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Colonial Properties Trust Inc. (NYSE:CLP)

Q4 2012 Earnings Call

January 24, 2013 14:00 pm ET

Executives

Jerry A. Brewer – Executive VP, Finance

Bradley P. Sandidge – Interim Chief Financial Officer and Chief Accounting Officer

Thomas H. Lowder – Chairman, Chief Executive Officer

Paul F. Earle – Chief Operating Officer

Analysts

Eric Wolfe – Citigroup

Jana Galan – Bank of America Merrill Lynch

Derek Bower – UBS

Andrew Schaffer – Sandler O'Neill

Jeff Donnelly – Wells Fargo Securities

Tom Truxillo – Bank of America Merrill Lynch

Operator

Ladies and gentlemen thank you for standing by. Welcome to the Colonial Properties Trust Fourth Quarter 2012 Conference Call. (Operator Instructions) As a reminder this conference is being recorded Thursday, January 24, 2013.

I would now like to turn the conference over to Jerry Brewer, Executive Vice President of Finance. Please go ahead sir.

Jerry A. Brewer

Thank you, Nicky, and welcome to everyone joining us today. We released our earnings this morning via Business Wire. A copy of this earnings release maybe found on our website.

Let me remind you that much of the information we discuss on this call, including 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 estimates are based on a number of assumptions, any of which unrealized could adversely affect their accuracy. Please see our latest SEC filings for the detail on explanation of risk. Any non-GAAP financial measures we discuss are reconciled to the closest GAAP measures in filings that can be found on our website.

Tom Lowder, our Chairman and Chief Executive Officer will lead today's call. Joining us will be Brad Sandidge, our Interim Chief Financial Officer; Paul Earle, our Chief Operating Officer is also here to field questions.

On the call, we will discuss our business developments, financial results for the fourth quarter and our guidance for 2013. After our comments, we'll open up the call to take your questions.

I'll now turn the call over to Tom.

Thomas H. Lowder

Thank you, Jerry, and welcome to everyone joining us. Our message throughout 2012 was to grow the company, achieve our investment grade rating and improve the portfolio.

Our growth came internally from our multifamily same-property portfolio, which posted net operating income increases of 6.7% for the quarter and 7.6% for the full year. This represents our best year-over-year same-property NOI growth in the Company's history surpassing our record that was established just one year ago.

Our core business continues to produce solid results with our ability to continue to push lease rates and occupancy remaining around 96%. Our primarily avenue for external growth is coming from our development pipeline. During 2012, we faced two properties into service representing 718 units, and we have another five developments underway representing 1,300 units, an investment of approximately $107 million. We have four additional sites on our balance sheet on which we will start construction in 2013. As we discussed in our last call, we reached our second objective as both Moody’s and Standard & Poor's have recognized progress we’ve made on our balance sheet in the simplification of the business with an investment grade unsecured credit rating.

During the fourth quarter, with the third directive to improve the portfolio, we sold four older properties and used the proceeds to purchase three newer apartment communities with higher revenue per unit. These transactions reduced the average age of our entire portfolio by approximately one year and improved the average revenue per unit, two important metrics in our game plan.

We also sold the wholly owned commercial asset of proceeds of over $37 million and exited one additional commercial joint venture. Since the start of this year, we sold another commercial joint venture interest which has further helped us to simplify the company. Currently, we have 87% of our income being derived from our multifamily portfolio as we head into 2013. Our multifamily portfolio will produce more than 90% of our total revenue and net operating income this year achieving another important milestone.

The board has increased the common dividend 17% to $0.21 per quarter as a result of these improving operations and a stronger balance sheet. During the quarter, we had a couple of one-time charges related to legacy for-sale residential litigation and previously sold merchant build shopping centers that Brad will discuss in just a moment.

While we are disappointed we are having to record these charges, we believe this will resolve some ongoing litigation and allows to focus on more growth opportunities. Before Brad Sandidge, our Chief Accounting Officer and Interim Chief Financial Officer discuss the fourth quarter financials, I’d like to recognize Reynolds Thompson for his 15 years of service and for his many contributions to the company most recently as President and CFO.

