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Post Properties, Inc. (NYSE:PPS)

Q4 2012 Earnings Conference Call

February 5, 2013 10:00 a.m. ET

Executives

David Stockert – President & CEO

Chris Papa – CFO

Jamie Teabo – Head of Property Management

Analysts

David Toddy – Kenneth Fitzgerald

Derek Bower – UBS

Eric Wolfe – Citi

Alexander Goldfarb – Sandler O’Neill

Dave Bragg – Zelman & Associates

Nick Yulico – Macquarie

Jana Galant – Bank of America Merrill Lynch

Karin Ford – KeyBanc Capital Markets

Buck Horne – Raymond James

Andrew McCulloch – Green Street Advisors

Michael Salinsky – RBC Capital Markets

Anthony Paolone – JP Morgan

Operator

Good day everyone, and welcome to the Post Properties Fourth Quarter 2012 Earnings Conference Call. This call is being recorded. Today’s question-and-answer session will be conducted electronically. (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.

David Stockert

Thank you and good morning. This is Dave Stockert. With me are Chris Papa, our CFO; and Jamie Teabo, Head of Property Management. Welcome to Post Properties fourth quarter conference call.

Statements made on this conference call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. A number of factors could cause actual results to differ materially from those anticipated, including those discussed in the Risk Factors section of our 2011 Annual Report on Form 10-K.

Forward-looking statements are made based on current expectations, assumptions, and beliefs as well as information available to us at this time. 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 to comparable GAAP financial measures can be found in our earnings release and supplemental financial data.

I’ll now begin the business of this call. For the full year 2012, we produced core FFO excluding the condominium business and before debt extinguishment charges of $2.25 per share. This represents roughly 24% growth over the comparable 2011 core FFO of $1.81 per share. At the midpoint of our guidance for 2013, we expect core FFO to grow by another roughly 11.5% to $2.51 per share. We are pleased to be targeting double-digit core FFO growth again this year. When we think about growing core FFO, we focus on the following. Increasing the cash flow from the core portfolio, producing cash flow from our investing activities that is accretive to our cost of capital, being good stewards our balance sheet, and watching overhead cost to reduce those cost over time as a percentage of assets and revenue.

Our guidance for 2013 reflects as focus. At the midpoint of our core FFO guidance, we are expecting a $0.26 per share increase from $2.25 per share in 2012 to $2.51 per share in 2013. The big drivers of that $0.26 per share increase, on incremental $0.16 per share positive contribution from the same-store portfolio assuming midpoint NOI growth of 4.75% plus an incremental $0.13 per share positive contribution for development projects that are in or will be in lease up in 2013.

Plus and that $0.02 per share positive contribution from capital activities including lower interest rates on our debt that are offset in part by reduced levels of capitalized interest in the modest dilution of caring higher incremental cash balances in 2013. And finally minus roughly $0.05 per share negative contribution from increased overhead costs and lower miscellaneous income items.

As the portfolio performance in our same-store guidance, we’re expecting revenue expense and NOI growth of roughly 4.75% at the midpoint of each range. While this rate of revenue and NOI growth does not match that of 2012, it is not inconsistent with our past statements on the matter. And indeed does reflect our view that apartment market conditions remain among the best they have been over the past 10 years.

You can see from our same-store disclosures on page seven of the supplement. That we have experienced more the typical seasonal impact on new lease rates and occupancy in the fourth quarter, then we saw at this time a year ago. As is also typical in January we saw rates and activity pick back up. Jamie will discuss the portfolio more in a moment.

On the expense side we talk for some time about property taxes. For 2012 every bit of the increase in our same-store expenses is accounted for by higher property taxes. In fact for the last four years since 2008, there has been a little to know overall increase in property operating expenses other than this recent experience for property taxes.

We specifically discussed on our last call the fact that year-over-year same-store expense growth would likely be as much 8% to 9% in the fourth quarter, because of the impact of yearend accrual adjustments. In fact that came in better than that.

Looking ahead to 2013, we believe we will experience a high single-digit increase in property taxes and insurance. In other expense categories, we expect increases of more modest 2% to 2.5%. This too is consistent with our prior comments on this matter.

I told however the same-store portfolio should still be the single biggest contributor to our growth this year. Contributing about $0.16 per share as I said before for about 7% of our 11.5% expected overall growth in core FFO. The other really significant driver of growth in 2013 is the contribution from the development pipeline, which is entering lease sub during this still relatively early point in the cycle.

On page 13 of the supplement you can see that our existing pipeline totaled $338 million after we reduced the expected cost of our Carlyle Phase II project by another $2 million. At year end there was $119 million left to fund on our pipeline. And year-end cash on the balance sheet was approximately the same $119 million.

In addition, we expect to generate $40 million to $50 million of retained cash flow from operations and hoped to harvest $35 million or more this year out of our remaining condominium assets. All that is to say the existing pipeline shown on page 13, is entirely funded. As such as the pipeline leases up, it should drop significant incremental cash flow to the bottom line.

For 2013, we expect the contribution from that development pipeline to be about $0.13 per share on our guidance midpoint. Looking farther out and based on the current expected yield on that pipeline about 7%, we anticipate an additional roughly $0.23 per share of incremental growth in core FFO in 2014 and 2015 as we achieved stabilization on each of those developments.

And beyond the current development pipeline of seven projects, we expect to start another roughly $100 million or so of new development later in 2013. And as you will know from our disclosures we are selectively buying land. In December, we closed on an acquisition of the parcel adjacent to 298 unit Post South Lamar development in Austin, Texas.

