structure.

David Stockert

And each project, or virtually each project, we'll end up with a new [laphyrmeric] coating which is a fancy word for a fancy type of paint so everything will look very fresh and good at the end of this process, too. So, it will to some degree improve the esthetics of the property.

Michael Bilerman - Citigroup

I guess, David, was there anything else that when the bidders are going through it the development pipeline with something, the predevelopment land all the things that you've started to address, and this one is a new one that has come out in terms of a capital spend that probably has while it improved the esthetic probably a limited incremental return.

David Stockert

There's no question about that and we aren't counting on that.

Michael Bilerman - Citigroup

Right and I just didn't know if there was anything else that, because we're not privy to the bidders underwriting, if there is anything else sort of underneath that may require additional capital.

David Stockert

No, I don’t believe so. The biggest issue in the sale process as we said before was financing and obviously with what's happened in the subsequent period the decision to end the process was the right decision. It was not going to go anywhere, but no we're trying to address a couple of issues that came out of the process that we learned were one, this issue and we spent some number of months doing the tests and getting our arms around what it is and what it will cost and we have announced that today.

Then, probably the other thing we learned we looked at our overhead as part of this and we've made some adjustments there and some of that came out of the process just the self-examination that one would expect, but not other physical issues.

Michael Bilerman - Citigroup

Those G&A costs you had had $3 million last quarter it's now up to $4 million so there's additional savings that you're expecting?

David Stockert

Well, I think there was probably more people, more positions affected.

Chris Papa

Yes, we had originally forecasted if you recall last quarter about $1.6 million of severance and that number bumped up this quarter to about $2.2 related to these additional positions and that with the additional savings that resulted from that.

Michael Bilerman - Citigroup

That $4 million annually is going to be, how much of that is current G&A that's on the income statement versus that's currently being capitalized in development?

Chris Papa

As you know we're not capitalizing all of our development and investment group in any case, but those amounts were spread I would say first and foremost in property management and then throughout other groups like corporate and development and landscaping.

Michael Bilerman - Citigroup

And how much of that $4 million annual savings has already been reflected in 3Q results?

Chris Papa

A number of positions were eliminated in early July so some of that is already reflected in this quarter. Some other positions I would say that it was probably a lesser amount were terminated at the end of September.

Michael Bilerman - Citigroup

Do you expect any further charges in CapEx related to the resident design centers or is that all through?

Tom Wilkes

No, we'll continue to do that on a demand basis.

David Stockert

You know what that is, right? It's an option where a resident can come in and choose from a menu of upgrades. It might be new finishes, countertops, flooring things like that, and paying incremental rent. So that’s something we offer as a customization that a resident can do at their option.

Michael Bilerman - Citigroup

Do you see that accelerating given the environment?

David Stockert

Probably what do you think?

Tom Wilkes

Yes we anticipate doing around, on a year-to-date basis we’ve done $1.3 million in that and we have achieved the incremental rents associated with that. We anticipate continuing that program next year; we’re doing that on about 20 properties. But of course it’s based on demand and it’s been only when the resident comes in, and agrees to pay that incremental rent associated with those amenities.

Michael Bilerman - Citigroup

And just one last question, can you talk about any kind of scale relative to potential right downs from the [Shadow] pipeline?

David Stockert

You’re talking about impairments and things?

Michael Bilerman - Citigroup

Right.

David Stockert

Well we went through an analysis of impairments last quarter, that’s not to say that we couldn’t have some more. But I think we’ve gotten ahead of the curve on that.

Operator

Our next question is from Karin Ford – Keybanc Capital Markets

Karin Ford – Keybanc Capital Markets

Can you tell us the occupancy as of November 1 for the entire portfolio?

David Stockert

The occupancy at the November 1 for the entire portfolio was 93.9%. That’s the fully stabilized portfolio, I think that’s what you’re driving at?

Karin Ford – Keybanc Capital Markets

That’s the same store pool right?

David Stockert

That’s correct.

Karin Ford – Keybanc Capital Markets

The pricing on your assets for sale, looks like your proceeds expected, if you include the two that were sold this quarter dropped about $50 million, about 10% is that right? And does that imply you’re expecting a 50 basis point increase in Cap rates from here?