When I returned to Active Management after three years at the end of 2008, Reynolds agreed to stay on as Chief Financial Officer to help me implement our reduction, restructure, renewal program. He’s worked to help us simplify and strengthen the business. I appreciate his loyalty to stay and rebuild the company. The board and I wish him well on his new pursuits.

Now, Brad will provide more details on our operating performance during the quarter. Brad?

Bradley P. Sandidge

Thanks, Tom. FFO for the fourth quarter was $0.19 per share as compared to $0.28 per share a year-ago. Our fourth quarter results include $0.15 per share of one-time charges that I will discuss in further detail in just a moment.

Our fourth quarter same-property net operating income increased 6.7% and revenue increased 5.3% versus the prior year. Multifamily same-property financial occupancy was 96% for the quarter. For the full year, same-property NOI increased a record 7.6%. Revenue increased a record 5.4% for the full year, while expenses were up only 2.3%. Revenue for occupied unit is above our prior peak in all of our markets except for Phoenix, which is approximately $8 a unit below the prior peak.

Average revenue per occupied unit reached $951 during the quarter, up 0.4% sequentially and 4.5% from the fourth quarter of 2011. Renewal rates were up 6.4% in the fourth quarter, while new lease rates were down 0.7% consistent with our seasonal trend from prior years. Our blended rental rate growth was up 2.3% for the quarter. Rent as a percent of revenue income was 16.1% for the quarter. Resident turnover was 60.7% which is a 100 basis points above prior year. However, turnover for the fourth quarter is still well below our long term average and move outs related to home buyers for the quarter were 16.2%.

During the quarter, we completed development of the 232 unit Colonial Grand at Lake Mary Phase I in Orlando. This development was completed below budget at approximately 115,000 a unit and leased up 8 months ahead of our original schedule. The property was stabilized as of quarter end with 94% occupancy and is anticipated to have first year yield of approximately 8% which is as much as 100 basis points ahead of our original estimates. We have five developments under construction representing 1,300 units in Austin, Orlando, and Charlotte with total cost projected to be approximately $170 million. Three projects are currently in lease up and all five are on budget.

As I noted earlier, we recorded $0.15 of one-time charges during the quarter. The first was an $8.2 million charge for a proposed settlement related to the UCO litigation which is a contract dispute with the general contractor on legacy for-sale residential projects that we previously disclosed.

The charges are comprised of an increase in our loss contingency accrual of $4.9 million and $3.3 million non-cash impairment charge on our for-sale residential lots. After considering numerous factors, we felt like it was in our best interest to settle this case. The final settlement is anticipated to be primarily in the form of for-sale residential lots that we did not intend to develop and the remainders in cash. We also recorded an adjustment to previously recognized gains on the sale of a property of $4.2 million related to required infrastructure repairs on a retail asset that was originally developed by the company and sold into a joint venture in the fourth quarter of 2007.

When the property was originally sold, we recognized a pretax gain of approximately $12.8 million. We are pursuing recovery of some or all of the costs associated with the payers from the general contractor responsible for the infrastructure and site work. Additionally, $1.8 million of restructuring charges were recorded related to the departure of our President and CFO and other management personnel as a result of the simplification of the company's business.

I'll now turn the call over to Jerry to discuss our balance sheet and transaction activity during the quarter. Jerry?

Jerry A. Brewer

In the fourth quarter, we sold four apartment communities with 1,380 units for total proceeds of $95.4 million. These properties had an average age of 31 years and average monthly rent of $695 per unit. We deploy the proceeds from these dispositions to purchase two Class A apartment communities with an average age of seven years and average monthly rent of $1,075 per unit for a total of $67.3 million. The properties we acquired are the Colonial Reserve at Las Colinas, a Mid-Rise property in Dallas, and the Colonial Grand at Canyon Ranch in Austin.

Also as we noted on the call last quarter, we acquired a 370 unit Colonial Grand of Research Park in Raleigh in October from our joint venture partner. We had an existing 20% ownership interest in the apartment community and purchased the property for $38 million in cash and repaid the $21.3 million of property specific debt.