Phase I Post South Lamar is currently 44% leased and our leasing space is averaged more than 30 leases per month over the past three months. Average rents in the fourth quarter of Post South Lamar were $1.79 per square foot. Those rents were about 9% higher than our underwritten pro forma rents for that project. The parcel that we bought next door should allow us to build a roughly 300 units second phase in a sub-market that we like very much over the long-term.

We have added average lease rate information for active lease ups to pay pages 24 and 25 of the supplement. So you can track our progress. We also we prior phases in our same-store pool even when we’re competing with our sales with the new development phase.

Last point I want to make, emphasize about growth is a positioning of our balance sheet. You can see on the page 10 of the supplement that we’ve reduced the average rate over debt outstanding to 4.3% and extended the weighted average maturity. We have substantial cash, no line borrowings and no principal debt maturities in either 2013 or 2014. This is important because it means we are much less reliant on capital market conditions to achieve our growth.

Finally, a word about our condominium business. In 2012, we had tremendous success, working down on remaining condominium inventory, closing 96 units for nearly $90 million. This outstanding result puts us on a pace where it’s possible to sellout the two projects in 2013 and to close that chapter.

The high-end of our guidance reflects a sellout and the mid-point and low-end reflects some of the closings spilling over past year-end or requiring bigger discounts as we get down to the final group of units.

To wrap up my remarks, I’m extremely pleased with the company’s performance, the overall condition of our markets and with the way that the company is positioned for the future. As always, our associates get the lion share of the credit.

I’ll now ask Jamie to make some brief remarks on the portfolio and then we’ll wrap up this part of the call.

Jamie Teabo

Thanks, Dave. We were very pleased with our performance in the fourth quarter and really for the past two years. We’ve said before that we had tough comp in the second half of 2012 and that played out. But we did do a little better than we thought we would. We did see seasonality in our business in the fourth quarter and it shows up most prominently in our new lease rates and occupancy.

In January, however, we saw new lease rates backup over 5%, renewable rates so far in the first quarter of 2013 are also up over 5%. Physical occupancy at the end of January was 94.7%, up 30 basis points over the 94.4% physical occupancy at year-end and the spring leasing season is nearly upon us.

As to summary of our other metrics, rent income for leases executed in the fourth quarter was 17.5% and we are seeing plenty of qualified prospects.

As to turnover, it ticked up a bit in the quarter consistent with what we’ve seen for the year and still the number one reason for our move-outs is changed in employment.

Move-outs to home purchase increased somewhere in the fourth quarter to 14.5% from 12.1% a year ago. Move-outs to rents single-family homes are not really a factor running below 1%. These metrics are still better than we would expect once the housing market returns to normal. And while our recovery in housing will create more choices for our customers, we should also see new customers created as housing adds to GDP growth.

Finally, in terms of relative market performance, those markets that we expect to outperform our guidance midpoint for revenue in 2013 are Houston, Austin, Dallas, Charlotte and Tampa. We expect Atlanta and Orlando to perform at roughly to midpoint with New York and DC below the midpoint. This is similar to the relatively – to the relative ranking of our markets this past year.

With that, we will conclude our prepared remarks. Operator, please open the phone lines to Q&A.

Question-and-Answer Session

Operator

Certainly. (Operator Instructions) And we’ll take our first question from David Toddy from Kenneth Fitzgerald.

David Toddy – Kenneth Fitzgerald

Good morning, guys.

David Stockert

Hey, David.

David Toddy – Kenneth Fitzgerald

A couple of detailed questions this morning. Can we talk about developments a little bit in terms of what kind of changes you might be expecting to the yields for the starts that you’re going to be commencing in the second half of the year, if any?

David Stockert

Well. Yeah, I mean and we’ve talked about this over a number of calls in the past, all the stuff that we started in early-early in the cycle, as I mentioned in my remarks that rents generally are higher than our under-written pro forma rents and so the yields are higher and we underwrote this to be about 7% initial yield, that’s not available today. Yields are going to compress because of construction cost, land cost being higher and just the rest of the assumptions about rent. We’re not going to assume the same kind of growth in rents going forward. So I would say that development yields are probably in Sunville markets are 6.5 and they’re lower than that in high barrier markets.

David Toddy – Kenneth Fitzgerald

Are we nearing a point in your mind where development maybe is not penciling at the certain point where you’re not seeing the rent growth potentially in 2014, material costs are going up, land costs are going up, what’s the sort of the threshold were you?

David Stockert

Yeah, I mean I think this is one of those things that we just have to assess we move along. We aren’t planning on a number of projects and those are projects that we will ultimately do over time and as to specific timing of starts, that’s what we’re going to have to look at, how does everything feel at the moment, but the good news for us as I said before is a lot of what’s – really for this year and for next year is a reflection of the pipeline that’s already in place, and I feel given the timing of the lease up of that pipeline, I feel very good about its ability to really contribute.

David Toddy – Kenneth Fitzgerald

Just one last question on development. What’s the – do you guys have a sense of the rough per unit cost per land for the starts this year? And what are some of the trends you’re seeing in the land pricing in the market today.

Jamie Teabo

Yeah, I mean land prices are coming up obviously, and you can see on the piece that we bought in Austin, I mean the land prices if you add to retail are about $27,500, $28,000 a door. And that certainly reflects higher land prices than you’d have seen a couple of years ago by a pretty meaning amount. We – as to that particular deal, we still like the opportunity that we can build a mid-rise wood frame product and we think the all-in cost can be something like $160 a door. And we think what we see, start trading in that submarket, new product trading at $200 a door. So what we look at is that kind of what’s your base is going to be in the asset that we can create, what is the market value for assets in that submarket, and obviously it’s different submarket to submarket and product type to product type. But suffice it to say land prices are up a good bit.

