American Campus Communities Q4 2008 Earnings Call Transcript

Feb.18.09 | About: American Campus (ACC)

American Campus Communities, Inc. (NYSE:ACC)

Q4 2008 Earnings Call

February 18, 2009 11:00 AM ET

Executives

Gina Cowart - Investor Relations

William C. Bayless, Jr. - President and Chief Executive Officer

Brian B. Nickel - Senior Executive Vice President and Chief Investment Officer

Jonathan A. Graf - Executive Vice President, Chief Financial Officer and Treasurer

Analysts

Joseph Dazzio - JPMorgan Securities, Inc.

David Toti - Citigroup Equity Research

Michael Bilerman - Citigroup Equity Research

David Bragg - Banc of America-Merrill Lynch

Karin Ford - KeyBanc Capital Markets

Michelle Ko - UBS Investment Research

Paula Poskon - Robert W. Baird & Co., Inc.

Andrew McCulloch - Green Street Advisors

Operator

Good day, ladies and gentlemen. And welcome to the Q4 2008 American Campus Communities Incorporated Earnings Conference Call. At this time all participants are in listen-only mode. (Operator Instructions).

I would now like to turn the presentation over to Gina Cowart, Vice President of Investor Relations. Please proceed, ma'am.

Gina Cowart

Thank you. Good morning and thank you for joining the American Campus Communities' fourth quarter and year-end 2008 conference call. The press release was furnished on Form 8-K to provide access to the widest possible audience. In the release the company has reconciled the non-GAAP financial measures to those directly comparable GAAP measures in accordance with Reg G requirements.

If you don't have a copy of the release, it's available on the company's website at www.studenthousing.com in the Investor Relations section under Press Releases. Also posted on the website in the Investor Relations section under Supplemental Information, you will find a supplemental financial package.

Additionally, we are hosting a live webcast for today's call, which you can access on the website with the replay available for one month. Our Supplemental Analyst Package and our webcast presentation are one and the same. Webcast slides may be advanced by you to facilitate following along.

Management will be making forward-looking statements today, the references to the disclosure in the press release, on the website, with the slides as well as SEC filings. Management would like to inform you that certain statements made during this conference call, which are not historical facts may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995.

Although the company believes the expectations reflected in any forward-looking statement are based on reasonable assumptions, they are subject to economic risks and uncertainties. The company can provide no assurance that its expectations will be achieved and actual results may vary.

Factors and risks that could cause actual results to differ materially from expectations are detailed in the press release and from time to time in the company's periodic filings with the SEC. The company undertakes no obligation to advise or update any forward-looking statements to reflect events or circumstances after the date of this release.

Having said all that, I would now like to introduce the members of management with us today, Mr. Bill Bayless, Chief Executive Officer; Brian Nickel, Chief Investment Officer; and Jon Graf, Chief Financial Officer. We also have Greg Dowell, Chief Operating Officer with us today.

And now I'll turn the call over to Mr. Bayless for his opening remarks.

William C. Bayless, Jr.

Thank you, Gina. Good morning and thank to all of you for joining us as we discuss our results for the fourth quarter and year-end 2008. We're very pleased to report that our fourth quarter operational and financial results met our internal expectations.

Despite the current economic environment, we saw gains in occupancy, rental rates and NOI when compared to Q4 of the prior year.

If you turn to page five of the supplemental package, you'll see that our fourth quarter NOI for our same-store property grouping increased by 6% over Q4 of '07. And our full year same-store property grouping increased 2.6% when compared to 2007. Full year same-store NOI increases to 3.3%, when excluding one-time charges associated with hurricanes in 2008.

If you turn to page seven of the supplemental, you can see our occupancy at our same-store wholly-owned properties as of 12/31 was 96.2, compared to 95.1 for the same date prior year. As of December 31, the GMH portfolio had an occupancy of 88.1%. Occupancy at our combined total wholly-owned portfolio, including GMH assets was 92.2.

If you turn to page eight, we'd now like to review the leasing status for the upcoming 2009-10 academic year. As of Friday, February 13, our total same store wholly-owned portfolio was 48.1% applied for and 45% leased, compared to 50.5% applied for and 47.7% leased for the same date prior year. The GMH same-store portfolio was 44% applied for and 42% leased, compared to 41% applied for and leased the same date prior year.

The GCT portfolio had a current rental rate increase of 1.4% over the current in-place leases, down 20 basis points from our original 1.6% rental rate increase.

The same-store ACC legacy portfolio was 53% applied for and 48.7% leased compared to 60.4% applied for and 54.7% leased for the same date one year ago. Our current projected rental rate increase over the current academic year is 2.7%, down 30 basis points from our initial rental rate increase of 3%.

While leasing velocity is lagging compared to last year, a year in which we leased at a highly accelerated velocity, when we look at our long term historical leasing velocity trends, only 7 of our 39 ACC legacy assets were behind their longer term velocity trend as of this date.

As mentioned in our press release, Vista del Sol, our first ACE transaction at ASU is already 100% applied for, for next year with a rental rate increase of 4.6% above the current in-place rents. In addition, Component II, the Barrett Honors College is 38% pre-leased with current Barrett Honors College students. The Honors College has admitted approximately 900 additional students for fall 2009, who will be given priority in living in the community. Any remaining beds will then be made available to first time freshmen and other identified sub populations.

With that, I'll like to turn it over to Brian, to discuss our investment activities.

Brian B. Nickel

Thanks, Bill. We're pleased to announce that during the fourth quarter, ACC was selected by Washington State University as its preferred development partner for the potential redevelopment of all the University's on-campus upper division housing.

Provided market demand is deemed insufficient, the engagement also provides for the potential development of additional on-campus communities. The partnership with WSU is a solid example of the potential of the ACE program and we're excited by its prospects for the future.

Similar to other higher education institutions' nationwide, WSU is experiencing pressure to improve on-campus student living experiences. This competitive pressure comes at a time of declining state financial assistance and increasingly limited University resources. The combination of lack of competitiveness and significant budgetary pressure caused WSU to seek an alternative funding mechanism to address the redevelopment of their existing apartment housing stock and provide for new upper class housing offering.

With this selection, ACC has been asked to explore opportunities to utilize our ACE program to invest on WSU's campus and build new modern facilities consistent with modern upper division student preferences. At this time, we've been awarded the project through a competitive qualification process and are currently in the feasibility and the master planning phase with WSU.

Although, we're early in the process, we're excited about the potential opportunities this creates to expand the use of our ACE program. Also on the ACE front, we continue to make progress with both the State Universities. At this point of time, we are scheduled to seek Board of Educational approval during the second quarter which will put us into full design development stage during the latter half of 2009.

Our current anticipated yields remain consistent with those communicated in previous calls at 7% to 7.5%. We are also estimating that the development will contain approximately 1000 beds with development cost of around 57 million. We anticipate that construction will began early in 2010 for delivery of a portion in 2011 and the remaining in 2012.