On the commercial side, we made progress on further simplifying our portfolio. In October, we closed on the sale of Colonial Promenade Alabaster, a 612,000-square-foot retail center in Birmingham for $37.4 million. In December, we completed the sale of our remaining 10% ownership interest in the Bluerock office portfolio. This portfolio consisted of 9 office assets located in Huntsville, Alabama totaling 1.7 million square feet. We received $2 million in cash and were released from our responsibility for $10.7 million of associated mortgage debt and $7.9 million of other liabilities, which represented our pro-rata share.

Also earlier this month, we sold our remaining 10% ownership interest in the 381,000-square-foot retail center Colonial Promenade at Hoover in Birmingham. We received $450,000 in cash and were released from our pro-rata share of the associated mortgage debt, which was $1.5 million.

At quarter-end, our debt plus preferred to gross asset value was 44.9%, fixed charge ratio was 2.3 times for the quarter and debt-to-EBITDA was 8 times. Our line of credit balance at the end of the quarter was $188.6 million with over $300 million available. Our debt maturity schedule is in good shape with only one consolidated unsecured bond of approximately $100 million maturing in April of this year.

I’ll now turn the call back over to Tom to discuss our 2013 guidance.

Thomas H. Lowder

Thanks, Jerry. Our full year 2013 FFO guidance is a $1.34 to $1.40 per share. This estimate includes a full year of multifamily same property net operating income increase of 4% to 6% with revenues expected to increase 4.25% to 5.25% and expense is expected to increase 4% to 5%.

Our revenue increase is predicated upon maintaining financial occupancy around 95% in continuing to push new and renewal lease rates. The increase in expenses is primarily driven by an assumption and property taxes will increase 7% to 8%and utilities will increase 5% to 7%. The majority of the increase in property taxes is expected to come from our Texas and Florida markets.

Our guidance assumes acquisitions of $150 million to $175 million, and dispositions of $275 million to $325 million. About half of our disposition guidance is comprised of commercial properties, which includes Metropolitan Midtown which we anticipate to close this quarter. The ultimate timing and volume of these potential sales will impact normal FFO results. We anticipate development spending of $125 million to $150 million for the full year. And as Brad mentioned, we have five developments currently underway. Our guidance assumes starting another four new developments on land that we currently have on the books.

Corporate G&A is expected to be $18 million to $19 million, reflecting the simplification of the company. Simplified and stronger is the theme we’re using in 2013. It distinctly describes where we are and how far we've come over the last several years. It will also drive our CEO directives for the coming year which are to first of all advance the company, number two, fortify the balance sheet, and third, enhance the portfolio. We will “Advance the company through completing projects that we have in our development pipeline and continue to grow our core operations”. And we used the word advance, the word advance not just grow, because it's not just growth, for growth sakes, but its growth the right way, quality earnings with an ever improving product. We’ve made great progress with our balance sheet, therefore we’ve used the word fortify to fortify the balance sheet by continuing to lower our overall debt levels primarily with commercial asset sales and improve our financial ratios with improved earnings.

Lastly, we will enhance our portfolio by reducing the average age, increasing average rents, and lowering our capital expenditure requirements through multifamily asset recycling and bringing new development successfully online within budget and on schedule. We will continue to reduce our commercial asset exposure. As I mentioned earlier, over 90% of our revenue in NOI will be from our core business, the multifamily business this year. The multifamily operating fundamentals continue to provide growth.

Our strongest markets for revenue growth in 2013 are expected to be Austin, Atlanta, Orlando, Charlotte, and Charleston [with advisors] lift 10 of our key markets into top 15 of U.S. markets in employment growth over the next three years. New supply is ramping up in Austin, Charlotte, Dallas, and Raleigh. However, there appears to be good demand as a result of job growth in these markets. While there is a seasonal slowdown similar to last year at this time, January renewal rates are up 6.6% and occupancy remained strong at 96%.

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from the line of Eric Wolfe with Citigroup. Please go ahead.

Eric Wolfe – Citigroup

Hey guys.

Jerry A. Brewer

Hi, Eric.

