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Home Properties, Inc. (NYSE:HME)

Q4 2008 Earnings Call Transcript

February 20, 2009 11:00 am ET

Executives

Charis Warshof – VP, IR

David Gardner – EVP and CFO

Ed Pettinella – President and CEO

Analysts

Rob Stevenson – Fox-Pitt Kelton

Steve Swett – KBW

David Bragg – Banc of America

Michelle Ko – UBS

Michael Salinsky – RBC Capital Markets

Andrew McCulloch – Green Street Advisors

David Toti – Citigroup

Michael Bilerman – Citigroup

Karin Ford – KeyBanc Capital Markets

Sean George – HBK Capital Management

Operator

Welcome to the Fourth Quarter 2008 Earnings Conference Call. During this presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. (Operator instructions) As a reminder, this conference is being recorded, Friday, February 20, 2009.

It is now my pleasure to turn the conference over to Ms. Charis Warshof. Please go ahead.

Charis Warshof

Thank you. Good morning, everyone. This is Charis Warshof, Vice President of Investor Relations. Thank you for participating in Home Properties fourth quarter 2008 earnings conference call.

Here with me this morning are Ed Pettinella, President and CEO, and David Gardner, Executive Vice President and Chief Financial Officer. You can listen to the call and view slides on our web site at homeproperties.com. We also have posted our news release, supplemental schedules and a PDF of the slides on the web site. The call replay and script will be posted later. We have a new vendor hosting the webcast this year, so if you are participating on the call via the webcast, you will need to advance the slides yourself as we go through the presentation. The slides won’t advance automatically anymore. We’ll keep you posted on which slide we’re on.

I’d like to remind you that some of our discussion this morning will involve forward-looking statements. Please refer to the disclosure statement on slide two and the safe harbor language included in our news release, which describe certain risk factors that may impact our future results. Each slide is numbered in the lower left corner.

Now, David will discuss our financial results for the quarter.

David Gardner

Thank you, Charis. Good morning, everyone.

The first chart I’ll discuss is on slide three. There was a lot of noise in FFO this quarter, so bear with me as I walk you through several charts so you can see all the elements. This chart shows our funds from operations per share of $1.02 under the NAREIT definition, which was $0.23 higher than the FFO for the fourth quarter of 2007 and $0.11 higher than the midpoint of our guidance range of $0.89 to $0.93. The primary reason FFO was higher was due to the $13.9 million gain on the repurchase of $60 million face value of Exchangeable Senior Notes during the quarter, which, after fees and other accruals, added $0.29 per share to FFO.

Next, on slide four, we show operating FFO for the fourth quarter of 2008 of $1.11, which adds back $0.09 per share for the non-cash $4 million charge for impairment on an affordable property in Columbus, Ohio, where Home Properties is the general partner with a 0.1% ownership interest. Operating FFO includes the gain on the note repurchase I just described. If you click to slide five, you will see that here I have removed the $0.29 net gain on the Note repurchase, which effectively removes all the noise from the period and results in $0.82 which equates to a 4.5% increase in FFO for the fourth quarter versus a year ago.

Now I’ll walk through the full year results starting with slide six. FFO for 2008 was $3.57 per share compared to $3.20 in 2007. Slide seven shows 2008 operating FFO of $3.65 compared to $3.24 a year ago, which is a 12.7% increase over 2007. Full year operating excludes the real estate impairment charge in 2008, and in 2007, $0.04 per share is excluded, related to issuance costs on the Series F preferred shares which were redeemed.

Finally, on slide eight, we show 2008 operating FFO excluding the $0.28 net gain on the Note repurchases in the fourth quarter to remove all the unusual non-recurring gains and charges for the year. Without all this noise, the full year FFO was $3.37 in 2008 compared to $3.24 in 2007, an increase of 3.9%. One thing to note, due to rounding and also a different share count for the quarter versus the year, the contribution to earnings from the net gain was $0.29 for the quarter and only $0.28 for the year. Finally I’ve provided slide nine just to take you through the whole reconciliation for the year. I am not going to revisit this, just know that it is here if you want to refer back to it.

Slide ten shows our core property performance for the quarter. We define core properties as same-store properties owned since January 1, 2007. On a sequential quarter-over-quarter basis, total revenues were up 2.1%. Expenses were up 8.0% due to higher utility costs in the fourth quarter. NOI on a sequential basis was down 2.0%. Physical occupancy was down 20 basis points to 94.9% compared to the third quarter. Comparing results for the quarter to the fourth quarter a year ago, average monthly rental rates, including utility reimbursements, increased 3.3%. Offset by a 0.1% decrease in economic occupancy, growth in same-property rental revenue was 3.2%. With an increase in other income, total income was up 3.9%. Weighted average rent per unit is now $1,145 per month, and physical occupancy was 94.9%, up 30 basis points from the year ago quarter.

Turning now to expenses, we saw an increase in operating expenses at our same-store properties of 6.0% compared to last year’s fourth quarter. The major area of increase was in repairs and maintenance, personnel, and property insurance. These increases were partly offset by reductions in advertising and snow removal costs. As far as natural gas heating costs go, we now have 95.3% of heating costs for the 2008/2009 heating season fixed at an all-in weighted average cost of $8.42 per decatherm. This compares to a cost for last year’s heating season of $8.20. With the wide price fluctuations we witnessed this year, we are very pleased to have just a 2.7% increase.

For the 2009/2010 heating season, as of the end of last month, we have 54.9% fixed at a weighted average cost of $6.96. The various income and expense changes resulted in NOI growth of 2.4% for the quarter compared to the fourth quarter of 2007. Some of our same-property NOI reflects incremental investments in our communities above and beyond normal CapEx. After charging ourselves a 6% cost of debt capital on these expenditures, adjusted NOI for the fourth quarter of 2008 was 0.3%. Turnover for the quarter was 9%, down from 10% for the fourth quarter of 2007, and for the year 42%, identical to turnover in 2007. Turnover continues to be very favorable compared to the most recent national garden apartment average of 55.3%, as reported by IREM.

Slide 11 shows our current capital structure. With a stock price of $40.60 at the end of the 2008 fourth quarter, hard to believe today, leverage was 56% on our total market cap of $4.2 billion with approximately 95% of debt at fixed rates. Looking now at capital market activities on slide 12, during the fourth quarter, there were no stock repurchases. During 2008, early in the year, we bought back a total of $50 million common shares. As I mentioned earlier in the FFO explanation, in the fourth quarter we repurchased $60 million face value of Senior Notes for $45.4 million for a net gain of $13.9 million, which added $0.29 to FFO in the fourth quarter. The Notes were repurchased in three privately placed transactions. On the third quarter conference call, we reported the first $18 million face value repurchase and by the time we filed the third quarter 10-Q, we had completed another $37 million for a total of $55 million which was reported in subsequent events. After that, we repurchased the last $5 million resulting in a total for the three transactions of $60 million face value repurchased.