David Toddy – Kenneth Fitzgerald

Okay. Then my follow up question just has to do with renewal rates, and I apologize if I missed this. Can you disclose what your renewal rate expectation is in terms of growth for next year that’s embedded in your outlook?

David Stockert

Sure. We’re looking really for new lease and renewal rent growth to be pretty equal. The new lease rates probably in the mid-four range and renewals just above that in the low five. And we are tracking at five-four right now for the first quarter on the renewal side and a little higher than that on the new lease rate so far.

David Toddy – Kenneth Fitzgerald

Great, okay. Thanks for the details, Dave.

Operator

Moving now we will take the next question from Derek Bower from UBS.

Derek Bower – UBS

Hi, thanks. Good morning.

David Stockert

Hi, Derek. How are you doing?

Jamie Teabo

Hi.

Derek Bower – UBS

Good, thanks. Dave, you expressed the past and interested to expand in to the Austin market obviously you did that with the new development parcel. But can you talk about your thoughts or appetite on to expand into the market even more?

David Stockert

Well, I love the market long-term. I just think and now talked to the people and talking in the past about Texas and I like the way the State of Texas is positioned. I like the physical condition of the State of Texas. I will obviously what’s not to like about the natural resource base in Texas, but the big cities in Texas, Houston and Dallas have a couple of airports. They have great transportation infrastructure. The port of Houston is going to be more important with the Panama Canal deepening.

And Austin is market that has been attracting now for a long-time not recently, but long-time technology businesses and I think it will continue to do that. So, very much like the market, it’s great place to live. But everyone can see what’s happening in Austin. There is a lot of supply happening right now in Austin. Most of the commentary and people who analyze markets for a living apartment markets we are living suggests that Austin’s job growth is going to be sufficient to really absorb the pipeline and honestly that has yet to be seen. So, we will just watch it. But in the long-term we like the market and we like to build our presence in Austin.

Derek Bower – UBS

Would your presence be growing through selling out of other non-core markets or by growing your asset base in that market?

David Stockert

Well, I think it’s both.

Jamie Teabo

Yes, both.

Derek Bower – UBS

And then, first...

David Stockert

First trying to find to opportunities for growth that make sense. We got to figure out how we finance them, and we can either finance them with external capital, which obviously in the stock market for apartment stock right now is not an attractive place, and I’m glad that our balance sheet is such that we have absolutely zero reliance on that at the moment. And the other way to finance it is by selling assets in – selling other assets in either old assets or assets in markets that we want to reduce, and both of those are only possibilities.

Derek Bower – UBS

Thanks. Appreciate the color. And I guess switching to Charlotte. Do you have any thoughts on what the initial impact on maybe should North Carolina with the state income tax?

David Stockert

I don’t know what the push-pull is. I mean obviously if you lift the state income tax on its face, that’s a good thing. We got to understand how they even balance the state budget. So what is that – what are the revenue line items, so I don’t know enough yet.

Derek Bower – UBS

Okay. Fair enough. And then just last one for me. Your stock as well as many of our peers are trading at meaningful discounts to NAV. So – I mean how do think about the opportunities for stock buyback in this market, just given how the public market appears to be pricing your stock versus what your private comps suggest you assets are worth?

David Stockert

Well, obviously we look at – we understand that map and we see what’s happening in the market. Capital is a precious thing, and as we’ve said many times in the past, we’re small REIT and other than the moments like this, I mean, the general consensus out there is that being somewhat bigger is better. So, we’re going to – we just have to see how this plays out. But right now what I hope is happening in the stock market, where public companies is that we’re – we’re going through a bit of parses, where the market is coming to grips with what I think everyone has been saying for a while, which is the rate of growth in 2013, if we’re going to be as good as a rate of growth in 2012. I’m surprised that it’s such a surprise frankly, but it is apparently.

And it’s – but it’s still looks pretty good against other sectors, but maybe what has to happen is that expectations have to be readjusted and the stocks have to readjusted and then they can build up a different kind of base. Because I think these ports of inflection like what we’re going through right now are very difficult for the stock market to deal with and we just got to through it and see how it plays out.

Derek Bower – UBS

Thanks. I will appreciate it.

Operator

We take our next question from Eric Wolfe from Citi.

David Stockert

Hi Eric.

Eric Wolfe – Citi

Yeah, Dave. Hey I just wanted to the follow-up on that line of questioning there because obviously put the stock repurchase plan in place at the end of the year last year. As you mentioned, you’re sitting on plenty of cash if nothing on your line of credit, your balance sheets probably in one of the best shape of any of your peers. So, I mean, why not be a little bit more aggressive in terms of repurchasing stock and especially when the yields are getting undeveloped and are just in the mid-sixes and your stocks probably going to be shading close to that. So, I guess I just want to understand why not be a little bit more aggressive?

David Stockert

Because I don’t know. I just have – we just have a longer view of things and when you deplete your capital base, it’s only when you need it that it’s a problem. And you generally – when you generally need it it’s at a time, when it’s really tough to get it. And like I said, hopefully this is a process that the market is going through and that the market will write itself. But if it doesn’t, we’ll have to think harder about that.

Eric Wolfe – Citi

Right. And I guess in terms of capital allocation, maybe just a signaling aspect of it alone doesn’t necessarily needed to be a massive repurchase plan, but just showing the market that, hey, this is the best opportunity that we have available for us today understanding that obviously capital’s precious, but $100 million or even $200 million could be a pretty effective signaling mechanism?