Eric Wolfe – Citigroup

In your remarks you mentioned the restructuring charges especially with the departure of management as well as – as you put the simplification of your operations. Can you just talk about some of the areas where you've cut expenses and whether these are permanent savings, temporary savings and whether there is other additional areas where you can maybe find some cut expenses further?

Bradley P. Sandidge

Sure, Eric. It is – as you’ve touched on it’s a simplification about business that we have seen those who are out. It's come from all areas of business, its been from little things like reducing – reduce the paper and our copiers to change in management personnel. I think the changes that you see is a consistent run rate, is the permanent reduction in our overhead structure. We’re getting a full year finally in 2013 from all the changes we’ve been making over the years. This has not been a one process as you know.

Thomas H. Lowder

So just to add to Brad's comments from the management structure running a large commercial portfolio with very sophisticated joint-venture partners requires lot of highly paid qualified personnel, and as we have exited those businesses we've been able to reduce our overhead in those areas.

Eric Wolfe – Citigroup

Okay. So if I look at your G&A in 2012 of call it $22.5 million and then your guidance for this year that's about $4 million lower, all of those savings come from those specific areas or is there – or should we expect to ramp back up at some point as you hire additional personnel. Specifically, I would say speaking about your CFO search?

Thomas H. Lowder

Well, actually in our guidance and our budget this year, we do have the cost of a CFO.

Eric Wolfe – Citigroup

Okay. And so all that, that $4 million is permanent savings that should carry fully over to 2014?

Thomas H. Lowder

Well, they are real savings. We'll continue to have inflation in different areas, but they are real savings and it's basically coming from the simplification and exiting those commercial and joint-venture businesses.

Eric Wolfe – Citigroup

Okay. That's helpful. And then just my last question, you mentioned that the $300 million in [that sales] that is in guidance is going to be a fairly even split between commercial and multifamily. Could you just give us a sense for the anticipated yields that you plan on selling those at and at least what's in guidance? And if you could break it up between the commercial and multifamily that would be helpful.

Thomas H. Lowder

Well, the first commercial item as we mentioned will be metropolitan and you can put that in the low seven cap range.

Bradley P. Sandidge

Correct. And then additional, we will have some other retail shopping centers that are included there. I would say, our experience has been that those would be in the eighth and the mid-eight range. And then on the multifamily side, you kind of see our experience there kind of in the…

Jerry A. Brewer

We can say 6.5 cap rate on multifamily.

Eric Wolfe – Citigroup

Okay, got it. So, 6.5 on multifamily, low 7s on Metropolitan, which is I guess that of what the $110 million, and then mid 8 on (inaudible).

Thomas H. Lowder

Slightly than less than 100.

Jerry A. Brewer

Slightly than less than 100.

Eric Wolfe – Citigroup

Okay, all right. That’s all. Thank you.

Operator

Your next question comes from the line of Jana Galan with Bank of America Merrill Lynch. Please go ahead.

Jana Galan – Bank of America Merrill Lynch

Thank you. I guess following up on Eric’s question, where are you thinking cap rates will be on your acquisition? Would that be similar to what you’ve been acquiring at this year?

Thomas H. Lowder

The suburban property that we’ve been pursuing are trying to get to about 5 cap and then the suburban acquisitions have been trading about 5.5 cap.

Jerry A. Brewer

To clarify, I think the first category was, he meant to say was urban, we are seeing it as 5 cap and the suburban is about 5.5 cap.

Jana Galan – Bank of America Merrill Lynch

Thank you. And may be on the CFO search process, can you may be speak to have you identified potential candidates, are they internal, external and give a view on timing.

Thomas H. Lowder

The board and I do have a process in place to review both internal and external possibilities of that. That is on going and we’ll work through that over the next several months, and I think we will fill that vacancy in a timely fashion. That’s not going to be a long drawn-out process but the board and I do have that process in place.

In the meantime, I think we have a good bench here. Jerry has been continuing to handle his treasurer responsibilities and investor communications. He is a veteran with the company at 14 years and Brad is a veteran of 9 years as our Chief Accounting Officer and both of them are doing a fine job, dual qualified, both are certified public accountants and have put their shoulder to the wheel and they’re doing a great job for the company.