Regarding future opportunities; with the downturn in the economy and the pressure on State budget appropriations, we have seen a marked increase in interest in the ACE development program. This increased interest, coupled with the initial success of our ACE development at ASU we believe provides the most significant opportunities for ACC.

This quarter we announced the promotion of Jamie Wilhelm to Executive Vice President - Public-Private Partnerships. Jamie has been tasked with harnessing all the resources of our organization in order to maximize the potential of ACE. Jamie's unparalleled experience in higher education finance, along with the demonstrated track record for solid decision making and leadership skills, we believe make him the right person to tackle this opportunity.

Turning to our third party business segment, 2008 marked a solid growth year for our third-party management business. For those of who were with us during our IPO and the early years as a public company, we communicated that we believe that overtime the third-party management fee base will become a larger portion of the total third-party fees, providing a more stable predictable income stream.

Accordingly, in 2004 total third-party fees represented approximately 14% of total revenues. The third-party management fees represented 27% of this amount. For 2009, we expect that third-party fees will only represent 5% of total revenue with third-party management representing approximately 50% of this amount.

On the development fee front, UCI III continues to remain on track providing solid development fee income. Our Staten Island project, along with our Cleveland State development opportunity have been delayed by the financial market credit freeze. But, we remain on track for construction to start during 2009. We currently expect that both of these developments will be refinanced during Q3 or Q4 with an anticipated 2011 delivery date.

From a pipeline prospective, we are in negotiations with Edinboro University regarding a potential Phase II development that could also be in position to close in 2009. We think it is important to note that despite the slowdown on the financing front, we still see a steady stream of third-party development opportunities.

On the off-campus development front, we remain cautious regarding our use of capital. As was the case on our last call, we continued to see a number of potential transactions, but at this point time in time have not made any decisions to move forward with these developments.

That being said, we've been actively seeking opportunities to take down attractive land parcels at good pricing with the potential to lend (ph) back these opportunities for the future. Regarding the disposition potential, on our last call we communicated that we anticipated that potential disposition package would be approximately $150 million.

We're currently on track to release this package, which will contain seven properties later this quarter, and we'll update the market on our next call regarding the interest in these dispositions.

With that I'll turn it over to John to discuss the results, our capital structure and outlook for 2009.

Jonathan A. Graf

Thanks, Brian. For the fourth quarter of 2008, we reported total FFOM of $15 million or $0.34 per fully diluted share as compared to FFOM of $12.6 million or $0.44 per fully diluted share for the comparable quarter in 2007. Full year 2008 FFOM was $43.2 million or $1.12 per fully diluted share, which was at the mid-point of the $1.08 to $1.15 range that we communicated on our last call, which included the impact of the GMH transaction.

Our full year 2008 FFOM represent a 64% increase in 2007 FFOM, which included the $10.9 million compensation charge and related tax impact from the company's 2004 out performance bonus plan. As compared to the previous year, the 2008 result includes the GMH operation since June 11 of this year, and the impact on the weighted average share count related to the 5.4 million shares issued to GMH shareholders and the 9.2 million shares issued in conjunction with April 23 equity offering.

While it is difficult to completely breakout all of the impact from the GMH acquisition, excluding GMH in any related acquisition financing, the 2008 results from core operations were inline with internal expectations and were within our original 2008 guidance projections, which excluded the GMH acquisition.

On the third-party services front, we earned $14.5 million in third-party revenues during 2008, which was a $6.2 million increase over prior year. Total third-party revenues for 2008 consisted of $7.9 million in development fees and $6.6 million in management fees, which included $2.5 million from GMH third party management contract and management fee income on the Fidelity joint ventures.

Excluding the GMH and Fidelity management revenues, third party revenues were 12 million for 2008, which was slightly below the 2008 guidance range of $12.5 million to $13.4 million.

On our last call, we mentioned that this 2008 guidance range included the CSI third party development; the commencement of which was depended upon the availability of project financing. The CSI development did not commence in 2008 and is now anticipated to commence later... in the later half of 2009. It was anticipated that this project would contribute approximately 1.8 million of third-party development fees in 2008. Third party expenses of 11.1 million for 2008 were inline with what we communicated in last quarter's call. Corporate G&A was 11.3 million for the year, which is slightly below the range that we communicated during our last call of 11.5 million to 12 million.

G&A during 2008 was impacted by the acquisition and G&A related to the GMH integration, merger expenses and additional public company costs. We will discuss anticipated 2009 G&A levels when we discuss our assumptions for 2009 guidance.

As of December 31, 2008, our total market capitalization was approximately 2.1 billion, consisting of 0.9 billion of equity market value and 1.2 billion in total debt, excluding our on-campus participating properties and our share of debt from our unconsolidated joint ventures with Fidelity. Variable rate debt represented approximately 20% of our total indebtedness at the end of the year.

The company's outstanding debt is at a weighted average interest rate of 5.18% and has an average remaining term of maturity of 4.3 years. Fixed rate debt maturity for 2009 are 81.4 million or 6.8% of our total indebtedness.

At the end of 2008, the company's debt to total market capitalization was 57.1%. Our total interest expense for 2008, excluding the on-campus participating properties was 43.9 million compared to 21.6 million in 2007, a $22.3 million increase.

During 2008, we incurred 18 million in interest expense on approximately 600 million of debt assumed from GMH and 2.4 million in interest expense under the $100 million senior-secured term loan entered into to finance the GMH acquisition.

Due to the GMH acquisition, the company's interest coverage ratio decreased to 2.06 times for the year compared to 2.7 times as of one year ago. Interest expense is net of approximately 5.5 million in capitalized interest for the year related to owned projects in development during 2008.

As of December 31, we had recorded 63.7 million in construction and progress related to the ongoing owned development projects.

Turning now to 2009 guidance; we're providing guidance for 2009 FFO in the range of $1.59 to $1.77 per fully diluted share; 2009 FFOM in the range of $1.52 to $1.70 for fully diluted share and 2009 per share net income loss in the range of a loss of $0.05 to net income of $0.11 per fully diluted share.

Some of the major guidance assumptions are as follows: For total owned NOI, excluding the on campus participating properties, our guidance includes an NOI range of 143.1 to 149.2 million with the midpoint of the 146.2 million compared to the 96.2 million in total owned property NOI achieved in 2008.

We're allowing for 6 to $0.07 impact on either side of total owned property NOI midpoint from over or underperformance in property NOI. This NOI range includes the contributions from all owned properties, including the Barrett Honors College development expected to be opened at AHU this fall and does not assume any property acquisitions or dispositions during 2009.