At the end of January, Fitch Ratings affirmed our bank credit facility and senior notes ratings at BBB with a stable outlook. We have had a lot of activity during the last few months in the mortgage financing area and on the line of credit. At one point during the quarter, our line balance, including the supplemental line added to fund our note repurchases, was approximately $150 million. We have taken various steps to shore up our balance sheet. We closed on $141 million of new secured loans, generating $83 million in net proceeds. Including activity in the fourth quarter and in January, we closed on $128 million in property sales, generating $79 million in net proceeds. Today the outstanding balance on our line is down to $34 million. We are in a very good position in 2009 with only $19 million of loans maturing, and the lion’s share of that does not mature until December.

We have had healthy ongoing discussions with the lead bank in our line group on replacing our $140 million facility, which expires September 1 of this year. Our discussions indicate that there is interest and we anticipate being able to replace the entire amount, possibly rounding up to $150 million. The catch will be pricing. It looks like we may be paying over 300 bps more than our existing all-in pricing to generate interest and entice participation in this liquidity-strained environment. We are not rushing to finalize this with the much increased pricing, but will keep you informed on our progress. The end of next week we will be posting our Citi presentation for the conference coming up the first of March. Attached to that will be a three-year cash flow presentation that you may want to be on the lookout for.

Now looking at guidance, we’re now on slide 13. And I guess before I review guidance for 2009, I wanted to review how we did in the fourth quarter compared to our expectations. For the quarter, FFO per share was $0.02 below the midpoint of our guidance range, if you exclude the two unusual transactions, the impairment charge and the debt repurchase gain. The midpoint of guidance was $0.84 excluding debt gains, and our actual results were $0.82 for the quarter before any noise. I want to concentrate on this variance of $0.02. NOI was 2.4% versus guidance of 4.3%. Most of the difference came in expenses, not revenue. We expected 4.1% revenue growth, and achieved 3.9%. The reason we missed was that utility reimbursement revenue was less than expected, driven by the fact that natural gas heating costs were also lower, basically offsetting the revenue miss with a positive variance on gas cost. One bright spot for revenue, and I’m not sure we will be able to hold the line in 2009, is that for the first time in a number of quarters, our bad debt percentage actually went down, just slightly, but to 1.35% in the fourth quarter versus 1.4% for the third quarter.

On the expense side, there were a number of categories up and others down, but the biggest culprit was our insurance costs, which were $0.02 over budget. The reason takes a little explanation. Our policy renews each November, and this year we changed the way we are exposed to the self-insurance part of the package. Historically, we had a $250,000 deductible per occurrence, so we were responsible for the first $250,000 on large losses like fires. For the new policy year, we are responsible for an aggregate retention amount of $2.25 million for all losses before a smaller deductible for each occurrence kicks in.

In looking at the year from an actuarial perspective, the new pricing should produce similar results over the 12-month policy period, but could produce volatility during the year. Less than two months into the policy period, we suffered a $1.3 million loss from a large fire on Christmas night, or almost 60% of the aggregate retention for the year. As we are 100% responsible for this loss, we needed to book the entire liability in December. During 2009 we expect this volatility to reverse out as we use up the retention and kick into a smaller deductible. There were a few positive variances, G&A was a little less than expected, we enjoyed lower variable debt rates, which reduced interest expense, but the story was the insurance hit.

Looking at 2009, I would suggest that you look at our supplemental where we have provided four pages of more detailed assumptions than are in the earnings news release. For 2009, we expect FFO to be in the range of $3.04 to $3.28 or a midpoint of $3.16. This will produce FFO growth of negative 4.8% to positive 2.8%, or negative 1% at the midpoint. Our economic assumptions for job growth, or really job loss for the year are based on what we are experiencing live-time today. We are also assuming that unemployment will get worse before it gets better. One bright spot is that our markets tend to compare favorably to the U.S. averages. At the end of December, the unemployment rate for the country was at 7.1%, but only 5.9% for Home’s markets. And leading the way is our Northern Virginia / D.C market at 4.7% unemployment. 25% of our units are in that market, and 27% of our NOI is generated there.

Our available to rent is 70 basis points worse than a year ago. We ended December with occupancy 30 basis points better than a year ago, but we have been experiencing not only the normal winter drop, but pressure on pricing power. We expect same store revenue growth to be 1.6%, down 180 basis points from the 3.4% we achieved in 2008. This is a result of rental rates projected to increase 2.3%, economic occupancy dropping by 90 basis points, and utility reimbursement adding 20 bps due to higher costs expected in the first quarter. Please note there was a typo in the supplemental on page 32 that referenced economic occupancy increasing by 90 basis points, but as I just said, it actually will decrease by 90 basis points.

The three regions expected to be above the average of 1.6% revenue growth include Washington, D.C., the New York metro and Baltimore. Boston and Philly should remain positive at 1% each, with Chicago and Florida expected to be our worst performers with negative revenue growth assumed. Expense growth is expected to be 3.5% for 2009. Real estate taxes and repairs and maintenance are above average, with insurance and legal and professional expected to come in much lower. Looking at the regional breakdowns, the higher than normal expense growth in 2009 for both Baltimore and Boston can be attributed to increased real estate taxes. So, with 1.6% revenue growth and 3.5% expense growth, we are projecting just eking out 0.3% positive NOI growth at the midpoint of guidance. Nothing to brag about until you compare to the average midpoint of our peers, which is negative 4%.

G&A is expected to drop 5.5%, no acquisitions are planned, and a total of $110 million in dispositions are expected. What is causing some amount of dilution in 2009 is the short-term use of proceeds we have been recently generating from property sales and refinancing. Most of this has gone to repay a significant amount of variable rate line debt. With new financing at 6% and sales at 7% cap rates, paying down 1 to 2% debt is very dilutive – but it does put us in a better liquidity position. In addition, we are projecting our line spreads to go up considerably in the second half of the year. So, with very little variable rate debt compared to our peers, and being the only one renegotiating line pricing this year, we will not receive some of the same benefits lower rate variable rate debt will provide to others. You’ll find more detail on 2009 guidance in the supplemental.

Please go to the next slide, number 14, and I’ll now turn it over to Ed.

Ed Pettinella

Thanks, David.

Let’s go to slide 14. I’d first like to start with a brief comment on our results in 2008. During this past calendar year, Home once again showed the strength of our markets and business model in a recessionary environment. For instance, we finished first in price to the NAV ratio, we finished second in total return within our sector, and third our price to FFO multiple moved up substantially among our peer group.