Jana Galan – Bank of America Merrill Lynch

Thank you. And may be just really quick on fundamentals, can you give us the turnover in 4Q and any changes since the move out?

Bradley P. Sandidge

The reasons for move out?

Jana Galan – Bank of America Merrill Lynch

Yes.

Bradley P. Sandidge

Turnover is at about 60%, so up slightly from a year ago, but still well below our historic run rate. The number one reason is home purchases still running below our long-term run rate, but it is about 16%. The number two move out reason is too expensive, so as we cycle through these renewals, we're seeing a lot of people shift into lesser expensive apartment home. And then the number three move out reason is job-related, so transfers or job losses just the jobs category is the number three reason for move out.

Jana Galan – Bank of America Merrill Lynch

Thank you very much.

Operator

And our next question comes from the line of Derek Bower with UBS. Please go ahead.

Derek Bower – UBS

Hi, thanks. Did you guys give the expected dollar value for the metro midtown disposition?

Bradley P. Sandidge

It’s slightly lower than $100 million.

Derek Bower – UBS

So you're not – that's not within the bucket of that is held for sale currently in the balance sheet as $56 million right?

Bradley P. Sandidge

Yes, it is.

Derek Bower – UBS

Okay.

Thomas H. Lowder

That’s the net book value that we have on our books.

Derek Bower – UBS

Got it. Okay and then I guess recent headlines seem to suggest that leasing activities picking up in Brookwood Village. Do you guys still view that as a core asset or you’re planning to sell that asset after the third quarter once it’s fully leased and stabilized?

Bradley P. Sandidge

Well, we are – the Brookwood asset is not in the guidance to sale this year. We have sold you might recall last year in 2012, our site to target, target has built their urban prototype store and is scheduled to open up. I believe open days 13 of March, but that store is expected to do around a $1 million a week, driving more traffic to the Brookwood centre.

In addition to that we do have some smaller retail two boxes that we have pre-leased will at the appropriate time with permission of those merchants will be announced in that additional development, but that's in our guidance, in our development dollar numbers to do that retail in addition to target. So there is still some ongoing development going on with Brookwood therefore we have a – we don't have within our guidance as a disposition this year. We anticipate that final retail base to be completed in late fall of this year.

Derek Bower – UBS

Got it. And I believe you said you’re 87%. Now with the multifamily you think for the year, you’ll probably be about 90%. How do you expect to end the year in terms of percentage of NOI on December 31, 2013, is it going to be at 90% or do you think we could be higher than that number?

Bradley P. Sandidge

It will be a little bit higher. I think the last cancellation was around 92%, we are around that 92% in the fourth quarter next year.

Jerry A. Brewer

This year.

Bradley P. Sandidge

Sorry this year.

Derek Bower – UBS

Okay, got it. And then I guess just lastly, when our intentions developed an apartment community, I believe in Johns Creek, which I think you guys have a few assets in near buy, so when you see these headlines, des it give you any color to increase concern on the impact of new supply as more non-traditional multifamily developers are increasing interest in the space.

Bradley P. Sandidge

Well, the fundamentals are still favorable for multifamily, all the units have been delivered throughout 2012 have been observed while all the existing properties maintained occupancy and good rental rate growth, and we anticipate that same condition to recur in 2013. So we don't have a robust job market, but we have an expanding job market in Sunbelt. All of our markets are getting a proportion of high share of jobs that are created in this country. And so to me, it has been equal to supply and our January renewals indicate very good growth and so traffic is robust. So I think we'll find that the well capitalized developers are finding our sites and finding way to bring multifamily units to the market in a disciplined fashion, but at the moment we don't see overbuilding our core markets.

Thomas H. Lowder

I’d say speaking to, I don't know exactly the product type that Lennar is a homebuilder going to be producing and I think Rick Campo has done a good job talking about this – as one of our peers talking about that. Our business can co-exist with a healthy homebuilding market. One thing we do track obviously and we talk about this one-on-one with you and we talked about this over our quarterly calls and industry meetings, we do track the amount of turnover on our properties to home rentals and home sales. So we – I ask Paul in drilling down into the numbers here as we were going through fourth quarter numbers tracking this and December’s numbers, which market in 2012 did we have the highest percentages. And we have a property in Sarasota, Florida probably, I’m speaking of the top of my head, but I believe with 20% of the turnover was from home rental.