David Stockert

I’m just not convinced about the signaling effect...

Eric Wolfe – Citi

Okay.

David Stockert

But I haven’t seen even – persuades me other way. I have seen what is like to need capital at the wrong time.

Eric Wolfe – Citi

Right. Understood. All right. I guess along those lines, looking at where your balance sheet is today, are you comfortable taking up leverage in the short-term, do you like where you are, I mean, are you going to try and maintain the things at the current level or are you comfortable continuing to fund development through debt if the equity market isn’t available for you or you just don’t find it attractive?

David Stockert

Well again what I said, right now we don’t need to incur any debt to fund the developed pipeline. So anything pipeline, it’s all funded. There is cash, there is cash flow, but what’s going to be a challenge for us, and we’ve have talked about this before. I said in the past that one of the biggest worries is that the market is going to – stock market is going to struggle with this inflection point for multifamily fundamentals, and it’s obviously happened. And how that impacts us mostly is on future capital allocation and future investment decisions whether that be future development or future acquisitions. And we’re going to have to take all this into account, but we’re fortunate right now as we don’t need anything to complete the development pipeline. We will just use existing cash.

Eric Wolfe – Citi

To make incremental decisions?

David Stockert

That’s what we have decision to make. And we can decide to fund it with – we might fund an acquisition with the disposition of an existing asset because we do have to stay focused to one of the things and one of the reasons why I want to maintain a strong capital base is, because you always have to keep your eye on what is the portfolio going to look like in five years. And so we got to keep looking at new opportunities – opportunities for newer assets, better located assets and better positioned assets and the ones we – some of the ones we have. So, that we constantly kind of upgrade the portfolio over time. And – but we have to take into account what’s happening with the stock and stock market and that sort of thing.

Eric Wolfe – Citi

Right. That’s very helpful. Thank you.

David Stockert

But it’s the leverage I mean like we’re very comfortable with our leverage here. And we don’t see a deleveraging need and we don’t – we don’t really want to pursue a leveraging strategy. It’s kind of plus or minus where we are.

Eric Wolfe – Citi

Understood, good. Thank you.

Operator

Moving now, we will take our next question from Alexander Goldfarb from Sandler O’Neill.

David Stockert

Hi Alex.

Alexander Goldfarb – Sandler O’Neill

Hey, good morning. Dave I totally agree with you. Don’t buy your stock back, save your liquidity. We already went through that a number of years ago and it wasn’t the fun experience though. Along those lines though if they take private maybe that’s an option, we’ll see what obviously Dow is causing some waves out there. But as you guys look over the landscape and especially as your multiple has come down, there are peers that are trading at higher multiples. Do you think that even though you guys had a substantial discount to NAV, trading your lower multiple for someone else’s higher multiple would be something attractive to the company, to the board?

David Stockert

Alex, I’m not going to price the company on this conference call. There are many things you would look at relative multiples and the number of other factors. I’ll just say that, it’s not challenging math to analyze. It’s pretty straightforward.

Alexander Goldfarb – Sandler O’Neill

Okay. Yeah, I mean it makes sense and I think to your comments about, I mean, the sector seems to have sold off the apartment starting back in the fall of 2011...

David Stockert

Yeah.

Alexander Goldfarb – Sandler O’Neill

So, I think people have been expecting, they sort of wrote off the peak in 2012, and 2013 I think folks were eager for – but clearly this earnings season has, there’ve been a few disappointments. To that end and specific to you guys as far as your expense guidance, as we look out, you’ve talked for a while about the real estate taxes and insurance and maybe we just didn’t listen close enough. But as we think about longer-term, is this like a multi-year, should we expect these sort of increases on a multi-year basis or you think 2013 is probably a bigger increase and after that the real estate tax and insurance increases should subside a little bit?

David Stockert

I think we hope that, that’s the case. I mean, honestly predicting all that beyond 2013 is accruals there and – but...

Jamie Teabo

What’s happening is that the valuation – as I said before since 2008, there hasn’t been much movement in property operating expenses. A lot of them have come down. The property taxes have been pretty benign for obvious reasons. You know asset values have come down. But asset values have come back up sharply in the last couple of years, and that’s combined with the fact that, whether it’s new to all of us or not. I mean everything is – everyone is awaken to the fact the governments are challenged fiscally and have been with five years of recession and things like that. And I think they are getting a lot more sophisticated as we talked about on the past.

And that’s just something we are living with right now. I think that this is a couple year adjustment to get to different level. But when I hoped that’s the case, because you do get to a appoint, where the valuation gets. Obviously the thing you can fight about is for properties assess more than just truly worth, obviously that’s an issue and you can fight about that. And the other way you can challenge an assessment is to look relative fairness. And how is one asset assessed in a market versus another comparable asset.

So, obviously we do that. We still have a number of assets that are still in appeal. We haven’t made any assumption about our success here, because it’s unpredictable. But it’s just going to be something we are going to have to fight. But we did start talking about, and I think in November, in the November calling 2011, and I think we have been very consistent talking about for what’s now here or now.

Alexander Goldfarb – Sandler O’Neill

Okay. And just the final question, Atlanta is looking at the Axiometrics supply data looks to be they under supplied relative to its historic deliveries. So, given what’s going on down there? Have developer just gotten so skittish or is it the fact that equity sponsors are only doing the few deals. What is it specific in Atlanta that’s keeping it? I mean it’s great for landlords, but why a supply taking so long – so much longer in that market specifically to come back?