The 2009 NOI consisted 89.9 million to 92.2 million for ACC legacy properties compared to 74.1 million achieved in 2008 and a range of 53.2 million to 57 million for the acquired GMH properties compared to 22.1 million achieved in 2008. The $17 million increase in NOI legacy properties from the mid-point to what was achieved in 2008 is comprised of 3 million in growth from properties included in the same-store grouping for the 2009 financial results, which represent approximately 4% NOI growth.

We also assumed 14 million in NOI growth from non GMH new store properties acquired and developed during 2008 and 2009. NOI guidance range does not include the ground lease expense from our ACE projects, Vista de Sol and Barrett Honors College. Approximately 1 million in ground lease expense from these ACE projects is anticipated to be included in the ground lease expense line item on our consolidated income statement.

For interest expense, excluding the on-campus participating properties, we're projecting 63 million to 64 million compared to 43.9 million incurred in 2008. Whole capitalized interest from our projects under development during 2009 is expected to be approximately 3 million. The interest expense range is primarily due to the impact of fluctuations in LIBOR on our floating rate debt during 2009.

The latest deferred finance amortization, excluding our on-campus participating properties is projected to be approximately 3 million in 2009. For G&A, we're projecting a range of 12 to 13 million for 2009 compared to 11.3 million incurred in 2008. This increase is primarily comprised of timing of G&A related to the GMH acquisitions, additional public company costs and increase compensation and related benefits expense. For the on-campus participating properties at the midpoint, we are projecting a gross cash contribution of 2.4 million for 2009, which is consistent with what was recognized during 2008.

For third-party services, we are projecting total revenue of 14.7 to 16.3 million for 2009 as compared to the 14.5 million earned during 2008. This guidance assumes that the CSI, Cleveland State and Edinboro University - Phase II third-party development projects will commence construction during 2009. The commencement of these projects is dependent upon the availability of project financing, which may be affected by current capital market conditions.

Expenses for this business segment are expected to increase slightly to 11.4 million in 2009. These expenses includes those necessary to operate the additional third-party management contracts inherited from GMH and the management of the 21 properties carried in the two Fidelity joint ventures.

In addition, third-party expenses include activities related to our efforts to pursue additional ACE projects. We currently have approximately 44.1 million fully diluted shares outstanding. This share count was used as the basis for our guidance projections. The summary of these and other assumptions in our guidance range is provided in table four of the earnings release.

With that I'll turn it back to Bill.

William C. Bayless, Jr.

Thank you, John. In closing, 2008 was a strong year for ACC; operationally, financially and on the growth front. As awarding as these accomplishments is the fact that for the fourth year in a row, American Campus was selected as one of the best companies to work for in Texas, moving up to number 15 from number 21. Our people have been, are and will continue to be our greatest asset. And it's a great honor to receive this award. On behalf of management, I'd like thank them for all of their exceptional work in 2008.

As we look forward in 2009, there is no doubt that companies will face unprecedented challenges to quote Ed Lowenthal, a member of our Board, no one can fully escape the impact of the current economy. This is no doubt true and will include American Campus. We feel however well positioned to weather the storm with opportunities for internal growth, with the improved performance of the GCT portfolio and the quality of our ACC legacy assets, and the lower risk, higher yield development opportunities afforded to us by the ACE structure.

Bottom line, throughout the year, we remained disciplined in our investments and focused on operations, and we'll do our best to continue to create value for our shareholders.

With that, we'll open it for Q&A.

Question-and-Answer Session

Operator

[Operator instructions]. And your first question comes from line Anthony Paolone with JPMorgan. Please proceed with your question.

Joseph Dazzio - JPMorgan Securities, Inc.

Hey, good morning, guys. It's Joe Dazzio here with Tony.

William Bayless, Jr.

Yes, go ahead.

Joseph Dazzio - JPMorgan Securities, Inc.

Question on the seven assets in the ACC legacy portfolio that are trialing a little bit on the fee leasing front. Can you just talk about little more about those, where they are, and kind of what's going on in those markets that have those assets?

William Bayless, Jr.

Sure. And, we have of course as you can imagine, the velocity trend for every property that we've owned for as long as we haven't. So, when we look at those seven, and I'll break them real quick, we have the villas at Chestnut Ridge in Buffalo, which is currently 67.4% compared to 92.3% last year. However, as you recall last year that was a development asset where we moved over all the students from Sweet Home. And so, as we look at that particular property, we still have rental rate growth there, we've excellent velocity above the market and while it is behind last year on a one year basis, we are not overly concerned.

The second property is Callaway Villas in College Station, Texas. And College Station is one of the markets where we did see some new supply come on this year on a high-end basis. We had the second... third phase actually to Town Home Community, a lot development that came in downtown. We've got three assets in that market. Callaway House is actually 103% applied for and Aggie Station is 54.7% applied for, both running inline or ahead of last year.

Callaway Villas is about 10% behind. We have a 1.8% rental rate increase that we have still been able to hold on there. It is trending above the marketplace, the one that is outside of its historical room. The third property is the Estate in Gainesville. And, Gainesville, as you would all recall from last year, is one of the most challenging markets in the nation.

What we saw happen at the very beginning of the lease-up prior to really anyone having velocity, a couple of the properties that did not fill up last year and even one that did fill up came out offering significant specials, some of the them $500 cash back. We've got three assets in that market, U-Club Gainesville, which is currently 45.7% leased compared to what we believe is a market average of 28% as of 2013, and we have a 3.8% rental rate increase there.

We've got Royal Village Gainesville, which is 80% pre-leased which has a 4.7% rental rate increase. But the property that is lagging is the larger property, the States gains where we initially had a 1% rental rate increase and because of the concessions we had reduced to a negative 3.5% increase compared to last year. And velocity there is 34% compared to 54. And so we've had to meet the market there in concessions and that's one of the ones that we're watching very closely that we think could have some impacts from the oversupply.

The next one is The Village on Sixth in Huntington, and it's tracking and again the statement we made was outside of the historical. We've only owned it for two years. It's at 22.1% compared 27. So really inline, but given the fiscal analysis of what's trailing behind it's one that made that cut.

The six... the fifth property is Raiders Pass in Lubbock, which as you all recall was one of turnaround assets there. Two years ago we turned around. It's a 36.1 versus 46 last year. It has the 2.7 rental rate increase that we're holding on to. We also picked up two GCT properties in that market. One that is running right on track with last year, and one that is running about 9% ahead.

And so, when you look at the three, they are all tracking right on the last year but the one Raiders Pass made that cut is slightly behind. The sixth property is Old Town Square at the University of Toledo. It is at 49.6% compared to 75 last year. It had an extremely high velocity, which was only the second year that we owned it.

Toledo has been a University that has the highest growth rate of any in the State of Ohio. Also the University this week announced that they are going to probably put out an RFP for 200 to 300 beds of overflow housing into the off-campus market. So we are seeing good demand there. And so while it's trailing we feel good about that. And actually we're still holding on to 3% rental rate increase in that market.