David Stockert

Well, I think the answer is yes. I would say there's about a 10% adjustment but I think that’s, I wouldn’t say from here necessarily as more from the time we first announced the $500 million which was some months ago. Yes Cap rates have changed. And they’ve changed recently.

Karin Ford – Keybanc Capital Markets

Can you talk about your bad debt trends that you’ve seen this quarter?

Chris Papa

Sure bad debt is only 0.24% of gross potential or total rents. So if you were to compare that to where we were a year ago, we’re actually better on a year-to-date basis than we were a year ago. So we’re not seeing material trend upwards in our bad debt. And that’s a reflection of sticking to our resident qualifying guidelines and aggressive collections on bad debt to the extent that we do have it.

Karin Ford – Keybanc Capital Markets

Got it, and then just two quick ones on the development pipeline, can you tell us how much you spent on land carry costs this quarter and year-to-date?

David Stockert

I don't know if we can say specifically this quarter but I would say if you look at the projects that were in the pre-development pipeline last quarter the six projects, Morningside was not acquired yet so there wasn’t really any significant carry on in that. But the other five projects had a run rate of about $0.07 a quarter, excuse me $0.07 per annum, so a little under $0.02 a quarter.

And if you look at the other projects the other four that we had deferred last quarter, those were probably another I’d say $0.10 to $0.12 depending on whether or not you include Soho. In Soho we had stopped capitalization some time ago. So you’re talking about somewhere between $0.17 and $0.20 per annum all in, including the four from last quarter and this six pre-development that we deferred this quarter.

Karin Ford – Keybanc Capital Markets

And that’s all hitting the expense line?

Chris Papa

And that will be, yes that will be either interest, yes largely interest and property taxes. So your run rate I would say per quarter will be in the order of $0.04 to $0.05 in total a quarter.

Karin Ford – Keybanc Capital Markets

And just one last question on the development. How much worse does the environment have to get or how long does the downturn need to last before you consider abandoning more projects?

David Stockert

Well the only thing we would have left to abandon is the stuff that’s under construction and I think that would be – it would have to be really, really bad. And that just wouldn’t be a good decision because we’re up and here’s nothing good that’s going to happen to a half done project.

Operator

Our next question is from Dustin Pizzo – Bank Of America Securities

Dustin Pizzo – Bank of America Securities

Tom, can you touch on the performance of the two New York assets in the third quarter and perhaps in October since they’re no longer in the same circle?

Thomas Wilkes

Yes the revenues for the third quarter were up 2.1% year-over-year and their occupancy remains in the 92% to 94% range.

Dustin Pizzo – Bank of America Securities

Have you seen any meaningful change in that since the end of the quarter or is it basically held there?

Thomas Wilkes

It’s basically held there.

Dustin Pizzo – Bank of America Securities

Have you seen any trends develop in any of your markets? It looks like you guys are expecting a little bit of a higher erosion in fundamentals in some of your peers where, people are trading down, either from A's to B's or cheaper per units within some of your complexes or moving in with roommates, moving home, that sort of thing?

David Stockert

That’s anecdotal as we are out on properties, you do hear about residents who are transferring within our system from larger apartments to smaller apartments. But if you look at turnover it’s not up appreciably and even if you boil that down further to look at transfers within the system. It’s not up appreciably, so we’re not seeing macro quantifiable trends that relate to things that you just mentioned.

Dustin Pizzo – Bank of America Securities

And then just a couple of quick ones, David can you just help us understand, why if you guys discovered the potential water damage issue during the due diligence associated with the for sale process. Which ended back in late June, we’re just finding out about this, today, I know you had to go through the process of trying to quantify it?

David Stockert

Well that’s the reason we couldn’t say much about it, until we knew what we, until we had our arms around it, we just didn’t have much to say.

Dustin Pizzo – Bank of America Securities

And do you expect the charges will be, more heavily weighted towards 2010 late 2009 near term is it going to be a fairly even process as you try to work through?