Also in our fourth quarter, and it now turns out we produced the top performing revenue growth rate of 3.9%. We continue to like our defensive characteristics in this economy and, as David mentioned, we expect to outperform in 2009, with the highest increase in NOI in the sector and the only apartment REIT projecting positive NOI growth. We are encouraged by some recent statistics we show on slide 14. This data that we prepared for annual 10-K shows continued strength in Home’s geographic markets. While job growth is negative 1.2% in our markets, that’s 90 basis points better than the US average. Our markets’ unemployment rate of 5.9% is 1.2% better than the national average of 7.1%. The difference on both these measures is wider than it was a year ago. The median home price in our markets has also outpaced the national average by a wider margin than even a year ago. The average in our market now is $336,000 compared to $179,000 nationally. Other factors that bode well for us include favorable demographic trends, our moderate price point and low levels of new supply. We feel like we are in good shape and a good place to enter the year.

Now turning to slide 15, in the fourth quarter we acquired two properties, both of which we told you about on the third quarter conference call since we had just closed one, Saddle Brooke, located in a very strong sub-market of Baltimore. The other property, which we closed on at the end of December, is Westchester West which is located in another strong sub-market, Silver Spring, Maryland, outside D.C. I recently saw a December report from MPF Yield Star on the D.C. apartment market which took a look at results at a neighborhood level and called the Silver Spring locale, “the metro’s rent growth leader during the year-ending the 3rd quarter, with same-store rents there surging 7.6%.” They did note that rent growth was scaled back to some extent recently, but it still remains a solid sub-market.

We had committed to these two deals in the fall of ‘08 when our stock price was around $58, before the financial markets and economy fell off a cliff. Both deals were two bright spots in an otherwise dismal acquisitions market and they are the only acquisitions we made in 2008. We have no acquisitions – no acquisitions planned in 2009, as David mentioned in his guidance. We prefer to keep our powder dry until the markets stabilize and we once again have a good acquisition opportunity with prudent cap rates.

We completed $125 million in dispositions in 2008 with another $68 million in January 2009. Two of the three properties we sold in January were in the Hudson Valley. With those sales, we have now exited the Hudson Valley region once and for all. This gives us an even stronger geographic footprint. The other dispositions in 2008 were one-offs in a number of regions. These were properties we had held for some time, extensively upgraded and did not see as much future upside.

Now on slide 16, I’d like to give you an update on recent property results in our key regions. Our occupancy level continues to remain strong. For the year, occupancy was 95.0%, which is the highest level since 2000. On a sequential basis, for the fourth quarter, occupancy was 94.9%, down 20 basis points from the third quarter. However, rent growth softened. The only regions with positive sequential rent growth were D.C., Baltimore and Philadelphia, compared to third quarter when all regions had positive sequential growth. For the core portfolio overall, sequential base rental revenue was up 0.1%. Total revenue was up 2.1% due to seasonality, with more utility reimbursement in the fourth quarter compared to the third quarter. In the supplemental you’ll find detail on occupancy, total revenues, expenses and NOI for each region, both sequentially and year-over-year.

Apartments available to rent, or as we call it ATR, which is usually a good indicator of future occupancy, in mid-February was 70 basis points worse than at the same time a year ago with only Florida at a better level than last year, although ATR for both Long Island and D.C. was surprisingly identical to last year. Concessions are up in all regions, except Baltimore, although our level of concessions continues to be well below the markets across the board. We are seeing more concessions than in past quarters and recent years. We currently rank our markets from high to low based on Property Management’s perception of market strength with Washington, D.C. continuing to be number one, followed by Baltimore, Philadelphia, the suburban area of New York City, Boston, Chicago and Southeast Florida. That covers our recent regional property results.

Turning to our new development efforts on slide 17, during the year we have had one new development completed, Trexler Park West in Allentown, Pennsylvania. It was completed on schedule in August and under budget. Our yield was 7.5% with a 12% IRR and the community is currently 94% occupied. Our only projects in construction, are 1200 East West Highway in Silver Spring, Maryland, and The Courts at Huntington Station in Alexandria, Virginia, which are continuing towards completion as scheduled, East West in 2010 and Huntington in 2011. There are no projects scheduled to begin construction in 2009 and we have no plans to acquire any land. All the land we do is owned and entitled.

Slide 18 summarizes the key accomplishments in 2008. We completed the implementation of MRI and LRO throughout our portfolio. This is enhancing our efficiency and pricing efforts. We took a company-wide look at expense reductions in the second half of ‘08 and identified savings of over $1.2 million on a run-rate basis. Some savings already have been realized and some are phasing in, in line items including corporate G&A, regional G&A and operating and maintenance expenses. We grew our unencumbered asset pool by 3% even though we disposed of more properties, which raised cash but reduced the unencumbered pool. Additionally, we added debt in order to repurchase the Senior Notes.

Looking ahead, on slide 19, we’ve listed key initiatives for 2009. Of prime importance will be replacing our unsecured line of credit, which matures in September, and closing on additional credit sources. We will implement new purchasing technology and continue to improve the collection process. This is already underway and we are beginning to see positive results with bad debt in the fourth quarter down five basis points from the third quarter. We also will continue with the process of selling the property in Ohio we manage as general partner.

This year will be a challenge for our country as well as our sector, but we feel like we are in good space to deal with it. Our geographic footprint is solid and the strongest it has ever been, and our markets should have less risk to demand for apartments than others, based on expected losses in the types of job sectors, which employ residents in our B-class properties. Our apartments are moderately priced. We are in affordability-constrained and supply-constrained markets. We aren’t experiencing competition from the shadow market. And we have a very low-risk development pipeline. So, we’re good position to deliver positive superior performance in our sector.

That concludes our formal presentation. Now we will be happy to answer any questions you may have.

Question-and-Answer-Session

Operator

(Operator instructions) Our first question comes from the line of Rob Stevenson from Fox-Pitt Kelton. Please go ahead.

Rob Stevenson – Fox-Pitt Kelton

Good morning, guys. David, what does the 300 basis point increase on the line put your – where would that put your current rate at?

David Gardner

Well, today we are at 75 over LIBOR, and we're enjoying it – it's probably been hovering in December and January at that around, somewhere around 1%, slightly over 1%. So you're talking about at least probably 4%. But what I'm talking about all in, there is also upfront costs that you pay, that you amortize over the life of the loan. So if we are paying – if our spread today is 75 over, maybe including amortized cost, it’s maybe 150 all in over. And we're looking at 300 more than that. So you're looking at maybe at 450 plus LIBOR. So easily I could see paying, if LIBOR even just goes up a little bit more, paying over 5% all in on the line of credit once it gets recast.