David Stockert

Well, I think it’s couple of things. Number one, I think that while a lot of well-positioned properties are performing well in Atlanta. Our portfolio has done well versus other markets. I do think that it’s still a little bit of tail or two markets. I think some products, when you talk to people, who are operating in Atlanta. Some product that not is well positioned at least very fairly recently wasn’t performing as well.

Everything starting to catch up because as you say – pointed out there is not a lot of housing of all kinds being developed in Atlanta. For a while, the job growth numbers, the headline job growth numbers in Atlanta were pretty dismal, partly because again the housing market was somewhat slow. Some of the revisions lately to the job numbers were favorable to Atlanta.

I think the story is starting to improve. But I think a lot of – honestly I think lot of investors kind of redlined Atlanta. I can’t remember Alex, if you were at NMHC a year ago, but I mean I think we’re the number one post retrial for bad market in the country and that has an effect on people.

So, while it’s bad in the sense of development and housing activities not adding to the local economy. It’s been for too for us and given the lead times. Atlanta is the lead time to do new development. Atlanta is one of those markets we feel relatively better about, just because it hasn’t developed so much pipeline.

Alexander Goldfarb – Sandler O’Neill

Right, okay. Thank you.

Operator

Moving on we will take our next question from Dave Bragg, Zelman & Associates.

David Stockert

Hi, David.

Dave Bragg – Zelman & Associates

Hi, good morning. Dave just on your comments about public market expectations, they were interesting but are you suggesting that there was a disconnect between public and private market expectations, and so expectations of public market investors are coming in and now they’re becoming closer to what you’re observing in the transaction market or is their risk to private market expectations as well, and I ask because I know that during the course of 2012 you had a hard time finding acquisitions that made sense for you?

David Stockert

Well, I think what I was speaking about, Dave, was more public market expectations about fundamentals, not about asset prices. And its – I mean, it was just interesting, you had what I observed in this earning season is that you had in the last quarter conference call, you had the Bell where the big multifamily company give earnings guidance, revenue guidance, that was not consistent with what the most of the companies are talking about now, that was greeted, and it seems like that was greeted with a fair amount of relief at the time and yet the earnings guidance has been given by multifamily companies right now seems to be, at least ours, because I’ll just talk about us, is disappointing to people.

And we’ve been talking about a slowdown in revenue growth. We’ve been talking about the rate of revenue growth, not that t was going to get bad, but just it wasn’t going to be as good as it was in 2012. And we’ve been talking about the fact that the expense, the ability to really control – compact your property operating expenses was likely behind this. We’ve had so many years of that. So that’s what I’m saying that public market seems really surprised about.

On the asset side, on the valuation side, I don’t think that’s the sentiment of the private side in making acquisitions, I think that’s still a very competitive situation out there. And in fact I think part of the issues out there on the private side for high quality assets is just there aren’t that many today relative to the amount of capital we wants to invest, because we have gone through this dearth of new development and particularly merchant builders and things, just there is – there is not that much new product that’s coming in, and a lot of what the institutions want to buy is better, better quality products. So, I don’t – I think it’s going to be hard to buy again in 2013. I think cap rates are going to remain low. And I think asset values are going to remain high, even in light of the fact that operating fundamentals are not quite as good as last year, because we are still pretty darn good.

Dave Bragg – Zelman & Associates

That’s helpful. Thank you. And then Jamie on the fourth quarter itself can you talk about the new lease gains in that delta versus the year ago period. And what was the level of variability at the market level included?

Jamie Teabo

Sure. And what we said in the opening comments, we did see the typical seasonal slowdown in 2012 quarter for that we didn’t experience in the prior year. So, with that came a lower occupancy and a lower pricing power on the new lease rate. So we came in quarter for down, right at 1.8% on the new lease growth, and really the markets that we saw struggle in that pricing power were Charlotte, DC and Orlando. So, those were really the three that were hit hardest and we feel, the other call when we were on the call last quarter we already had started to see some pockets in DC decline and again our suburban assets are doing quite well. It’s the In-Town, the Tysons and that we have talked about on last call and really Pentagon, in

Arlington that are seeing the most pricing pressure. The suburban Maryland and suburban Virginia are doing just fine on the renewal side and on the new lease side.

So, it’s a pocket of properties and then we’ve seen one for the new year hit, we saw traffic pickup. We saw leasing volume pickup. We saw the pricing power pickup. So, we’re seeing things trend through the first quarter as we would hope they would. So, we had mentioned last year that we thought we might see more typical fourth quarter than we had and we in fact did.

Dave Bragg – Zelman & Associates

And then just on DC for 2013, I think you mentioned mid-4 to low 5 new lease and renewal gains for the portfolio, where would DC come out in 2013 on those metrics?

Jamie Teabo

Well, DC would – obviously be on the very bottom of our portfolio ranking for revenue growth for 2013. So, we’re looking really for them in the mid-2s to 3s. And again suburban we’re going to expect a little more and In-Town a little less.

Dave Bragg – Zelman & Associates

Mid 2 to 3 for the revenue growth or for the rent gained?

Jamie Teabo

For the rent gain, which will be almost equivalent to the – we’ll see a little bit of occupancy dip there, but we’re tracking really well so far continue to tracking well on the renewals in that market.

Dave Bragg – Zelman & Associates

Okay. Thank you.

Jamie Teabo

You’re welcome.

Operator

Moving now we’ll take our next question from Nick Yulico from Macquarie.