David Stockert

Well I think the thing you have to look at is that the amount that we’ve laid out there, the $40 to $45 million will be capitalized or expense and of course we’re on normal CapEx policies. So as we incur those costs those would be treated accordingly. It’s the component of buildings and that may be affected by the scope of the work where we may have to take some things out of service, etc.

That may result in some charges in the future, and that right now is really not possible to quantify. Because we’re still getting our arms around what those components may be. And then we would have to further determine what charges we would require. But it would likely be in future periods, could be starting in the fourth quarter of ’08 and may continue through this process.

Dustin Pizzo – Bank of America Securities

And aside from that for the fourth quarter should we expect to see any other additional onetime items in there?

Tom Sinkbeil

You know I mean besides that we will continue to do assessments of impairments, we’ve done that last quarter, as they’ve mentioned we’ve done it again this quarter. We will continue to assess our estimates on a go forward basis as the market changes. Those estimates may change, so that could result in charges in future periods that’s always possible.

The other thing that I would say could result in charges if we decide to do anything with some of our debt, I would say the one facility out there that we’re likely to look at is the Fannie Mae taxable which is subject to this weekly remarketing which with this placement in the market has been adversely impacted by the turmoil. That’s something we may look at that has a swap associated with it, and some other deferred costs that could result in a charge in the future but that remains to be determined.

Operator

Our next question is from [Sveum Bolan] – Goldman Sachs.

[SveumBolan] – Goldman Sachs

Jay is on the line as well. Big picture question for Dave, in regards to the sale process and the proceeds that you may receive from the asset sales, how do we think about, how you’re going to evaluate the dividend going forward? Do you feel that you can get the proceeds that you feel those assets are worth, at a point? Should we look for any particular time or after bidding process? How should we think about that?

David Stockert

No I wouldn’t put a time on it. We’re looking at everything as you might imagine in this environment. But the priority obviously is the capacity balance sheet strength. We would like to continue to sell some assets and we will push to try and get deals done as we mentioned before, Cap rates are creeping up. And deals are hard to complete.

I think in the last two sales, we went through multiple bidders, for each one. And it’s a process. But so I wouldn’t put any particular time on it, it’s just going to – we’re just going to have to see how things play out. The decisions about the dividend when they come up in increments and come up once a quarter and every quarter we assess it with the board and will continue to do so.

[Sveum Bolan] – Goldman Sachs

And then just a follow on question from Karin’s question earlier, the 10% decline in expected proceeds is that your best estimate as to what you’ve seen out in the market or what you’ve seen in the financing market or what you’ve seen from the bidding process thus far?

David Stockert

Probably all of the above.

[Sveum Bolan] – Goldman Sachs

And then lastly has there been more progress on the potential sale of the Citrus Park development?

Tom Wilkes

The Citrus Park property is under contract right now. We will be talking to the buyers actually next week about their status and we will report after that.

Operator

Our next question from Haendel St. Juste – Green Street Advisors

Haendel St. Juste – Green Street Advisors

Maybe Tom, would you give us some updated color on your Four Seasons project in Austin, it doesn’t look like you’ve had any additional, put any additional units in the contract over the past month. What’s your current outlook for that project? I know the sales pace has been slow of late. How have the past 30, 60, 90 days of what’s occurred in the economy impacted your outlook on that project?

Thomas Wilkes

Yes we had, you’re right we have not had any further contracts signed recently. We do have a lot of, a group of about 15 active contracts working. I think it's slowed down considerably as individuals are assessing their own financial situation and just trying to determine where this economy is going. But that’s about all I can tell you there. We still feel good about the demand and feel good about our position where we are with the contract.

Haendel St. Juste – Green Street Advisors

Any sense or is it too early to say still what your expected sell out date would be?

Thomas Wilkes

Well as we said all along we budgeted this we would start closing at the very end of next year. May, some may close in the fourth quarter and some, most of them, will probably close in the first quarter. And then we expect beyond that anywhere from a 12 to 24 month time to go through that. So we’re as far as total revenue right now, we’re right at 50% of the projection. Obviously 40% of the unit under contract and if we’re well ahead of the pace we’d set budget-wise right now.

Haendel St. Juste – Green Street Advisors

Chris, perhaps one or two for you, how much more secured foreign capacity do you have before you start bumping up again certain covenants?