Rob Stevenson – Fox-Pitt Kelton

Okay. And what is the thought on additional debt repurchases in 2009? Is there a likelihood that you guys would sell some more assets and pay down some more debt at attractive prices?

David Gardner

You know, we certainly thought what we executed, it was a great transaction, terrific IRR, but there is always that the balance that we had to play off of and those notes are something that don't mature for almost another three years. It’s November of 2011 that they mature. So, I’d be more interested in saving my dry powder for more current maturities in 2010. So, the likelihood of repurchasing anymore of those are pretty small.

Ed Pettinella

In the levels that we would discount them at if not…

David Gardner

Yes, I don’t think we see the same – we’ve got almost a 25% discount. They are still trading at a decent discount, but not approaching that.

Rob Stevenson – Fox-Pitt Kelton

Okay. And then last question, where did bad debt for this portfolio peak out during the last recession, and what is your sort of expectations for that in 2009?

David Gardner

Yes. They peaked out – the highest it ever got was 95 basis points in one quarter in the recession. But as we’ve said, I think over a number of quarters now, we see a different phenomena here. It is not only the base rent we are collecting, it is also the utility, and that kind of exacerbated the bad debt percentage. So even though it did come down to 135, I think we are seeing it is probably going up slightly, maybe up to 140 to 150 bps or something like that.

Rob Stevenson – Fox-Pitt Kelton

Okay. Thanks guys.

David Gardner

Before we go on to the next question, I just wanted to add a general comment that I forgot to weave into the guidance section, and that is just on the – I give a lot of detail on guidance, but the one thing I am not giving any guidance on is kind of interest expense run rate, and that is a big part of our guidance story this year. We – I did say in the prepared text that we refinanced a lot and sold a lot of properties and used a lot of those proceeds to pay down essentially very low rate debt, the line of credit rate debt. But to give you a sense and I am going to try to update the supplementals on the website later. If you're looking at our model, interest expense run rate is about right around $125 million for the year, or around $31.2 million per quarter. It starts a little lower than that average and it kind of builds up through the year to a little bit higher than that. But that is one little piece of the – maybe a large piece of the puzzle that you may have been looking for the guidance on, I just wanted to share that. So let us go over to the next question now.

Operator

And our next question is from the line of Steve Swett from KBW. Please go ahead.

Steve Swett – KBW

Thanks very much. Good morning.

David Gardner

Hi, Steve.

Steve Swett – KBW

David, on that comment you just made, you said $125 million was the run rate, and then what did you say?

David Gardner

I said the average of that would be like $31.2 million, but it starts earlier in the year below that average and it build up to above that average. It is not – it doesn't move in leaps and bounds, but it starts a little slower and bps runs up as we essentially are funding some more of our CapEx and things like that.

Steve Swett – KBW

Is that $125 million net of the capitalized interest?

David Gardner

Yes.

Steve Swett – KBW

Okay. I see in your guidance as well that the CapEx on investments or revenue enhancing CapEx basically is steady through the year. Are you still able to get reasonable returns on that in a tougher market, or is that just continuing projects that are already underway?

David Gardner

Well, actually it is not – it is not steady as compared to 2008. I mean if you look at 2008, the revenue enhancing CapEx was about $76 million and we're projecting it to be about $50 million in 2009. I just cut a straight-line just through the year. It shouldn't take a lot of – you shouldn't base a lot on that. I think you should base it more on the fact that we are seeing a little less opportunities in certain markets, in certain properties, that we are not getting returns, so not unlike the last recession we did. We still have many opportunities but they are not as much as they used to be, so we certainly have a smaller run rate for that accordingly.

Ed Pettinella

And it bumped up the cash return from 9% to 10%, so we did raise the bar. And if it does, we are watching it very closely, Steve, and I just talked to Scott and Bernie, the guys that run Property Management. If they see any slippage there, we will just turn the spiker [ph] right off which we can do in a moment notice.

Steve Swett – KBW

Okay. Another question on just if you can explain on the column that shows signed leases Q408 versus Q407 were down considerably, is that just related to continuing to shift lease period out of the fourth quarter?

David Gardner

I think that is part of that. I am just trying to…

Steve Swett – KBW

I guess you had signed a lease that were down in the full-year, 7% or so, but occupancy was up. So I'm just trying to – did you sign longer leases or…

David Gardner

With LRO – I mean the way it is set up is, we sign all sorts of various term leases, and the pricing of that is priced – I mean especially if something is – if we are signing the lease in November, December, we really don't want it to be a 12 month lease, we would much prefer it to renew at a better time for us. So we will price that accordingly to help – maybe they will do a 16-month lease, or maybe they will do a nine-month lease. And we have been doing a lot of that and I think that part of the story there, especially since this is the fourth quarter where we don't want as much renewals occurring there.

Steve Swett – KBW

Okay, that is helpful. And one last question, I know you have got some significant maturities in 2010, do you have any thoughts on addressing those maturities earlier, maybe late this year?

David Gardner

Well, one thing to note is – a couple of things. One is that these are all fixed rate debts with prepayment penalties or yield maintenance. I know if – again our strategy has been using fixed rate and not as much variables. If there were variables, we would have more flexibility and what we could do as far as not dramatic fees. But with that said, I know that there is a couple of the January maturities that we can refinance in July, penalty free, and the balance of them, we can actually refinance in the first of October penalty free. And our plan would certainly be to do that as soon as possible. So even though officially this $19 million is maturing, we would grab – we would look to grab some of those little forwards, a little sooner, but still without outside any kind of significant prepayment penalty situation.

Steve Swett – KBW

And David, have you looked at the loan to values on average for those maturities in 2010?

David Gardner

Yes. Drawing from memory I'm trying to – Steve…

Steve Swett – KBW

I can follow up later, that’s it.

David Gardner

Well, you know, I think that – the 2010 maturity that generally, I know they are below 50% there. I think they are in may be 45% loan to value, and I think we feel pretty comfortable that even with any kind of announced general rules that Fannie and Freddie are operating under, that we feel we can get a high 60% to 70% loan to value. So we feel we can pull out a decent amount of available equity there from those.

Steve Swett – KBW

Thanks very much. Very helpful.

Operator

Our next question is from the line of David Bragg from Banc of America. Please go ahead.

David Bragg – Banc of America

Thanks, good morning.

Ed Pettinella

Hi, David.

David Bragg – Banc of America

Ed, given that we are midway through the first quarter, could you just provide an update on operations so far?