Nick Yulico – Macquarie

Hi, everyone. Just I was wondering if you had at least one project by competitive deliver in bucket in the fourth quarter and I think there is some more new projects coming this year in bucket in Midtown. I’m just wondering if you could talk about how you’re seeing the private guys, where they’re offering concessions for what already got delivered and whether it’s -you think it’s having any impact yet in bucket, which I think the only sort of major development has been delivered so far by competitors/

Jamie Teabo

Yeah, Nick we’re not really seeing an effect yet in bucket on any of the new development. We do have a deal that right outside or right inside 285 actually – side in spring assets. And there are leased up, they are about 30% lease and they are offering concessions on their lease out. So, they’re competing with one of our JV assets into of our same-store assets that in a few mile radius around them. So, we’re seeing some concession pressure there. But so far not in the bucket market.

Nick Yulico – Macquarie

Okay. And then on the guidance, I just have a couple of questions. One was for the end high of the condo FFO, is that assuming that deemed the rest of the inventories is completely sold out in 2013.

David Stockert

Yes.

Jamie Teabo

Yes.

Nick Yulico – Macquarie

Okay. And then I think you said you mentioned the $0.13 contribution from development lease up this year and then I think you mentioned $0.23 incremental.

Jamie Teabo

Yes.

Nick Yulico – Macquarie

Is that referring to only the same batch assets or is that including assets that are not going to be delivered till next year.

David Stockert

Well, that’s – I mean most of everything gets delivered either by the end of this year, early next year. But that’s the seven assets I was speaking about and just to be clear what I was just taking simple math, taking 7% times the total capitalization of those assets to get to a number for NOI and subtracting from that the $0.13 that we’re realizing now and then subtracting as well, the other thing you got to subtract is, whatever we’re going to cap, whatever interest cap is as we finish those because that interest cap obviously would go away on a run rate basis beyond that’s reduce that as well.

Nick Yulico – Macquarie

Okay, but is that...

David Stockert

That’s a stabilized. That’s a stabilized number that we wouldn’t realize at all in 2014 and would be – we would realized most of it by – in 2015. It really be one couple of assets, it still be in lease up.

Nick Yulico – Macquarie

Okay and that’s – and that’s only for this seven underdevelopment say that’s not including $100 million that could be started later this year?

David Stockert

Not including, yes, correct.

Nick Yulico – Macquarie

Okay. And then just last from me, is it just possible to get as far as the markets that you might – might be starting developments in later this year, which they are?

David Stockert

Well, I can tell you that if you look at our land schedule, we were on planning on a project in Atlanta in bucket to the earlier point. We’re working on and planning on second phase at (inaudible) project. We’re working on the South Lamar II, the land asset we bought. We’re working on a site in Dallas. So, of those for...

Nick Yulico – Macquarie

Okay.

David Stockert

I’m not suggesting start all of them, but those are the ones that are we’re moving along.

Nick Yulico – Macquarie

Okay, great. All right. Thanks, guys.

Operator

Moving now we will take our next question from Jana Galant from Bank of America Merrill Lynch.

Jana Galant – Bank of America Merrill Lynch

Thank you. Good morning.

David Stockert

Hi, Jana.

Jana Galant – Bank of America Merrill Lynch

I was just curious on your outlook for the New York City revenue growth. Is that in anyway your ability to push rents limited by the tax abatements or are you seeing just slowdown in demand there?

David Stockert

No, it’s – we’re limited because of the 421A, So, yes it’s until we hit July 2015, we’re just going to have very limited ability to push rents in that market.

Jana Galant – Bank of America Merrill Lynch

Thank you. And then just on....

David Stockert

Well, I’ll just add one thing to that. Jana, because one thing I want to understand that the New York assets II the upper each side is not as how the market as the southern part of Manhattan and that’s another thing there. And so we got one at 89 in first, and one at 23 in first and the 23 street market and that whole southern part of Manhattan is I think much stronger than the upper east side.

Jana Galant – Bank of America Merrill Lynch

Thank you. And as you look at the land opportunities are you considering any markets outside your current portfolio.

David Stockert

No, not. In terms of the market that we have today, no. I mean not at the moment.

Jana Galant – Bank of America Merrill Lynch

Great. Thank you.

David Stockert

We’re focusing on trying to build up. So, these where we are.

Operator

Moving now, we’ll take our next question from Karin Ford from KeyBanc Capital Markets.

Karin Ford – KeyBanc Capital Markets

Hi, good morning. Dave getting back to your earlier comments about taking a longer view on the business, a couple of your peers have chosen to look in their crystal ball out into 2014 and 2015, maybe seeing another inflection point potentially out there back to the positive, you cared to sort of give your views on what do you think longer-term?

David Stockert

No, absolutely not. No. Gosh I can barely forecast next quarter. I think we can forecast next quarter reasonably well and then it gets harder after that. Ben Bernanke can’t do it either. So, what happens in 2014 and 2015, there is so – I’d like our business long-term and over the intermediate term because today it appears in the U.S. we’re making household, reforming households at a more traditional rate and we’re still under supplying housing. Okay, that’s good. That means that the housing market should be relatively good for a while because it’s going to take a while for things to catch up. But that’s also predicated on continuing to see good healthy pace of household formations and that depends on the economy and the whole bunch of other stuff.

And we’ve got – still got some big issues in the country that we’re going to have to grapple within and it can turn out well or it can turn out not as well. I just I can’t see any way the perfectly or great accurately predict 2014, 2015 and beyond.

Karin Ford – KeyBanc Capital Markets

Okay. With the potential wind down of condo business this year maybe early next. Will there be any organizational change within Post associated with that, will overhead change at all or would you be considering potentially in other business say like the single-family rental business or anything like that with the condo business winding down?