And the last property is Peninsular Place at Ypsilanti. And this is probably the property we're most concerned about. And it is the highest priced property in the market. This is the market we have closest to Detroit. We have campus site, we have a lot of autoworkers, and this where their kids go to school. And there we are at 10.3% versus 24 last year, and that's probably the property we are most concerned about. And so, those are the only seven that are trending outside of their all-time historical trends.

Joseph Dazzio - JPMorgan Securities, Inc.

Great. Thanks for all that detail there. Also related to the pre-leasing, if you look at the GMH portfolio, it looks like you are about I guess 100 basis points or so ahead of last year on the pre-leasing front. Would you have expected to be a little bit better than that, given how poorly that portfolio leased up a year ago?

William Bayless, Jr.

And the one thing Joe we look at, GCT never took applications. You had to sign lease directly to be able to move in. And so, if you look on an application front, we're 300 basis points ahead. And we really like the trending.

If you look at the charts in the book, you can see that the line is starting to separate from last year. GCT actually had very good retention throughout their portfolio. They did a lot of that by giving away a lot of specials. And so the early on numbers they are held intact based on the fact that they did have good retention compared to our good retention.

Probably the trend we're most excited about there is last week the portfolio was trending 276 applications ahead of the same week prior year. And so, as we're really getting into the bulk of the new resident leasing, if we can maintain that positive trend going forward and start to see the impact to the operations we're putting in place and some of the improvements we're making, we continued to remain bullish on what we can accomplish there.

Joseph Dazzio - JPMorgan Securities, Inc.

Okay. Looking at the fourth quarter the GCT portfolio performance and also I guess into '09, are expenses kind of on track with where you thought? It looked like the expense margins were maybe a little bit higher than what you had talked about prior 59% in the fourth quarter versus I guess 57? And then if you look at your NOI projection next year, I think last quarter when you kind of talked broadly about '09, you mentioned about 57 million of NOI and from GCT and that's I guess the high point of the range there. So are things kind of still on track or a little bit wider than what you've previously thought?

William Bayless, Jr.

Yeah in that... in the fourth quarter, Joe that's 17.4 million on the GCT portfolio. Those expenses are impacted due to the timing of GCT by approximately $2 million. That takes about 15.4 million. We also had with the ramp up, G&A expense and other things, operational expenses were high. If you take that 15.5 million and you extrapolate some of the seasonality charts, do the same thing we did last quarter that implies somewhere around 60 to 65 million, depending of what slab you use and what properties you include.

We gave a number of 60 million. That 60 million assumes that during the course of the year that we start to experience some savings, potentially in operational efficiencies as we moved them on to our system. So nothing. Number one, we are not surprised with the 17.4 million and we think as we move into to 2009 we're in good shape to be able to achieve that 57 million in NOI. We have got that at a high end of our range. But we still feel... we think the results be it on high or low are going to be related to the leasing.

Joseph Dazzio - JPMorgan Securities, Inc.

Okay. And then last question, can you talk about the decision to go forward with some of these on-campus developments and the 7-7.5% yield, it would seem like the private market pricing has pulled in enough so that maybe you could even buy properties for 100 basis points, north of that or more?

Unidentified Analyst

While there are couple of things to think about; First of all, we're committed to that Boise State and ACE program as far as moving forward to pull up on that project or to do significant renegotiation at this point time after we committed. No one says to stick a fork in our ACE program but it would be a significant black eye.

Also if you look at that 7.5, if you just use your number of 1% in terms of private market valuation, in terms of if you look at our safety and insecurity, our quality of income stream line or you look at it in terms of growth rate too. A 100 basis point premium for an ACE project, we think is justifiable.

Are we aware that, that's probably below what we would do at DLR today, yes but given the potential for the future, the Washington State potential and then all of the other RFP's and institutions that are turning to us for potential projects, we just think it's the wrong thing to do to backup on that project.

Joseph Dazzio - JPMorgan Securities, Inc.

Okay. Thanks a lot guys.

Operator

Your next question comes from the line of Michael Bilerman with Citigroup. Please proceed with your question.

David Toti - Citigroup Equity Research

Hi good morning everyone. This is David Toti on the line.

William Bayless, Jr.

Hi, David.

David Toti - Citigroup Equity Research

Quick question relative to and thank you for the information on the leasing migrates (ph). Can you just describe a little bit about what you are seeing relative to price points and if there any diversions between the high end and low end relative to those deltas?

William Bayless, Jr.

Sure. And we are... when you look at our last filing that we did on January 9th, there has been a change in the trend as it relates to the highest priced, those with that are in the moderate price and the least expensive. The least expensive had absolutely out paced. Right now, we're looking at that portfolio running double digit ahead in terms of its demand.

The most expensive have indeed come down a little bit. But that relates to the overall velocity issue. When you look at our highest priced properties, they are 65.5% pre-leased, as of this time that means the five highest American campus legacy assets.

When you look at last year that highest price category was at 77.1. And so you do see a drop off to the one year trend, but they are still the fastest leasing in the portfolio and are significantly out pacing the market. So the same conversation that we have had, the one trend is a little deceiving because of the velocity that we did achieve last year.

Let me go and dive into that a little bit to give you the understanding. If you would go and pull last year's supplemental to this call, you would see that there are eight properties that at the time of this call were 88% or more applied for and those were Boulder Creek, Callaway House, Blacksburg, Village Gainesville, City Parc, Northgate Lakes, UC Tallahassee, UC Gainesville, if you look at that supplemental.

Those properties collectively on February 13 of last year were 98.5% applied for. This year those same eight properties are 78% applied for. And so you immediately say, my goodness they are 21% behind last year's velocity. However, when you stop and look at where they are compared to their longer term historical trend all of them are in their historical trend. We also then stop and say how are those properties doing compared with there respective markets places and those eight properties are currently running between 18% and 52%, ahead of all of their competitors. And, we have rental rate increase of those properties that range from 3.4% to 4.7. And so, when you look at just the velocity of those eight properties drove last year, those eight properties are 950... are 935 beds of our total 1,638 bed deficiency in leasing velocities of this date.

So those eight properties represent 57% of the current lag. However, when you look at where they are in the marketplace, the rental rate increase of their demanding and where they are and their historical trend, they are doing fine. And so, rather than looking at just the various price points, we've taken a much more sophisticated approach to hang on to where we can get rental rate growth based on the longer-term velocity and are comparative to the market.

David Toti - Citigroup Equity Research

Okay, great. And then, just moving out of the dispositions, you guys initially had meant to start marketing those in the second half of last year. Can you just talk a little bit about why the delay and what are the changes to your pricing assumptions been in that time?