Ed Pettinella

Yes. We have got solid information certainly on January absolutely just past, and the benefit of reporting late this quarter. We are pretty much into February, but in terms of January results, we feel pretty comfortable considering where we are at this point. We're looking at ATR right now is about, as I said in my prepared text 70 basis points higher, but Washington continues to really roll along, the average is 6.7%. D.C. is 5.7% as of yesterday. A year ago it was 5.4. So it a percent below. Another market that continues, and by the way, these two markets kind of carried the load in the last recession. Long Island is about 6.2%. Boston is holding up extremely well, 6.8. Looking on the others that would be down, down below the average. So the market, the three markets that seem to help us in the last recession, Northern Jersey, Long Island, which is Nassau and Suffolk county, and D.C. continued to perform well in this particular quarter. So overall operations, we're comfortable. I'm ecstatic about the fact that we have now not Hudson Valley out. There’s – we are not – in this recession, Dave, we are not dragging along Detroit or Upstate along with us now, Hudson, so I believe that is going to play a role as we roll through the deeper part of the recession in 2009, and I think that has inspired the same-store NOI that we are putting out there as guidance versus the competition. But we don't see anything that would alter our course here. We think occupancy is holding up nicely from what we have projected, so nothing is jumping out at us that would overly concern us.

David Gardner

David, let me just add a little bit more detail on revenue growth in January by region. January came in a little better than expected, and it is very difficult to take one month, there could be some utility accruals that are perfect and all that. But if you look at total revenue growth, for D.C., it came in at 4.6%. For New Jersey and Long Island, it came in at 4%. Baltimore is 1.5, Austin was 2.5, Philly was 0.4, Maine is 5.4, but that is just such a small area that, you know, one little unusual utility reimbursement can make that one go crazy. Chicago was positive 0.4 and Florida was the only negative, the negative 5.8. So when you average all that out, it comes to 2.4, which is where we were checking the first quarter to be, so we have started the year as expected.

David Bragg – Banc of America

Okay, that is interesting. Thank you. And then Dave earlier you had mentioned the spread to adjusted NOI for the fourth quarter as provided in the supplemental, what is that expected to be for the full-year, for 2009?

David Gardner

Yes, I mean – the spread in the fourth quarter is a little bigger than what it was in the third and the second. I think if you average 2008, the spread was about 1.5%. So if you our actual announced NOI on average, it would have been 1.5% less. It is what we refer to as adjusted NOI and that is the cost to carry all the additional CapEx. If you look at 2009, basically we're looking at spending about two thirds of what we spent last year, $76 million down to $50 million. So I think that reduction will be 1%. So the 0.3% positive NOI certainly when we run it through our numbers, and you're going to see this more in the interest expense line, but the adjusted NOI would be about a negative 0.7.

David Bragg – Banc of America

Okay. Then just last question, can you talk a little bit more about the two development projects, when you expect to open those up for leasing and how you are adjusting your expectations for pricing and concession activity there?

Ed Pettinella

East-West is on schedule. Initial occupancy is first quarter 2010, and completed construction certainly first or second quarter 2010. The Courts at Huntington, the only other project we have under construction, initial occupancy first and second quarter 2010 and completion at the moment second quarter of 2011. Pricing, we just recently ran our pro forma models, just a matter of a couple of weeks ago, and have adjusted a number of variables, including pricing, still feel comfortable, specially on East-West Highway, we're going to be in a position to renegotiate some of our overall construction cost which are lower, and then it is clearly going to work to our benefit in terms of the total yield that we anticipate. So overall, those two projects, we are there in two great markets, in the D.C. market, and we are pretty comfortable with that, and we have nothing more beyond that in the pipeline.

David Gardner

I think if you look at East-West, almost down the street, I think it's EQR is in the rent up phase at a similar property. They are getting higher rents than what we had originally put in our underwriting way back when – but they do have some concessions that net-net, I think it is coming out to slightly less than what we had originally projected, but that said, it is kind of offset by the fact that our costs are ending up to be a bit lower. So that is still holding up overall compared to where we expected it to be.

David Bragg – Banc of America

Could you just remind us what yields you are expecting?

David Gardner

I think those first year yields are in the 2 to 6.5 range.

David Bragg – Banc of America

Got it. Okay, thank you.

Operator

Our next question is from the line of Michelle Ko from UBS, please go ahead.

Michelle Ko – UBS

I believe you said early on in the conference call that concessions were up higher in all regions except for Baltimore compared to historical levels. I was just wondering if you could talk about what gives you the confidence in your rental rate perhaps for positive 2.3% in 2009. Is it mostly from renewals, are you getting – are you doing renewals at higher rate than new residents are being offered like better deals for new residents versus renewing for the same unit?

David Gardner

I mean there is certainly always a different strategy for an existing resident renewing versus someone new. Many times we can get a little bit higher amount for that renewal since they don't have to move and they are comfortable with where they are. But certainly based on our overall comfort level, again if thing continue, things can get a lot worse, but I think we feel pretty good of where we are. And a large part of that goes back to the fact that we mentioned before where D.C. represents 28% of our NOI. The unemployment is still positive, and it is the only one of our regions that had positive job growth in 2008. Unemployment is not bad. As you just hear, January rental growth was 4.6%, so a market like that can really hold up the rest of the portfolio pretty good. So I think we're pretty comfortable.

Ed Pettinella

Yes. I would just add to that. We put out a sheet every quarter to prepare ourselves for these meetings and other meetings, and we register what we think the concessions are on a scale of one to ten. We have been doing this for years and many of the markets like D.C. is a five out of 10, Baltimore, a four out of ten. But for Home, generally we are not known as a big concession shop. We have got – Washington is a one, Baltimore is a 1.5, Philly is a one. There is no other regions other than a one, except for Southeast Florida, and that’s a two. But most of the market in general, we identify somewhere between four and six on a scale of ten, the higher the number, the more the concession. So not a huge movement, slightly more. So when I said we're having more concessions on a relative basis, that is not a lot. They might be half a month or one month, but only in spots – spotty markets – spot market across the East Coast, and not in most of our markets.

David Gardner

I just want to remind everybody that again this recession is definitely worse than the last one we had. But if you look at the last recession, our lowest revenue growth year was 3.1% and we averaged 3.7% revenue growth during that recession. So it is pretty unusual in our property type and markets that we are in to be thinking about negative rental growth. That is something important to us.

Michelle Ko – UBS

Can you talk about your turnover rate? I'm just trying to gauge if your turnover rate is actually lower than some of your peers given the demographic of your tenant base? And can you also tell us what the turnover rate back in 2002, 2003 period was following 9/11?

David Gardner

The turnover we just had this year was 42%, and the 2008 average that we got from IROOM [ph] was a little over 55%, which is down a little bit. I remember being closer to 60%. In 2006 it was 60%, it’s been right around 60%, so this is the first year where we have seen nationally a reduction. If you look at historically our turnover, the highest it got in the recession was 45%, 43%, 44%, so we don't see a significant amount of change in our turnover year in and year out.