Jamie Teabo

No, very focused on our partner business with that winding down. I mean we really have internally there are couple of developers, who work on other things, who also work on the condo business and then we really have people working in the sales effort, who are actually sales people and they came from – they came from that business. They have either work for us or being contracted to us and they will go to the next opportunity to sell homes or towns, homes or condos. And they – we’ve got deals with all of them that’s how it worked out and so there shouldn’t be the change one way or the other.

Karin Ford – KeyBanc Capital Markets

Okay. Thanks.

Operator

Moving now we’ll take our next question from Buck Horne from Raymond James.

Buck Horne – Raymond James

Hey, good morning. I wanted to – I just want to go back to the Washington DC discussion for a second. I was wondering if you could help me understand just how the supplies affecting the different sub-markets in DC and maybe split out the revenue trends you’re seeing in Tyson’s and the Pentagon depending on area versus – versus the suburban assets kind of can you quantify for us maybe what new lease pricing is doing in the different categories of Washington DC?

Jamie Teabo

Sure. Buck, this is Jamie. As I said a little bit earlier, it’s really pricing pressure is, we’re seeing in our Tyson’s asset and our Pentagon asset in those newly trades are running slightly negative. Whereas if you look at our suburban corners asset in Virginia, Maryland assets. Those are still getting great traction actually on the new leased rents. And they are going to be on the positive 3%, 4%, 5% there.

So, we’re still seeing strong traction. We expect that to continue on those properties as they are not competing with any new supply that’s coming online in 2013. And we anticipate that the Tyson’s and the Pentagon submarkets are going to be tough for 2013. We think those are going to continue to see some pressure on the pricing power. I will say for the market overall on renewal side in the first quarter, we’re still signing renewals at a good rate at 4.7% right now. So, below the portfolio average and that’s where they have been tracking, but a still a healthy number and we anticipate that continuing on.

David Stockert

Yeah, I think the sequestration thing is going to be something to keep an eye on. If will more talk about that being allowed to happen and that sort of across the board federal government cut happens then it may be able to more impactful than I would have thought in a more targeted cost reduction kind of scenario.

Buck Horne – Raymond James

Thanks. I appreciate that. Switching gears a little bit on maybe just thinking about construction and maybe construction cycle times in the industry. Are you seeing any labor issues competing for skilled labor on projects, is it flowing down post-development time or are you finding that competition with other homebuilders and other multi-family projects, would it slowdown. Do you think the rate of new deliveries for the multi-family industry overall?

David Stockert

Our projects are underway. So, I’m and we are not at the moment bidding a new project that we are still ways away from that. So I can’t tell you our specific experience other than what we’ve heard along the way and generally speaking there is more constraint in price pressure, not only on cost materials, the labor and when we were out at National Multi Housing Council Conference a few weeks ago out in California there was a fair amount of discussion about that, when I met with the number of the private merchant builders of that was becoming an issue, getting subcontractors and things like that.

So, it may be an issue for a time, hopefully it’s a decent amount of time and that will be one factor that determines how much supply ultimately happens. But I would also suspect that over time that people will rebuild that capacity and people will continue to come back in the market. It just obviously in 2008 and 2009 and 2010 we had a really, really big ringing out of the entire construction industry and it will take some time to build it back.

Buck Horne – Raymond James

All right. Thanks, guys.

Operator

Moving on, we’ll take our next question from Andrew McCulloch from Green Street Advisors.

Andrew McCulloch – Green Street Advisors

Hi, good morning. Yeah, good morning. Couple of questions. First on guidance, sorry if I missed it. Did you say what your occupancy expectations are for 2013?

Jamie Teabo

We didn’t. But we’re expecting 2013 to track right along with 2012.

Andrew McCulloch – Green Street Advisors

Okay, great. And then just second question, Dave, back at private market asset values. The public market does seem to think asset values are falling or will fall significantly in the near-term. Can you just very quickly run through what cap rates are today in your market for the high-end stuff that you tend to own?

David Stockert

Yeah. I mean, well let me – let me caveat that, because I do think one thing the market does project a little bit of the highest quality assets onto everything. The cap rates out there for – if you have new product that comes into the market in one of the Texas’ markets or Atlanta’s or something like that. It was built in the last five or six years, then I think the cap rates are in the 4s, mid upper 4s, maybe 5, but that’s probably a stretch. And then, when you get to DC and places like that it’s obviously less than that.

The only thing I would say is that if you get out to assets that are 10 or 15 years old, it’s not quite as profit as that. So, and the reason I make that point because sometimes I see NAV estimates for our company or for others that are, in our case, well north of $60. And I think that applying the absolute lowest cap rate to product that some of which we have and some of which we don’t have. But what I would say is that if you have good quality assets well maintained and well located, there’s still a fair amount of demand out there and as long as the debt capital was available, right now with positive leverage, because you can get debt capital at cheaper than the going in cap rate, which is actually not been the case since at point sometime in the past. I just don’t see tremendous upward pressure on cap rates.

Andrew McCulloch – Green Street Advisors

Great. Thank you.

Operator

We’ll now take our next question from Michael Salinsky from RBC Capital Markets.

Michael Salinsky – RBC Capital Markets

Good morning, guys. Dave, just going back to your real estate forecast for 2013. Can you breakout what you’re expecting and what the difference is between if you look it with 421a versus without 421a?

Chris Papa

Mike, this is, Chris. I think the impact of the abatements just overall, it’s probably the tune of about 100 – let me carry out that. The abatement and the impact of some of the settlements we had last year is probably in the tune of about 150, 200 basis points of difference.