Brian Nickel

Well, as far as delay, first of all, we had to delay to the end of the end last year in the closeout of the GCT reach. So, we weren't in a position to be able to market them until moving into 2009. As far as these couple of months, we've been monitoring the activity that's in the market and candidly there is just not very much activity out there. Trying to figure out if there is right time, the time the dispositions.

Right now, there is a seven property portfolio that we're taking out. It's got about 81 million in debt on it, 82 million in debt. And candidly, we're just going to take it up and see what happens. We're in... we have the luxury right now of being in a position that we don't have any significant urgency to sell anything, and what we're going to monitor is the difference between what we believe a long-term growth profile on NOI is versus the cap rate.

So, as far as where that will sell, it will depend upon if it's the whole thing, if it's one. And then what we'll have to look at that point in time is we'll have to couple pricing against what we think as we move to the leased-up the realities of where those properties are. It's a mix of good assets, it's a mix of some assets that have struggled a little bit. And it's also got a profile in terms of where it is next to campus. So, we think it's a good portfolio. And there will be some significant market interest, but we just have to wait and see.

David Toti - Citigroup Equity Research

Okay. And then your intent I think originally for the proceeds was to reduce leverage. Supposing you have some difficulty with getting these assets closed, do you have any alternative plans relative to the de-leveraging process?

Brian Nickel

Well, what we're going to do what we've always said, which is we're going to look at all the available forms of capital from joint venture capital, public market capital to dispositions. As far as how we're going to look at that, right now, I guess I can... if you just look at where we are from a pure liquidity perspective, sources and uses, and how we're analyzing that.

Right now, if you look at the debt maturities through 2010, plus you add to that what we've committed to at Barrett and Boise State, we've got about $320 million worth of what we would consider to be commitments through 2010. When you couple that against sources, we've got a 145 million remaining on the revolver. We are also in the process of putting an agency facility in place that we think could yield 110, $120 million in proceeds. We also had extendability on the revolver.

So, when you look that that takes us up to potential 400 million. If you then look at it on an unencumbered NOI basis, we've got other sources of potential leverage. So we're not terribly concerned at this point of time. There has been some significant financing activity out there on the multifamily side. So, we don't feel like we've got a real cash problem. From a leverage problem, we're buying, moving through Boise State and getting Barrett finished. We would start to get concerned moving above that with any additional leverage prior to either raising capital or disposing of assets.

David Toti - Citigroup Equity Research

Okay, thanks. And then my last question, it's just a CapEx question relative to... what's your historic per bed number been on the legacy portfolio? And do you have a forecast available for '09 on the entire portfolio as it is today?

Brian Nickel

David, we have always putout there that we think a good year-in, year-out number is a $190 per bed. In 2008, we were at the 178. But we think on a long-term basis with varying ages in the portfolio, different quality of assets, 190 a bed ongoing is always a good number for modeling.

Michael Bilerman - Citigroup Equity Research

And. Bill, just... this is Michael Bilerman speaking, given that sort of level of CapEx and your FFO guidance range, and then cap interest that you're putting in, you're effectively in a negative free cash flow situation with the dividend. Can just sort of address that?

Brian Nickel

Well part of, as moved through 2009 we're just took on the GCT portfolio. And so moving into 2009 when we get the growth from GCT and the legacy assets and then we bring all of the assets that are under development online for an entire year moving into 2010 we don't have a problem.

Michael Bilerman - Citigroup Equity Research

So you'll keep paying the dividend in cash at this rate even though you...?

Brian Nickel

I don't want to... that's a Board policy decision. But if you look at where we have been historically what our growth profile, quality of income stream and projected FFO growth moving forward we have no reason to believe that that we would look at it any different thing we have historically.

David Toti - Citigroup Equity Research

And then on you mentioned capital markets and maybe potentially using the equity market as a way to de-lever that high-end on your agenda list or...?

Brian Nickel

That's not exactly what I said, what I said is we'll look at it, as we always have we're going to look at all the available forms of capital that are out there. As far as priority that's going to be based upon timing, pricing, everything else and we'll do just what we have in the past which is to be prudent in terms of looking at cost of capital and what we're doing with the proceeds.

David Toti - Citigroup Equity Research

And last just on seasonality of NOI, can you just walk through just given there was obviously something that occurred in 2008 relating to GMH. How you sort of see that NOI trending during the year, between quarters?

Brian Nickel

We've got a seasonality chart which are in our historical filings. And if you look at the seasonality related to the 12 month properties, that's a good way to go out and look at the NOI... for trending that NOI through 2009... through 2010 as well.

David Toti - Citigroup Equity Research

So going back pre 2008 is going be...

Brian Nickel

There's nothing as far as the trend and timing of the NOI, there is nothing that would imply it's any different than it has been historically at this point of time.

David Toti - Citigroup Equity Research

Okay. Thank you.

Operator

Your next question comes from the line of David Bragg with Banc of America. Please proceed with your question.

David Bragg - Banc of America-Merrill Lynch

Hi, good morning.

William Bayless, Jr.

Good morning, David.

Jonathan Graf

Good morning, David.

David Bragg - Banc of America-Merrill Lynch

Brian, just wanted to follow-up on a point that you touched on a couple of times. How do you think about the long-term growth rate, the spread between existing off-campus assets versus phase developments?

Brian Nickel

There are two things to think about. One is quality of the income stream, in terms of risk. The other thing to think about is just generally the ability to push rents ahead of the private market. You think about it in terms of quality of income stream, you've got to back to our investment strategy, our in-fill assets with submarkets with barriers to entry with differentiated products. The beauty of the ACE program is that it is the best of all three.

So if you take that and just look at quality of the income stream it's... we would make an argument that it is highest it can possibly get.

David Bragg - Banc of America-Merrill Lynch

Right.

Brian Nickel

You then turn to ASU and look at what ASU is just on term, just looking at... forget NOI growth. Just in terms of where we from a marketing position compared to the rest of the market, San Diego (ph) is one of the worst markets from a multi-family perspective in the United States. And ASU our asset there which was just added to the market in its second year lease up is going to be one of our best performing properties in the portfolio.

If that to any indication as far a quality of income stream that's we think that's very positive. If you look at our... thinking about risk adjusted return. If you then move to NOI growth, there is a reality to it that at some level you're going to be limited in terms of the ability to push rents at the level that institutions do. But right now, just anecdotally listening to what campuses are doing around the country to deal with budget crisis, cutbacks and funding. We are hearing institutions that are talking about raising rents from 6 to 10% on existing on campus housing. If we can drop off that all (ph) it should outperform our existing portfolio pretty significantly.

David Bragg - Banc of America-Merrill Lynch

Okay. That helps. And then just specifically on Barrett, I believe you mentioned a lease rate of 38%.

William Bayless, Jr.

Correct.

David Bragg - Banc of America-Merrill Lynch

So far that's accurate. Okay, can you talk about how is that compares to Vista de Sol, stood at this time last year, I believe it was closer to 90%. Could you discuss what's going on there, how rent rates compare across the two assets and at what point might you open that up to students beyond those at the Honors College.