Now the average to home rental is much more 3% to 4% range and 30% plus was move out to home sales, that's even smaller number for the entire portfolio. But here is a property where 50%, only 50% rentals related to home rentals and home sales and that property still produce [6%, 6.7%] net operating income growth on top of double-digit numbers last year. So it’s a concern, it's up in the – we don't want to sugarcoat too much, we need to see concerned about supply out there, but we continue to be pleasantly clean and with the resiliency of our portfolio and just the industry in general continuing to be over the increased rents and maintain our occupancy.

Operator

And our next question comes from the line of Andrew Schaffer with Sandler O'Neill. Please go ahead.

Andrew Schaffer – Sandler O'Neill

Thank you. Two questions, first, on your total expense projections, can you read out the percentage that is allocated to real estate tax and insurance?

Bradley P. Sandidge

Well, for real estate taxes, we’re projecting a range of 7% to 8%. And our insurance is such a small part of our number; I believe it's about 5% to 6% type increase.

Jerry A. Brewer

Insurance is about 4% of the total number and in fact – 25%.

Andrew Schaffer – Sandler O'Neill

Okay and then...

Jerry A. Brewer

And then (inaudible) payroll of around 25% and utilities are about 25% as well.

Andrew Schaffer – Sandler O'Neill

Okay, thank you. And then on a more asset sort of question. On your development at Colonial Grand, South End, are you going to have direct access to (inaudible) stop or have to walk around that Pepsi building?

Bradley P. Sandidge

It's in Charlotte?

Andrew Schaffer – Sandler O'Neill

Yes.

Bradley P. Sandidge

Yeah, we are actually on the real line to in direct access to the station.

Andrew Schaffer – Sandler O'Neill

Okay.

Thomas H. Lowder

But here you can through walkway between the track and along the track to the station to our property.

Andrew Schaffer – Sandler O'Neill

Okay, thank you very much.

Thomas H. Lowder

Thank you.

Operator

(Operator Instructions) And our next question comes from the line of Jeff Donnelly with Wells Fargo. Please go ahead.

Jeff Donnelly – Wells Fargo Securities

Good afternoon guys. A few questions, first, you have some estimate of how much the net disposition activity is potentially negatively affecting your full year guidance or maybe you can talk little bit about the timing assumptions around the transact activity or forecasting?

Bradley P. Sandidge

I'm not worrying a net disposition, but I think if you kind of run the math we’re really using most of that to fund our development.

Jeff Donnelly – Wells Fargo Securities

Right.

Bradley P. Sandidge

So from an overall investment perspective, yes there is some dilution, because it's going into the development pipeline.

Jerry A. Brewer

But in our guidance I might add, we do have within our budget, we don't talk about budget most, but certainly that builds our guidance to you. We had planned on selling metropolitan by the end of this month. We think it will close shortly thereafter certainly in the first quarter. So from a timing perspective and an effect on FFO it's in our guidance that way. The shopping centers we plan on sitting down with some of the brokers and perhaps some of possible buyers here in the next few months. So I think the shopping centers are loaded, they are loaded in our guidance in the third maybe the fourth quarter.

Jeff Donnelly – Wells Fargo Securities

And that's helpful. And just concerning the disposition that you guys already executed in the quarter, I think you sell them at a 6, 4 cap rate, I’m just trying to get a better feel for that transaction. So you can maybe tell us about the condition of the properties, I mean they competitively maintained where there is deferred maintenance or do you feel that maybe the buyers is going to be investing capital that trend get some sort of pop upon acquisition. I'm just trying to get a sense for that six and what might be entailed in capital spend after purchase?

Paul F. Earle

Well, there were older assets. Average age is over 30 years, they were very well maintained.

Thomas H. Lowder

I might add Paul, this is the continuing relationship that we've had the bar this is to continuing relationship we have.