Michelle Ko – UBS

Okay, great. And then just lastly, I was just wondering how much more unsecured debt you can put on without tripping any covenants? And also some of your peers have discussed possibly raising unsecured debt this year and I was wondering what you thought about this and what interest rate you would get on unsecured debt if you issued it today?

David Gardner

We haven’t been a big shop issuing unsecured debt. I mean the unsecured debt, we basically have a line of credit. So we – I won’t even comment on that. Basically I’ve already kind of said what we think the unsecured line of debt would end up being, spreads of maybe 300 over LIBOR. As far as how much more secure debt we could add, I mean I guess the question is, what are we doing with it? If we are using it to buy properties, it increases some of the value and it increases some of the test and all that. I mean if all I did was add secure debt and do nothing with it, sit it in cash or whatever, I'm assuming that it could easily be at least $300 million, but that's again assuming that we do nothing with it. I could add considerably more if there’s some value creation there, or using it to pay down other debt or whatever. I mean if I use it to pay down like line debt or renewing debt, I'm not really close to bumping up against any covenant concerns there.

Michelle Ko – UBS

Okay. I was just thinking about in terms of refi- ing your 2010 debt?

David Gardner

Again, if I refi those, if I'm replacing new secured and we have been paying of old secured, net-net, it is not going to bump anything on the covenants. The covenants will still say the same because I'm replacing one secured for another, so that is not a problem for us.

Ed Pettinella

It is already in the calculation.

Michelle Ko – UBS

Okay, thank you.

Operator

(Operator instructions) Our next question is from the line of Michael Salinsky from RBC Capital Markets. Please go ahead.

Michael Salinsky – RBC Capital Markets

Good morning, guys.

Ed Pettinella

Hey, Mike.

Michael Salinsky – RBC Capital Markets

Can you talk a little bit about the benefit you expect if any from the decline in heating fuel cost? Do you expect that to translate to maybe a greater ability to raise rents in certain markets or at least maintain rents?

David Gardner

Well, you know as we said, the number for this winter I think was 846 or somewhat better, and it is going down to 696 for the 2009-2010 winter. I mean it is helpful. You’ve got to remember that the lion's share of that reduced cost is going to be passed through to our residents, which they will be happy about. So it doesn't make its way to the bottom line. But any time that we are dealing with residents and we can point out that your all in costs of renting through us is going to go down, you have less flight or less pushback on what you are doing with base rent, so it is certainly seen as a positive.

Ed Pettinella

Yes, it has to help. It is going to be – we think on the pace we are on, it is going to be $1.40 lower that the residents will pay, Mike. So it is got to be enough somewhere in terms of the propensity to push rents as we get into the 2009, 2010 season. What the impact is, I don't know, but it is one of the – I think over the last few years, it is probably one of the bigger drops we have seen, so hopefully it will materialize into a rental revenue lift.

Michael Salinsky – RBC Capital Markets

Okay. How much of your fuel cost have you hedged right now for 2009-2010 winter?

David Gardner

I think it was 55…

Ed Pettinella

$0.55 and $0.95 this winter.

David Gardner

Yes. So we certainly saw a buy-in opportunity and started doing a bit for next winter. Costs continued to stay down, so considering that it is February, we are way ahead of ourselves and we feel pretty good about that.

Michael Salinsky – RBC Capital Markets

What is the all-in cost on those?

David Gardner

I think it was $6.96 per decatherm.

Ed Pettinella

That’s right. And you have got 55%, 56% locked up, and we're going to probably keep going at it higher, because we feel natural gas costs are probably at the lower end of the range, and we would have no problem getting up to 75% to 95% level and do this early. This is normally not an opportunity if we get this early on, and even if it dropped a little bit more, $1.40 you talked about is a nice savings for our residents, and we will take it and put it in the bank, because I am worried that at some point here, oil prices will traverse and natural gas prices will be stuck cold in the bag.

Michael Salinsky – RBC Capital Markets

Okay. Given the substantial amount of refinancing you guys did in the fourth quarter, can you talk about your conversations with the GSEs, specifically what you're looking at and where rates are right now?

David Gardner

Sure. I think that if you're looking at loan to value, we historically used to do 75%. I think we are still going to be getting pretty close to 70% debt service coverage. We historically have been targeting 120, others went lower, but I think we’re going to get in the 125 to 130 range. And strictly just looking at where rates are today, as far as Fannie, I think Freddie may be slightly higher in spreads, but ten-year spreads were at 3.05, all in, including fees, it would be about 5.89%. In five years, now this is a little different. Their spreads for five years were a lot higher. They didn't seem to be interested in doing five years money and they were kind of pricing themselves out in the market. But spreads at 3.57 there and with much lower treasuries, all-in is about 5.53. So it is pretty still attractive rates. And I think with a company like ours, with a track record, I think one concern was Freddie was mentioning that they are going to have different standards for properties that’s 15 years or older. That is a general statement, but Fannie and Freddie have always looked at us, how we maintain our profit properties, how much capital we have put into them over the years, and we feel pretty comfortable that it is not going to dramatically change the borrowing factor for us. Things are getting slightly tired, yes, but not automatically so that we don't feel we can operate within the little bit of tweaked tools.

Michael Salinsky – RBC Capital Markets

Okay, that’s helpful. And finally with a substantial debt majority coming to next year, I am wondering if you guys have had any thoughts about possibly paying a portion of your dividend in common stock to keep the capital to address coming maturities?

Ed Pettinella

We have done like probably every other company, we’ve put our contingency plans together, our lines of defense. We jumped our dividend in November, our Board felt very comfortable about that. And we reaffirmed the decision a week and half ago at our board meetings. I don't see – we feel very comfortable where we are at in terms of continuing to pay cash dividends. Obviously if the wheels came off to the proportions that we cannot see, that certainly would be an option. I think we like their negotiations at this point with our line of credit. There was always the thought that well, could you get the same amount, we think we could get more and not less in terms of the line. We are negotiating with Fannie and Freddie things for us. Things seemed to be going along according to plan. I think for a shop like us with our performance that we had in the fourth quarter and what we are projecting for 2009, I think there will be a knee-jerk reaction. We don't see that need. So the answer would be no right now. Are we cognizant of the possibilities, sure, but it is not on the cards at this point.

Michael Salinsky – RBC Capital Markets

Okay, thanks guys.

Operator

Our next question comes from the line of Andrew McCulloch from Green Street Advisors. Please go ahead.