William Bayless, Jr.

Sure, David two completely different assets with two completely different targets markets and where Vista de Sol is an upper platform apartment complex that completes with off-campus housing, Barrett Honors College is a special use product that first priority goes to the current Barrett Honors College students. And so when you look at that 38 which is roughly 630 to 650 leases, those were the existing students in the Barrett Honors College that are already on the Tempi campus, that have first priority to lease in the community.

The second group, that get assigned to the community by the University and this is more of an assignment process than open market leasing are those students who are new Barrett Honors College students coming into University, either as freshman or transfer.

The third group that will then be given priority are freshman. And as you all may recall, Arizona State University this year has put in place a freshman housing requirement, where all freshman have to live on campus.

It's no longer an open choice. And so the third group will be freshman, though the freshman application deadline is not until March 1st, and the University will not begin formalizing those assignments from new students until after that date. And so it is a much more structured assignment process, even less open market risk in this because of the on campus housing requirement and the dedicated use for Barrett Honors students and more of a procedural process really illustrated by the University.

David Bragg - Banc of America-Merrill Lynch

Okay. Are the rent rates in line with those at the other asset?

William Bayless, Jr.

Its two different product types. A lot of Barrett is more comparable to ASU's newer resident hall product like Ypsilanti (ph) and so it is competitively priced and based off of the University's existing residence hall products versus an apartment type product like Vista del Sol.

David Bragg - Banc of America-Merrill Lynch

Okay, thanks. And just last question is Bill, can you talk a little bit more about your thoughts on trading, pricing powers (ph) for occupancy as you finish up the lease up and where you think you might come out on rent rate growth versus the 2.7% and 1.4 to date on ACC and GMH?

William Bayless, Jr.

Sure. In one comment, we made on the last call that I would echo again consistently today is the current economic environment has absolutely been in the back of our minds as we look at rental rate growth and risk taking as it relates for trading rental rate for occupancy. And no doubt in my own mind and I am sure the rest of the members here on the team, we've been more conservative with rental rates than we've been in before and in this environment we just don't want to sacrifice occupancy at all.

And so using GCT as the example where we started off at 1.6 and now we're at 1.4, we would not hesitate to trade 20 to 50 basis points rental rate if we thought in the case like GCT, it could produce 400 to 500 basis points in occupancies. And so, we'll err on the side of conservatism in this environment on the rental rate side.

We've had rate changes at a total of one, two, three, four, five, six, seven, eight, nine assets. Three have actually been increased, two in the GCT portfolio, one in ACC and so we've pushed where we felt comfortable in doing so and we've had rental rate reductions on six assets, three ACC, three GCT.

And so I'll tell you that we... in prior years there probably would have been a few more increases and we are just not at a comfort level to risk occupancy over rate.

David Bragg - Banc of America-Merrill Lynch

Okay. So it sounds like you see more downside risk to the 1.4% in GMH than the 2.7% at ACC, is that fair to say?

William Bayless, Jr.

David, in this lease-up it's hard to really draw a conclusion for the remainder of the lease-up, just not knowing what variables are going to come into play in each one of the markets. But certainly, I think one of the benefits of being in the market longer, like take those eight assets we talked about, they we're 98.5% last year that are now 80%.

The bad news last year was they did lease so quick. One of the properties they had like 60% gain in a two week period. You couldn't think about raising rents. And so while you are in the market a little longer you are more susceptible to rental rate depreciation as you move forward. In some cases, you may actually provide opportunity on some of the better located assets to push little bit and so at this point, can't draw any conclusions on what the trend has been from initial to now, other than what we're going monitor it closely and we'll keep the market apprised if there is any drastic changes.

David Bragg - Banc of America-Merrill Lynch

Okay, thank you.

Operator

Your next question comes from the line of Karin Ford with KeyBanc Capital Markets. Please proceed with your question.

Karin Ford - KeyBanc Capital Markets

Hi, good morning guys.

William Bayless, Jr.

Good morning Karin.

Karin Ford - KeyBanc Capital Markets

Would it be correct to characterize your comments earlier on the seven legacy assets that are little bit behind as you are concerned about Gainesville, Callaway Villa and Youth Saloni (ph), but at the others you feel like you are going to claw the occupancy back before the end of this full year?

William Bayless, Jr.

Yeah, that's probably the exact breakdown we would give and we would carry Gainesville and there are two of the three assets in Gainesville we feel great about, and still we have some of our highest rental rate growth there and are tracking well. It's the one property via States of Gainesville, they were very cautious on and are watching closely. And then Ypsilanti is the one, it's just a tough market, a tough property. It is the... it's the toughest one in our portfolio without a doubt.

Karin Ford - KeyBanc Capital Markets

Got you. And if that trend did hold, do you have a guess as to where you'd end up occupancy wise for the school year?

William Bayless, Jr.

Well, when you look at, and again, very early in the process to draw a trend from the last four weeks. And then when you looked at the actions we have taken at the States, if you look at what the trend was four weeks ago, and what the trend is today, we picked up great velocity with the rental rate reduction we have there. And so, when you look at each one that would answer your question directly, States right now is 20% behind in occupancy, but we've actually been closing that gap with the rental rate increase.

Ypsilanti is currently 14% behind in occupancy, and Callaway Villas is currently 10. Now Callaway Villas has a little bit of a strange competitive advantage to it. In the last year, where Callaway Villas is designed as upper-class men housing, we ended up with 350 freshmen overflow from Callaway house, which is the freshmen residence hall. And there was an audit while last week at A&M, Texas A&M is having record applications, beyond anything they have ever seen. And also a lot of the students that don't get into A&M because of the self-interest requirements go to Blinn Junior College, which is also right in. So, we've got a few more opportunities with Callaway Villas than we will with the traditional off-campus apartment complex that could help us benefit there.

Karin Ford - KeyBanc Capital Markets

Great. Next question, it's on GMH. The NOI numbers are a little lower than the 60 million that you had expressed on the last call. Can you just talk about, are you still expecting the 5 to 600 basis points of occupancy improvement there, or maybe that will be down a little bit?

William Bayless, Jr.

Well, first of all, on the last call we were at 117 million in revenue projected and 60 million in expenses, for 57 million in NOI, which was a 6.5 cap on $850 million asset value.

Karin Ford - KeyBanc Capital Markets

Right.

William Bayless, Jr.

And as far as what we're projecting range of NOI right now, John went through it on the call. But, it's roughly 53 to 57 million. So, I guess what you would say is we drove back the expectation potentially in terms of 57 million being what we would expect on the high-end. And then, obviously, if we're not able to achieve those occupancy gains and a little bit of the rental rate comps, then that could potentially push us towards the lower end of that range. It doesn't necessarily change our opinion about the prospects for the future because we're still deploying capital into those assets that we see.