Chris Papa

Well if you look at the information we provide on page 12 of the supplement, as of the end of the quarter we had about $380 million worth of secured debt which represented about 14% of our total assets. Our covenant there for the public is up 40%. We have other covenants that are 35%. So even with the financing we just did, I mean if you laid that out on a pro forma basis you’d still be roughly around 20% just adding that debt as a percentage of total assets. So still have some capacity there from a secured standpoint.

Haendel St. Juste – Green Street Advisors

Have you also talked to some of the life insurance companies or just getting a sense of as to what the next best source of capital out there? Assuming that your worst case scenario where Fannie and Freddie are no longer actively lending to the space?

David Stockert

Yes, we touched base with a number of lenders, brokers, when we’re looking at this trying to assess where the market is. And if there’s any other capacity or people in the market that are looking to aggressively bid. I mean so far from everything we’ve seen that the GSEs continue to be the most attractive source.

I think the life companies are out there, for the right assets the right sponsors I think they’re interested in doing things with people on the financing side. I think the issue there is one of capacity I would say and I think some of them, what I’ve heard anecdotally is that some of them are also just kind of waiting, given the recent turmoil a lot of them are waiting to see what happens or pushing out to probably end of this quarter and into '09.

Haendel St. Juste – Green Street Advisors

On last one, Dave, I know we’ve tried to cut at this a couple of different ways on the call today. But just wanted to get your sense of the change in asset pricing and how you’re thinking about that particularly in your smaller Atlanta assets, compared to your larger New York City assets?

Tom Wilkes

Let me ask you to rephrase the question. You're talking about the difference between markets?

Haendel St. Juste – Green Street Advisors

Well essentially the difference between investor appetite for the different deal sizes, certainly markets.

Tom Wilkes

Oh the deal size definitely favors smaller assets. But I would say we’re seeing pretty good interest up to say $60 million and what you’re having now is a very different approach to selling. The auction process you did in the past of sending out packages to a lot of people just – there is not an effective method. What we’re actually doing is directly contacting say anywhere from six to 10 well-known buyers who are looking for this kind of product and really negotiating with those. I don’t know that there’s really been a lot of difference between markets frankly.

We’ve had good interest on the Atlanta assets. We’ve actually had recently with the changes in New York, significantly less interest on the New York asset. And I think that’s a reaction of people having been a very good market and obviously people anticipating change based on what’s happened with employment and really don’t – people are just pulling back there to wait and see what happens.

Haendel St. Juste – Green Street Advisors

So as far as any color you can share on the discount that people are pass pricing in between deals below that $60 million windows that tend to get larger, close to $100 million?

David Stockert

I don’t know that there’s any discount as much as I think it just gets difficult when you get up higher than that for people to do that because of the amount of equity that needs to be raised and the debt that has to be raised.

Operator

Your next question is from [Michelle Cole] – UBS

[Michelle Cole] – UBS

In the press release on I believe it was said that the remediation costs were preliminary estimates? I was just wondering when the final scope of the project was complete and what you believe the worst case scenario for the remediation costs could be and if there was anything else that they might find that would dramatically increase these costs.

Unidentified Corporate Participant

Well again and we had the question earlier about why we disclosed it when we did. We think we’ve done enough work that this is a pretty good estimate. The truth is we won’t know until we’re done, which will take some time. But we think we’ve done invasive tests at a lot of properties and we know what scope of work we’re doing and so we feel as good as we can feel about this. So, although we said preliminary, these numbers are not without a lot of work behind them.

Unidentified Corporate Participant

And we’re using in doing this work, we’re using some very good firms that have a lot of experience doing this for a number of our peers that are involved in family companies. We’re not unique at all with this. I think if you’ll look throughout our industry you’ll find this is relatively prevalent with this kind of construction. And we’re using contractors, third party contractors, again, who have had significant experience.

So we feel pretty good about our estimates, we’re certainly leaving contingency and trying to know the final – as Dave said, this an ongoing process that will go through the next 15 to 24 months. So as we complete things, we’ll have a lot better feel moving along, but I [inaudible] of what a day when we know everything.