Andrew McCulloch – Green Street Advisors

Hi, good morning. Most of my questions have been answered, but I had one follow-up question, it’s actually David Braggs question on the revenue enhancing CapEx. What yields are you expecting on your revenue enhancing CapEx and would the adjusted NOI growth for 2009 be any different if you those yields as opposed to kind of your cost to carry?

David Gardner

The yield only went up slightly. We were targeting a minimum 9% and we just wanted to have little sharper pencil there. We raised it to 10% minimum returns. The ballpark adjusted NOI that I referred to earlier, I don't think that slight little change isn’t going to dramatically change that. I mean the negative adjustment down was 1.5% approximately for 2008 and we are looking at about 1% drop in 2009. And that is using a consistent cost of capital for both years. So the real mover driver is the fact that the adjustment down is going down, it’s just the fact that we anticipate just spending that much less in revenue enhancing CapEx in this kind of market.

Andrew McCulloch – Green Street Advisors

Okay. Are you changing up the mix of kind of your rehab redevelopment at all as opposed to the interiors or exteriors or anything like that, anything changing as part of what you're targeting?

David Gardner

Well, it’s the same kind of things that we do. The ones that give you the biggest half will be the kitchen rehabs and the bath rehabs. But we certainly have situations where it is window replacement, and maybe significant landscaping needs, but the mix isn’t changing. It is really just a change of, we are not going to have as many opportunities, as many markets, as many properties to have to do it, and we will just slow it down and wait for a better day.

Andrew McCulloch – Green Street Advisors

Right, thank you.

Operator

Our next question is from the line of Sabina Bhatia from Basso Capital. Please go ahead.

Sabina Bhatia – Basso Capital

Hi, thanks guys. My questions have been answered.

Ed Pettinella

Okay, thank you.

Operator

And our next question is from Michael Bilerman from Citigroup. Please go ahead.

David Toti – Citigroup

Hi, everyone. This is David Toti here on the line. Glad we made it on. I have been a bit have all been here pressing star one for a while. Quick question, did you guys provide a range of same-store NOI projections in guidance, I don't recall seeing that relative to the 0.3% midpoint?

David Gardner

Yes, there was a – on page 32 of the supplemental, there was a little note that basically said it didn't change any other variable, so you are not assuming that interest costs are going to change or whatever, but just if NOI were to change, to go high or to the low end of the range, it would be from a negative 1.6% to a high of 2.2% with that 0.3% being the midpoint.

David Toti – Citigroup

And it is a fairly optimistic forecast, are you guys pretty comfortable with your ability to push rents, to get to that level?

David Gardner

I mean it certainly may look optimistic compared to our peers which are mostly A and maybe some different markets. But I guess as I said earlier I think we're definitely comfortable. We are starting the year out well compared to our expectations and we obviously think there is going to be a little bit of concern with occupancy. We have built in 90 basis points of reduction in economic occupancy. But there is a couple good markets that we have, there's no – other than Florida that has, that only has one property or two properties side by side. That is the only market that has dramatic weakness. Chicago, we expect to be negative, but not dramatically, so the rest of sub market and property types are continuing to hold up pretty good.

Ed Pettinella

And as well the other traditional risk with our peers development risk, that is – we don't see that being a factor for us much like the last recession, also the fact, the good and the bad, the fact we are not in variable rate debt to speak of any magnitude, if the yield curve shifts on us, we won’t be exposed there. And the last thing I would say, if you go back and look at the last recession, and I mentioned this many times before, and actually believe it will play out. We had worse markets then and our performance – the gap that is now starting to develop, just like the last time, is still not as wide as it was in the last recession. So when I ask myself that same question, David, I feel comfortable that we are feeling pretty good, and as somebody asked earlier, we’ve got a number of weeks into the first quarter, which is our worst quarter, generally from a seasonality standpoint. Yes, we feel we have seen this movie before and how we react and where we’ve positioned our markets more so on the East Coast versus the last recession, unless it is some extremely different variables, so we can’t see it at the moment that are yet to play out, we feel comfortable.

David Toti – Citigroup

Okay, great. And then just moving over to your dispositions, the last couple of transactions, have hovered around the 7.5% cap rate range, is that an estimation on your part as to where the market might be today and what you are underwriting over the next 12 months?

David Gardner

Well, I think if you look at the again the dispositions, a lot of that was in the Hudson Valley region, which as we’ve gone into the recession, there has been a clear dichotomy of more prime markets versus secondary tertiary markets. And Hudson Valley hasn’t performed as well, the expectations I think for the future weren’t as high. And we had hoped – we had held those properties for a long period of time. Everything we’ve sold, we have held for a while. We have done a lot of the rehab and repositioning efforts, and again a lot of it was in Hudson Valley, which was not a prime market or even a sub market, properties in that area that’s not so bad. So we targeted the weaker properties, so I wouldn't say that is – certainly, we acknowledged cap rates are up a bit, quite a bit recently, but if you look at the rest of the portfolio, you know I think the rest of the portfolio would be closer to maybe right around 7%, slightly below 7% cap rate.

Michael Bilerman – Citigroup

It’s Michael Bilerman speaking, sorry that Dave and I got mixed up. But on the line of credit, how much of that was I guess you were able to get a little bit more, or I think you said a lot of people think they would have to go down, but certainly the price of it, one of the first ones to be renegotiated and re-planned just recently, I mean how much of it was in order to get the same proceeds you had to pay that much more versus, hey look, we are willing to give you a half of it at the same rate?

David Gardner

I don't – I don't think it is sensitive. I mean maybe if we went way down to 50 million, we would see a much reduced spread, but I mean even a lead bank, during the fourth quarter, we added a supplement line to help us buy some of our senior notes back, and we saw fairly high spreads there. I mean I think this is just the animal that that it is today. I mean even at 140 million, 150 million, you need a few participants, maybe four, five, and I don't think we are – I mean I don't feel at all that we are paying an extra hundred bps because you know to get that fully funded. I don't think it is that sensitive. I think it is just for that kind of unsecured line – I mean I think I was talking to somebody else who said they saw another one other REIT that hit in the near past, REIT did theirs, and 300 over was again kind of typical. And that is – again, if you think about even spreads on Fannie and Freddie in the 300 area is not that unusual. And the fact that we think that we can replace the whole thing, remember, it is only $140 million, I think that’s…

Ed Pettinella

It’s the smallest.

David Gardner

The smallest in the multifamily group is I think 300 million and goes way up from there. So it is pretty small number, so I think that is reflective of the pricing that we are going to see today. Now on the flip side, the team we're working with suggested that into the relationship if spreads come down and it is not a competitive amount anymore, they will revisit that and change it accordingly. But right now that’s you know I think anybody is going to have to be the looking at things.