Bradley P. Sandidge

We had a contract that was written two years ago that was approximately $300 million worth of sales. We ended up executing two thirds of our contract, the contract was started on 12, 31 of 2012 and the December sales of about $90 million was to the end of that particular contract, but they work older assets, (inaudible) Raleigh well located, but well maintain in competitive properties.

Jeff Donnelly – Wells Fargo Securities

That’s helpful. Just a question on main markets. Since you mentioned Raleigh, what's our outlook for the Raleigh dual market as you look forward to year to because there is an expectation out there is something greater supply growth in that market versus many others. I'm curious how you guys are like your positioning in this market?

Thomas H. Lowder

We have suburban Class A apartments throughout Raleigh. We're finding great fundamentals, you anticipating good revenue growth next year, and good NOI growth on a continuation in 2013 of fully experienced in 2012.

Jeff Donnelly – Wells Fargo Securities

And I get some other end of the spectrum, what about in Austin, because it's anecdotally we've been hearing that the changes in California’s tax rate could accelerate further decisions for companies and individuals to relocate to market like Austin or even Las Vegas and Phoenix, but this is relates to often specific. Is that something you guys are seeing today or hearing that could improve further?

Jerry A. Brewer

No, Austin has just been a terrific market towards over the last several years, and we anticipate great record growth again the 2013 in Austin. We see product coming in and many other submarkets, but demand has been excellent. We have lease up underway in Austin is doing very well. The only issue – we have some managed through in Austin is our real estate tax line item that's the only one line item that we’ll have to work a lot harder in 2013 then we have in the past several years, but the fundamentals are held up with reported great results several years in a row, and we just paid strong results on the revenue side in Austin in 2013, and we’ll see how the tax fieldwork turns out. But Austin has been just terrific and supply is coming in, but the demand has been offsetting all the deliveries.

Jeff Donnelly – Wells Fargo Securities

Great, thanks.

Operator

Our next question comes from the line of Tom Truxillo with Bank of America Merrill Lynch. Please go ahead.

Tom Truxillo – Bank of America Merrill Lynch

Hey, thanks for taking the question. Looks like you guys have about $190 million now in the revolver. Right now you have about $100 million coming due in April with guidance for flat sources and usage from development and acquisitions dispositions. You think you'll be looking to term out bad debt in the longer-term their capital markets are you comfortable running with something like $300 million out in your revolver?

Thomas H. Lowder

Well, as we can't point it out, I mean the timing of the acquisitions and the timing of the development spending has been a way lot on that, but as we look at our plan obviously it's a very attractive market, something that we may take a look at, but given the timing of the dispositions that we’ve got going on our access to the market could be later this year or early into next year, but definitely an attractive market that we’ll take a look at that when that comes due.

Tom Truxillo – Bank of America Merrill Lynch

Okay. And just you’ve accomplished your initial balance sheet goals would get in the investment grade ratings from both S&P and Moody's. Any thoughts about potentially trying to further improve the balance sheet and do further optic credit spectrum?

Bradley P. Sandidge

Absolutely. As Tom pointed out in his comments to four to five of balance sheet that's exactly what we want to do. There are certain metrics were we’re one into the spectrum with our peers and we would like to move that closer into the middle of our peer group, and while we are appreciative and thankful that we got to the BBB- that's not where we and really want to be, we would like to continue to improve the balance sheet get that somewhere in the BBB flat rating, and then as I said this will come through potential commercial asset sales, but we continue to review all of options that are out there for us. As far as some of the targets we would like to in the long-term (inaudible) preferred JV, we would like to get down below 40%. Our fixed charge coverage keeping it above $2.5 and get the debt-to-EBITDA closer down to seven times, and we think as we can get out of those targets we could get there.

Tom Truxillo – Bank of America Merrill Lynch

Great, thank you very much for the color.

Bradley P. Sandidge

You bet.

Operator

Mr. Brewer there are no further questions at this time. I will now turn the call back to you.

Jerry A. Brewer

Thank you all for joining us today. And we look forward to talking to you on our next call. Have a great day.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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