Unidentified Analyst

And you’d also mentioned on the call that you’re interested in getting more agency debt. I’m just curious if you’ve begun discussions with Fannie and Freddie and how much you’re looking to get and do you plan to pull this money for de-levering purposes?

Unidentified Corporate Participant

We’re now talking about specifics; we are talking often to a number of lenders and financial sources. We do have, as a mentioned before just under $80 million of maturities and dept amortizing next year. We also have the Fannie taxable bonds that we may look at, which are about $92 million and looking on to 2010, we have about $185 million of unsecured senior notes that come due in December. That’s really the next major maturity we have if you exclude our line.

So, those are the priorities we’re looking at. We’re really looking forward at both the development of pipeline that I mentioned before, plus those maturities when were looking to assess how much capital we need and those are really the priorities as we stand here today.

Operator

Your next question comes from Mike Salinsky - RBC Capital Markets.

Mike Salinsky – RBC Capital Markets

Dave, do you expect any additional severance charges in the forth quarter, or have we basically wrapped everything up?

David P. Stockert

I think it’s possible. Every company in America right now is going through their budgets, as are we, and as part of that process I think you’re taking another look at it.

Mike Salinsky – RBC Capital Markets

Maybe to put it another way, what is the amount of charges we should expect in the forth quarter?

David P. Stockert

I don’t have any idea. I mean, I would hope it’s not comparable to what we’ve had, but to say there wouldn’t be any would be, I think, there’ll be something.

Mike Salinsky – RBC Capital Markets

On the water infiltration issue of the 30 properties, how many of those were post-construction?

David P. Stockert

Virtually all.

Mike Salinsky – RBC Capital Markets

Tom, a question for you, in terms of the Atlanta market, how is that market performing specifically, just given that Ken had mentioned that there was a big shift in job growth – a big restatement of job growth there and how did that market perform through October?

Unidentified Corporate Participant

As far October’s concern, today that occupancy is 94%, and you can see that we closed out at the quarter 95%. However, if you look at the sequential rents, you can see that our sequential revenue was up only .7% and rents were essentially flat, so that we drove our occupancy up – we drove our revenues up sequentially by driving the occupancy.

Clearly, the fact that the job loss is at 33,000 over the last 12 months is not encouraging. However, single family permits are down 50% and multi-family permits are down at only 6,300, which is the lowest that it’s been for many, many years.

So, on a long-term basis, we’re optimistic with respect to the declining amount of supply and we’ll continue to push rents when we’re able too. We don’t anticipate a lot of pricing power in Atlanta for at least the next few several months until we see some resumption of this job growth.

Mike Salinsky – RBC Capital Markets

At this point in time if you had to rank your market in terms of strength, strongest to weakest, where would Atlanta fall out?

Unidentified Participant

Well, let me just go through the markets. Houston, Austin, Dallas would be at the top, then I would follow that with Atlanta then Washington D.C., Charlotte, Tampa and Orlando. So, we still see Atlanta in the top third.

Mike Salinsky – RBC Capital Markets

And you expect that to continue through 2009?

Unidentified Participant

Well, we’re working on our 2009 budgets and we’ll have guidance for 2009. It will anticipate giving out in the first quarter call – the fourth quarter call as we typically have down in the past.

Mike Salinsky – RBC Capital Markets

Finally, a question for you Chris. In terms of the cost reallocations in G&A back to the property level, what is the absolute amount of those, namely under a trailing four quarter basis?

Chris Papa

It’s not going at G&A, all these cost are in the property management overhead, so, they all role up under that property operating and maintenance line. So, it’s just a reclassification within that line. But, you are correct. It is from corporate down to the properties. Same-store impact was roughly about 500 a quarter. I think in total with all the [accrual], you’re probably looking at about 600 a quarter, so it’s in the $2.5 million range per annum.

Operator

Your final question comes from Anthony Paolone - J.P. Morgan.

Anthony Paolone – J.P. Morgan

Do you have a sense as to what the occupancy cost may be related to the 11,000 units impacted by remediation, in terms of what could potentially be lost there during that process?