Karin Ford - KeyBanc Capital Markets

Got you. Have you seen any trends with respect to any kids not coming back from winter break, can you just talk about what occupancy is today versus the December 31 number that you gave us?

William Bayless, Jr.

Yup, absolutely. And Karin, there, we did see the basic traditional... and again the date we gave is as of 12/31. And so, when you look as of 1/31, and actually have that sheet right here in front me. As soon as I can... here we go, the ACC legacy assets went from 96.2 as of 12/31 to 131 being 96.7. So basically it picked up any diminishing there that it had. And GCT went from 88.1 as of 12/31, back up to 88.6. And so, very consistent with our long-term historical trend of not seeing a drop-off and that anyone it does lead through attrition or December graduation being able to successfully backfield.

Karin Ford - KeyBanc Capital Markets

Okay, great. Last question is just on Boise State and I guess Washington State now as well. Do you plan to get any construction financing, is any construction financing available for those projects?

William Bayless, Jr.

On Boise State, at this point in time, no. And we've got the capacity to be able to fund that. As far as Washington State, I want to make a point on Washington State. We went through a competitive qualifications process. And, what the school was wanting to do was to find somebody that had the capacity to do an equity-based program that wouldn't impact the credit ratios. It's something that their Board, now a lot of Boards across the country are being asked to do, which is to seek private sector capital to be able fund development opportunities on any one of the ancillary services. That qualification processes was something that we were awarded the project.

We are now in the feasibility master planning phase. Washington State has a mix of freshman housing and then apartment style housing from the 50s, 60s and 70s. That's very dispersed around the campus. It is extremely, it is very, very not done. And it is not at any reinvestment in over a long period of time.

So part of what we're evaluating is a redevelopment, reinvestment in the asset, a teardown rebuild as well as they have a pretty significant number of vacant parcels that we could build on, so we have new development as well. So we're engaged in a market study right now, we're engaged in pricing activities. We're also looking at operating structures where we can takeover those existing assets, reinvest over them in the short-run and be able to look at putting money back in those assets that way and then eventually teardown and rebuild.

So it's a large process. We would eventually move potentially towards the middle or latter half of this year if we can find a feasible project, move into presenting that to their Board, then that will begin the full design development in earnest.

So, as far as Capitol Valley (ph) is concerned, I mean if you just think about Boise State, it's taken a long time to get to where we are right now, and we're just starting to design development for constructions in 2010. We would say the earliest for anything at Washington State is 2011, or most likely 2012, '13.

Karin Ford - KeyBanc Capital Markets

Okay, that's helpful. And are yield on potential redevelopment there higher than ground up?

William Bayless, Jr.

No. It's more a function of being able to provide cost effective housing to the University. Right now the partners that are housing there is significantly below market. And so what you're looking at is the overall stratification of pricing that they provided to their students, so there is a piece of that. Then there is the other side of it is in a day in a market with the bunch of housing could put it upside down before growth.

So, what we're approaching and likely approach all the projects which is trying to find the best alternative for Washington State first, and then working on alternatives to figure out whether or not it's an effective use of capital for us.

Karin Ford - KeyBanc Capital Markets

Thank you very much.

William Bayless, Jr.

Thank you, Karin.

Operator

Your next question comes from the line of Michelle Ko with UBS. Please proceed with your question.

Michelle Ko - UBS Investment Research

Hi. I was just wondering if you could just tell me in terms of the historical leasing velocity returns, what the worst you have seen it go down to.

William Bayless, Jr.

When you look at, we have had some properties that are as far behind us 30 to 40%. The one year trend, but when you look at the seven that are in the there outside of the historic trends let met get this right here.

In that case outside of the historical trend the worst one we have is Village at Chestnut Ridge, which is 67.4 compared to 92.3. And again, little unique in the last year was the inaugural year of new development we gave the Sweet Home property preference to move over, and so I mean it was already 92%. When you look at the others that are outside of their current historical trend, that range is 10%, 10%, 5%, 10%, 25%. So between 10 and 25 on those that are outside of that range.

Michelle Ko - UBS Investment Research

Okay. And then in terms of the development at Washington State University, you spoke a little bit about the yield side you were getting on the Boise project at 7 to 7.5%. Could we expect a higher yield for the Washington State University project?

William Bayless, Jr.

Well, that's going to depend. At this point in time we don't know where we're going to end up on feasibility but just some things to think about. If you took a look at Arizona State and you look at feasibility that was a 7 to 7.25 yield on those two developments.

If you take the ground lease payment out of that and then just look at the yield without paying the University anything for their land, you move yourself into probably 100 to 150 basis points higher than that. So, first of all on a feasibility basis, if you look at a ground lease payment similar to how you look at land valuation as yield drives construction cost stay consistent, market rents don't change then the only thing that can really be negatively impacted is land value, where you would assume the same thing on ground lease payment.

So, from a pure feasibility perspective if you assume that the University got no rent, we could achieve something that's most likely a lot better than what the 7 to 7.5. As far as how we would price that, we've got some evaluations to do based on what our disposition package ends up yielding.

Just by way of example, we could make an argument that if we could flip the disposition package at a 7.5% cap rate and I don't want to communicate anything on what we think, we just don't know right now. It could be lower and it could be higher in terms of what pricing is, not to say what we would... whether we would take it or not. But if you just assume this 7.5 cap rate under disposition on a portfolio that we thought was flat with 1 to 2% rental rate growth at the maximum then you turn around and look at deploying capital under the same ACE development deal with a higher growth rate and better security that make sense.

If the disposition package that we sell at 7.5 has an accelerating growth rate, well then that might not make sense. So what we're going to do is over time evaluate the disposition cost of capital and be prudent in terms of how we deploy that capital into ACE transaction and other deals.

Michelle Ko - UBS Investment Research

Okay. Great, thank you.

Operator

Your next question comes from the line of Paula Poskon with Robert W. Baird. Please proceed with your question.

Paula Poskon - Robert W. Baird & Co., Inc.

Thank you, and good afternoon everyone.

William Bayless, Jr.

Hi, Paula.

Brian Nickel

Hi, Paula.

Paula Poskon - Robert W. Baird & Co., Inc.

Brian, you had mentioned that you are continuing to deploy capital into the GCT PT assets. Can you just provide a little bit more color on what types of expenditures those are being made on? What benefit you think you are getting from those and how much of that still lies ahead versus has already been completed?

Brian Nickel

Sure, Paula. Our original assessments, on that would be somewhere between 30 and $40 million over a two to three year period of reinvestment. What we have done is we have prioritized those projects. We identified what we felt were the 10 to 12 properties that had the highest upside from repositioning as it relates to club house refurbishment which includes upgrade of the amenities, upgrade of fitness centers, the inclusion of tanning centers, game room, things of that nature where you really get a lot of bang for your buck in terms to perceived value.