Michael Salinsky – RBC Capital Markets

Okay. So, if you strip that out your forecasting one in terms of real estate taxes?

Chris Papa

If you’re looking at just pure apples-to-apples, excluding the ones with the tax abatements and the ex-settlements from prior periods, you’re probably looking at just – it’s probably roughly about 200 basis points less of an increase.

David Stockert

And our forecast is kind of high single digits, 8%, 9%...

Jamie Teabo

8%, 9%...

Michael Salinsky – RBC Capital Markets

Okay. That’s helpful.

Jamie Teabo

For the whole same store portfolio.

Michael Salinsky – RBC Capital Markets

Second of all, your forecast for 2013. What kind of employment scenario were you kind of assuming and then we assuming sequestering in Washington DC, just kind of curious as to what kind of the mindset would you expect for the economy there back in guidance you gave?

David Stockert

Yeah. I mean embedded in that is, is an expectation, which is kind of a make consensus for you of job growth it’s running in a pace that’s fairly consistent in what we saw in 2012. In other words a couple of million jobs. So, if it’s materially different and happen, yeah, it could have an impact.

Michael Salinsky – RBC Capital Markets

Okay. Third question. I think you talked a little bit about some of the carry cost related to the condo exit, in which you also carry in real estate taxes, insurance and some of those like condos. As we think about kind of the incremental drag that’s on the numbers right now and we look at 2014 being possibly a very clean year. What’s kind of the net impact to the condos if you strip out the sales gains right now, it’s kind of the drag on the numbers?

David Stockert

Well, the – all that like property taxes and things on the sold units that’s all baked into those condo numbers. So, you can – I don’t think there is really something else to pullout. That’s why we – when we talk about our FFO we’ve been talking lately last 18 months or so about core FFO trying to do what you’re talking about. And so that number in our guidance 251 at the midpoint it was 225 without the condos. And hopefully we can sell them out in 2013 or get off they close and the those carry cost would go with it. But they would be baked into whatever the profit expectation as for those in 2013.

Michael Salinsky – RBC Capital Markets

Okay. Then final question, I think clearly you are talking about disconnect between public and private market valuations currently. Just have you been to the process, what’s your expectation on potential M&A in this space, just given the disconnect right now?

David Stockert

I don’t know, if disconnect persist for a long time then the market finds the way to close the arbitrage. Having said that and I made this comment before, the math is pretty straight forward and there has been – there have been disconnects throughout – if you look at more broadly the REIT sector, there are a lots of disconnects that exist out there and small percentage of which have been dealt with. So, it’s obviously harder than it looks on paper.

Michael Salinsky – RBC Capital Markets

Fair enough. I appreciate the color. Thank you.

Operator

And we’ll take our final question from Anthony Paolone from JP Morgan.

Anthony Paolone – JP Morgan

Okay, thanks. With stocks up now, so I guess we keep talking.

David Stockert

It’s up?

Anthony Paolone – JP Morgan

It is.

David Stockert

Good.

Anthony Paolone – JP Morgan

So...

David Stockert

I will stay on as long as you want.

Anthony Paolone – JP Morgan

All right. So, I know you don’t want to project out. And I know some folks have asked the question about the private market and what’s going on there, but just ask a little bit differently, what kind of deceleration in NOI growth do you see private participants forecasting when they are bidding on deals out there?

David Stockert

I don’t know. Whatever it takes the win. I think the private market get for the best quality assets as determined by incremental buyer that can – they can has a reason to buy the asset. Right, and it’s not pure IRR. It’s not a pure I don’t think. It has a lot to do with capital and needs for capital out and things like that. So, again I think people look at the investment opportunities that are available.

They look at 2% 10-year treasury and they look at multi-family assets that can be financed with positive leverage and even if I buy the thing it – what I think is a 4, low-4, mid-4, whatever the number is and I put debt on it in the 3s and I feel like I have got some kind of inflation protection and I compare that to other things that I can do with my cash and I have an allocation to real estate that I want to meet. I mean it’s a whole bunch of stuff and those in to it. So, I don’t – I can’t answer that question. I don’t know what kind of deceleration they are putting in.

Anthony Paolone – JP Morgan

Let me ask a little bit differently, do you think that...

David Stockert

Other than every 10-year model I have ever seen can reverse to 3% growth in revenue and expenses – over the 10-year holding period.

Anthony Paolone – JP Morgan

All right. But you don’t think that you and the other apartment REIT management teams are looking out and seeing something different than what might be underwritten or forecasted by others in the marketplace?

David Stockert

No. I think and look, I think we feel really good about our business. I mean again I’m a little taken aback likely by the market reaction over the last three months and particularly over the last 10 days. I think we feel good about our business. I mean at any other time 2013 and the guidance of companies are putting up would be considered a really good year. It just we’re struggling because we’re coming off what I believe is going to be the peak, the peak performance year 2012 and that’s a hard thing we got to grapple with. But we move forward, it’s still going to be pretty good year.

And as I said before, if you look at the overall housing market, if we get good household formation and we are lagging in housing production, wow, that doesn’t happen that often and that’s still the scenario.

Anthony Paolone – JP Morgan

Okay. Thank you.

David Stockert

Thanks, Tony.

Operator

At this time, I’ll turn it back over to Mr. Stockert for any additional or closing remarks.

David Stockert

Well, thank you all for joining us. And we will look forward to talking next quarter. Take care.

Operator

Thank you. That will conclude today’s conference. We thank you all for the participation.

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