Michael Bilerman – Citigroup

And the banks, all the same banks that were in the previous line, , or some people swapped around ?

David Gardner

Well again I didn't want to let an impression that it is a done deal. We are having discussions, negotiations. I think some of the existing will say, I think some may leave, and we're having – we're throwing up that wide blanket to get as much interest as possible, but we should expect some new players also.

Ed Pettinella

Currently the deal we're dealing with is our current bank. They know us well. They know the type of animal we are and how we operate in a recessionary market. I'm sure that has some weight in terms of what they are willing to do for us . Keep in mind too being a former banker myself, there may be some of these major banks that might not want to be so aggressive in retailer office, but they more comfortable in the apartment sector, and I think given our performance in the last recession, how things seemed to be playing out this time, that should bode well, couple with what Dave said, being one of the smallest lines they need to renew. So early indications for us is all systems are go, we are going to get our line renewed, and obviously we will have a higher spread, but our issue is maintaining that liquidity, and I don't think that is in jeopardy for Home.

Michael Bilerman – Citigroup

And that effectively is just taking the spread from LIBOR plus 75 to LIBOR plus 300 and obviously it is (inaudible) but the base spread would be going from 75 to 300?

David Gardner

Yes.

Ed Pettinella

Yes, that’s right.

David Gardner

But then you know you are also looking at, as I said earlier, some of the upfront costs to put the package together are going to be higher than what we have seen historically. I think on use fee is going to be a little higher, so all in, it is kind of nickel and dime in there.

Michael Bilerman – Citigroup

The banks got to make money, come on.

David Gardner

Don’t say that in front of everybody.

Michael Bilerman – Citigroup

I'm looking at my screen, we need to make money. Okay, got it. Thank you, guys.

David Gardner

Thanks.

Operator

Our next question is from the line of Karin Ford from KeyBanc Capital Markets. Please go ahead.

Karin Ford – KeyBanc Capital Markets

Hi, guys. Just one question on Long Island and New Jersey, other than the performance that you have seen in the fourth quarter and I guess so far in January, are there any other reasons you guys have for your optimism that those market are not going to fall victim to the massive layoffs that we are expecting to see here in the financial services sector?

Ed Pettinella

First, whatever you think history plays in trying to figure out the future, pretty much the same properties on Long Island as the last time, in truth we told we probably sold two or three of the weaker ones. So net-net I think Long Island is in a better position. The other thing I would tell you is the B class residents, they are not trading it in and working – for the most part working in the financial district in Manhattan. Just been happening, that is not been the makeup of our resident base out there. And three, empirical data, Long Island was our best performing market from 2001 to 2004. It blew away everything else. Northern Jersey was strong and D.C. was strong. I think these bedroom communities we are in helped protect us, I think the type of make-up of our resident base were more service/blue collar oriented, are not just that getting impacted as much as others. The information that I'm encouraged by, I was guessing, for half the year last year saying I thought that the unemployment rate for our portfolio, for our MSAs in our neighborhood would get wider than it did last year, 38 versus 40, now it is 59 versus 71. It is continue to do the same thing it did in the last recession, we seem to be less impacted. The figures are still going up, Karin, but they are going up as much as the national scene or in some of the worst hit markets in America. So we are protected. We are people on the ground, we're in preparation for today, we talked to them to get a sense of what is going on out there, we have got a number of weeks into the first quarter and our worst quarter of the year. There is no indicators to what’s yet. Something could surprise us, but those are the reasons that we feel comfortable with our guidance, and we feel comfortable where we are in the first quarter today.

David Gardner

And as a reminder, our revenue growth we are projecting in the second, third and fourth quarter isn't anywhere near as high as what we are showing for the first. The first also enjoys higher utility reimbursements, but we are tempering the balance of the year a little bit.

Karin Ford – KeyBanc Capital Markets

Sure. Is there a risk that the Class B more service-oriented blue-collar workers are sort of the second wave of layoffs given that maybe the first wave was directly in the financial services jobs and then it is going to affect the blue-collar people second, later?

Ed Pettinella

It could. I mean the last recession, the unemployment rate got into the mid high sevens. We are internally thinking that unemployment rate can nationwide can go to 9%. So it is incrementally going to be worse. There is certainly that possibility, but I would – all I would tell you on a relative basis, I think Home will continue to be less impacted than any of the other REITs right now. I was asked a year and a half ago how come Home isn't creating separation from the others as things start to deteriorate. Well, I said we're not in a recession. Now we are in a recession and I think the 2009 guidance clearly shows the distinction between what we see happening and what the peer group sees happening and I think that is going to play out.

Karin Ford – KeyBanc Capital Markets

Thank you. That's helpful.

Operator

And our next question is from Sean George from HBK Capital Management. Please go ahead.

Sean George – HBK Capital Management

Yes, hi. Quick question, does your NOI growth, 2009 NOI, earnings guidance incorporate investments made to existing properties?

David Gardner

Yes. I mean there is certainly – I mean most of our properties are in the same-store pool these days. We haven't had a lot of new acquisitions and there is still a lot of upgrading opportunities remaining at these properties. So since it is a unit by unit at a time, we don't take buildings offline, and totally rehab them. It is impossible to segregate that, so any kind of bump that we receive because of the improved kitchen or bath is reflected in the same-store numbers. And that is why the kind of refer to an adjusted NOI that kind of takes into account the cost to carry of that excess CapEx and that drop is about 100 basis points over the reported NOI.

Sean George – HBK Capital Management

Okay. And the rental rate trajectory increased 2.3%, can you give me a feel for how much of that is given your dispositions and acquisitions or how much of it is just raising the rents on refurbished properties?

Ed Pettinella

Do you mean….

David Gardner

I don't follow the acquisition disposition…

Ed Pettinella

You mean improving our portfolio, what part that is contributing to it?

Sean George – HBK Capital Management

Yes. Well, you sold and you acquired some properties, maybe that changed the mix a little bit…

David Gardner

Not all of those are in the same-store pool. Our guidance strictly looks at properties that we owned all of 2008 that we therefore will expect to own all of 2009. So it is an apples to apples comparison, so it is got nothing to do with any of the acquisitions and dispositions. It is clearly mostly from just regular rental growth. I don't – I can't pinpoint exactly how much the rehab is going to add to that rental number, but I'm going to ballpark it at maybe 50 basis points is we’re sure is coming from the rehab, the rest is just solid internal growth.

Sean George – HBK Capital Management

Great, thank you.

Operator

And there are no further questions at this time.

Ed Pettinella

And if there are no further questions, we’d like to thank you all for your continued interest and investment in Home Properties. Have a great day.

Operator

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

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Source: Home Properties, Inc. Q4 2008 Earnings Call Transcript
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