The first round of those are underway. We have got about 18.5 million either in process or close to completion. Our original target for that was fall of this year. We are actually ahead of schedule in many of those projects and excited that they could potentially have some impact in that regard. The other thing that we're looking at is selective replacement of FF&E where you get a lot of bang for your buck in terms of living room furniture's and things of that nature.

We, from an underwriting perspective really do not anticipate getting any bang in terms of renovating for us (ph) until the following cycle. The goal has always been improved operations leading into 2009 and again with physical product repositioning having the opportunity to have rental rate growth beyond your normal pro forma based on these investments.

However, again though the construction team is doing a great job and we got some accelerated timelines there to where we could at some of those properties see some initial impact from the completion of work.

Paula Poskon - Robert W. Baird & Co., Inc.

Thanks, that's helpful. And on the fourth quarter numbers, can you talk a little bit about what's happening or how.. can you just compare and contrast the what's happening with the expenses at the ACC legacy assets versus the GCT assets were there any unusual accruals or your end through ups that might have impacted the numbers that wouldn't necessarily be a good run rate.

Brian Nickel

Yes. We think there is about $2 million worth of expenses and GCT to 17.4 million. We think about 2 million of that's related to the timing of the GCT transaction and related to that. As far as our comparison to the existing expenses, the numbers on GCT is from a total dollar amount or per bed.

If you remember at the time of the announcement of the acquisition, we didn't think that our ability to improve NOI was going to come from a reduction in expenses. Now there is reality that we think we could actually go back and analyze how they spent money on the expense side. We think we could be more prudent and we should start to see efficiency in terms of allocations of dollars.

But what we would expect is that at a number of 60 to 63 million in expenses for 2009 we would expect the savings to start to take place over the next two or three years resulting in lower growth in expenses moving forward.

Paula Poskon - Robert W. Baird & Co., Inc.

Okay. Thanks. And then finally just a little bit bigger picture on the ACE program, presumably as the Universities are facing continuing increasingly tight budget constraints in capital allocation decision making that you are going see more and more RFPs for the ACE projects. So, are you evaluating which projects to bid for, are you raising your underwriting criteria as the volume increases? That would be cherry picking your deal?

William Bayless, Jr.

One of the things that we are doing with so many of these RFPs, while some of them do come out and say out right ACE, a lot of them come out saying we want privatized housing meaning we want to evaluate the 501 C3 third party deal and we want to evaluate the equity model and so from that regard, we will pursue the opportunity under the premise that it very well be either/or and from our perspective there are some schools that we say, oh my god, we'd love to turn that into ACE, and there are other schools that we go and say sorry folks, based on the market characteristics the schools profile we would only do this 501 C3.

And so when we initially evaluate and we evaluate them from the perspective of, it could be either/or but then certainly just as we have in our own investment criteria off-campus, we will have the same discipline in terms of the market characteristics, the relationships and the benefits of being a partner with the University and how that impacts growth stream. So we will be selective.

Paula Poskon - Robert W. Baird & Co., Inc.

That's all I have. Thanks very much guys.

Operator

Your next question comes from the line of Andrew McCulloch with Green Street Advisors. Please proceed with your question.

Andrew McCulloch - Green Street Advisors

Hey, good morning.

William Bayless, Jr.

Good morning.

Andrew McCulloch - Green Street Advisors

Most of my questions have been answered, but can you guys give us quick update on Fannie and Freddie's current view towards these transactions?

Jonathan Graf

Fannie and Freddie towards ACE transact...we haven't really explored that to any significant extent. One of... there is a thought that it could fit but it's going to depend a lot on how the ground lease is structured. And as far as what Fannie and Freddie are doing on other asset types they're still out there deploying capital and we are receiving very positive response in terms of the ability to put an agency facility in place.

Andrew McCulloch - Green Street Advisors

Okay. Do you plan on putting long-term debt on varied or where do you want to keep those unencumbered?

Jonathan Graf

As far as long-term debt, the answer of that question is we prefer not to have at the asset level debt, moving forward on mortgage debt. There is a perception from the institution that, that's a negative. As far as moving forward how would we do that, we could put them in the revolver. There is some work to be done on that. And there is other forms of capital, bank financing and obviously corporate financing as a means of using that NOI, could generate debt proceeds.

Andrew McCulloch - Green Street Advisors

Yeah. Thanks, and then just one more modeling question. You exclude dispositions from your FFO guidance. Assuming you sold $150 million kind of mid-year, what's the dilution or what's the impact on FFO.

Brian Nickel

At this point of time, it depends on which assets we sell. It's going to depend upon what debt we pay-off on those existing assets compared to what the cap rate is. And we should have if we end-up going, not going with the portfolio but going with the individual asset pricing, there are some assets that can potentially be accretive and there are some assets that could be I won't say significantly dilutive, but compared to the size it could have some dilution with them.

Andrew McCulloch - Green Street Advisors

Okay. Great, that's it for me, thanks.

Operator

Your next question is a follow-up question from the line of Karin Ford with KeyBanc Capital Markets. Please proceed with your question.

Karin Ford - KeyBanc Capital Markets

Hi, just a quick one on Arizona State. Is Phase 3 planning to push forward at any point soon and are you guys committed to that and is the pricing on that also going to... has been negotiated previously, it going to still be around the... where it was in the previous two phases?

William Bayless, Jr.

From a capital outlay perspective no we're not committed. From a... would we like to given what has happened with Barrett and Vista, would we like to do a Phase 3 on that campus you bet. And as far how we would we fight that that's going to be negotiation with the institution, it depend on feasibility. From a timing perspective, the current direction is there is a site that has some difficulties to it in terms of getting in that position to be developable. That is on the University's master plan as where they would prefer to go and they want us to move in that direction and we're going to continue to do that. At some point time if we can't get that portfolio in a position then we'd look at other alternative on-campus as in order to move to Phase 3.

Karin Ford - KeyBanc Capital Markets

But it's not a 2009...?

William Bayless, Jr.

No

Karin Ford - KeyBanc Capital Markets

Item probably.

William Bayless, Jr.

This is something we would have to go through a full design development process, a full negotiation of NOI. And then you probably have on something that size year and a half, 18 months of construction. So that is no where in the immediate future, as far as coming online and it would be at least six to 12 months to where we would probably in be a position to start construction.

Karin Ford - KeyBanc Capital Markets

Thanks, very much.

Operator

[Operator instructions]. There are no further questions at this time. I'd now like to turn the call over to Mr. Bill Bayless for closing remarks.

William Bayless, Jr.

Once again we'd like to thank you all for joining us. We are very pleased with 2008, 2009 will certainly present challenges and we look going forward to speaking with you on another quarter and let you know how that leasing is progressing. Thank you.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

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