Unidentified Corporate Participant

I would use Houston as a good example, notwithstanding the fact that it’s a great market right now. We’ve done $1.5 million of remediation work at Midtown Square over the last nine to twelve months and at this point, Houston is up year-over-year for the quarter 4.2% and up 5.6% on a year-to-date basis.

So we anticipate some change in occupancy to the extent that we have to get inside units for extended periods of time, but that’s not more than 80 to 100 basis points of occupancy, as you see Houston as been operating at about 93% to 94% versus the 94% to 95%. So the point is that we’re pretty experienced having gone through what we’ve gone through with Houston, to be able to work around our residents and cause as little distraction and disruption to their lives as possible.

Anthony Paolone – J.P. Morgan

Has it historically resulted in any rent declines to just keep the flow of traffic during the construction process?

Unidentified Corporate Participant

No.

Unidentified Corporate Participant

I want to make sure I’m clear on one thing as we talk about this. This is a construction methodology that was prevalent in the ‘90s. We don’t use it anymore and certainly not on the projects that we’ve done in the last half dozen years or so.

Anthony Paolone – J.P. Morgan

Chris, just to try to tie together your comments on G&A, as well the investment development line items incorporating the changes and so forth, do you see the sense of run rate in the next couple quarters where you thing G&A and in investment development and others should shake out the one times?

Chris Papa

There are so many different parts going through G&A right now. If you look at the run rate we were affected this quarter by some true ups in accruals, particularly our shareholder value [inaudible] plan, bonus incentives, et cetera. I would think, as we sit here today and looking at G&A, I would think that it’s probably going to be, if given where it was in the third quarter, probably it would be on par to maybe slightly up and that would really depend upon what ultimately happens with some of the further accrual true ups that we may have at the quarter.

This estimate plan is a variable plan that can impact us from quarter to quarter depending on where the stock price goes but, I’d say my best guess would be, as we sit here today, that it would be flat up modestly from the third quarter.

Anthony Paolone – J.P. Morgan

And the $1.8 million on investment development and other, when you bring in the land carry and so forth there, where do you think that rolls out?

Chris Papa

When you separate the components, the land carry and what we've been talking about before, I was giving you the incremental on the four projects that we had deferred in the second quarter, the six projects we’ve deferred this past quarter, and I would put those into two different buckets.

If you sit there and look at the six projects this quarter that we deferred, that’s about $0.07 per annum, so a little under $0.02 a quarter. And if you look at the four from last quarter, which would have been Allen Plaza, Baldwin Soho and Citrus, the run rate on those is just under $0.13 I would say per annum. So all totaled, I think you’re looking at something that’s upwards of about $0.20 on a run rate basis per annum on those ten projects.

Unidentified Corporate Participant

A lot of that is going to be showing up in interest expense. It’s going to show up in that development line.

Chris Papa

Yes, and I would say if you look at on, a percentage basis, maybe about 15% or so, and I’m just using an average, would be essentially property tax. The rest of it would likely be interest. The interest would show up on interest line item. In addition to that, that I mentioned, we also have other land position that are our future land position plus land held for sale and that cost has been and continues to be expense. So you’ll have some impact of that as well.

Anthony Paolone – J.P. Morgan

And then last question, don’t know if you have this, but do you have a sense as to what your taxable earnings are if you weren't to include the gains?

Chris Papa

You means as far as ordinary income? Yes, if you look at our last three years, all ordinary income has been pretty modest. We’ve had some [inaudible] wealth, which have offset some of that, but the last three years we’ve been almost substantially 100% capital gains. I think that in one year, maybe two years ago we had about 3% that was not capital gain and I think part of that was a return of capital.

So, the ordinary portion has been pretty modest and given where we are this year with some of the other cost from things we’ve had. I would think that that would also be the case this year.

Operator

This will conclude today’s question and answer session. Mr. Stockert, I will turn the conference back over to you for closing comments.

David Stockert

We appreciate you all spending time today and we look for to seeing many of you in [inaudible] and talking at the end of the quarter.

Operator

Ladies and gentlemen, this will conclude the Post Properties third quarter 2008 earnings conference call. We thank you for your participation and you may disconnect at this time.

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Source: Post Properties Inc. Q3 2008 Earnings Call Transcript
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