Colonial Properties Trust Q2 2009 Earnings Call Transcript

Colonial Properties Trust (CLP)

Q2 2009 Earnings Call

July 23, 2009 2:00 pm ET

Executives

Jerry A. Brewer – Executive Vice President Finance

Thomas H. Lowder – Chairman of the Board of Trustee & Chief Executive Officer

C. Reynolds Thompson, III – President, Chief Financial Officer & Trustee

Paul F. Earle – Chief Operating Officer

Analysts

Richard Anderson - BMO Capital Markets

[Michael Aurorean]

Michael Bilerman – Citigroup

Dustin [Piezo]

Ross Smotrich – Barclays Capital

Jeffrey Donnelly – Wells Fargo Securities

Presentation

Operator

Welcome to the Colonial Properties Trust second quarter 2009 earnings conference call. (Operator Instructions) Mr. Jerry Brewer, you may begin your conference.

Jerry A. Brewer

We released our earnings this morning via Business Wire. A copy of this earnings release may be found on our website at colonialprop.com. We're also webcasting this call for your convenience. A replay will be available on our website for one week after the call.

Today's call will be led by Tom Lowder, Chairman and Chief Executive Officer, and Reynolds Thompson, President and Chief Financial Officer. On the call they will present an overview of our business developments, discuss our financial results for the second quarter, and our full year 2009 guidance. After their comments we'll open up the call to take your questions.

Let me remind you that much of the information that we discuss on this call, including answers we give in response to your questions, may include forward-looking statements regarding our beliefs and current expectations with respect to various matters. These forward looking statements are intended to fall within the Safe Harbor provisions of the securities law. These estimates are also based on a number of assumptions any of which unrealized could adversely affect their accuracy.

Please see our latest SEC filings for the detail and explanations of risk. Any non-GAAP financial measures we discuss are reconciled to the closest GAAP financial measures and filings that can be found on our website.

I will now turn the call over to Tom.

Thomas H. Lowder

On the call today, we will update you on the initiatives that I've set out at the beginning of the year, our guidance for 2009, and then some comments on the current state of the market.

Our first initiative, as you will recall, is to strengthen the balance sheet. In the first half of the year we have deleveraged the company through the repurchase of unsecured notes at a discount and through asset sales. Asset sales remain challenging in this environment, but the repurchase of our unsecured notes is still an attractive deployment of our capital, particularly as the discount operates similar to an equity offering.

In the second quarter, we repurchased 315 million of our notes, including the tender offer that was completed in May, for a little less than $300 million representing a 5.9% discount for net gains of $16 million or $0.28 per share. To date, including repurchases from last year, we have improved our balance sheet through our repurchase program by approximately $58 million. Also through our at-the-market equity program that we announced on our last call, we have raised $4.8 million during the quarter.

The second initiative was to improve liquidity. We set a goal of $500 million in new secured loans for 2009 and we have already reached that target with a total of $506 million in two ten-year secured facilities with Fannie Mae. These financings, together with the asset sales, allowed us to execute a $250 million tender offer for our unsecured notes and pay down some of the balance of our $675 million line of credit. We currently have $483 million or 72% of the line of credit available.

A third initiative was to address near-term debt maturities this year and in 2010. Fannie Mae finance, as I just mentioned, helped us address these maturities by funding the May tender offer. The tender was very successful eliminating $211 million of our 2010 notes and $39 million of our 2011 notes. That leaves us with $44 million of consolidated maturities in 2010 and $57 million in 2011.

Our fourth initiative was to reduce overhead. In the second quarter we decreased our projected full year 2009 G&A expenditures by $2 million to a range of $16 to $18 million for this year. These additional savings were generated from the elimination of additional positions primarily in development and construction, and such actions as renegotiating vendor contracts and consolidating office space. The continual simplification of our business will aid in further reductions in overhead costs.

The fifth and last part of the initiatives that we discussed earlier with you were about parking, postponing, and phasing developments that the company has in our pipeline. We now expect only $35 million to $40 million to be invested in 2009, of which $32 million was spent in the first half.

We have two multifamily and three commercial assets currently under construction. You will recall last quarter we announced our agreement to transfer our interest in the Craft Farms joint venture to the majority partner. In conjunction with the unwinding of this joint venture, we agreed to develop a second phase of the retail center, which would be anchored by Publix. The total cost will be approximately $10 million, which the majority will be spent next year.

We're making good progress on our initiatives. We've improved our liquidity and equity position markedly. We have addressed the near-term debt maturities aggressively and we are right-sizing the company to focus on core operations. It's worth stating again that the ultimate goal of these actions goes far beyond the real time focus on liquidity that's prevalent in the market. We're first and foremost simplifying the business to focus on multifamily.

Our portfolio remains well diversified in Sunbelt markets that have proven that long-term growth characteristics and attractive demographic trends. With one of the youngest portfolios in the industry, we believe we are well positioned for the eventual recovery in the economy in the Sunbelt. Until that time, we will take the necessary steps to respond appropriately to the challenging operating environment and continue to strengthen the balance sheet.

Now Reynolds will provide some details about the second quarter operating performance and financing activities. After that I will update guidance for 2009.

C. Reynolds Thompson, III

FFO for the second quarter was $31.9 million or $0.56 per diluted share compared with $32.1 million or $0.56 per share for the prior year. Results for the second quarter included $0.28 per share of gains from notes we purchased, $2.4 million of impairment charges related to our for sale residential properties and condominium conversions that either sold during the quarter, or are under contract and expected to close by year end.

Additionally, we recorded a charge of $1.3 million related to abandoned pursuit costs associated with developments. Operating FFO, which we define as FFO before transaction income, was $15.8 million or $0.28 per share compared with $27.3 million or $0.48 per share for the prior year period.

Turning to operations, our second quarter same property revenues were down 2.4% compared to the prior year. We're experiencing significant revenue pressure in Phoenix, Atlanta, Orlando, Charleston, and Austin. Compared to 2008, NOI declined 7.5% for the quarter and 5.4% year-to-date. Second quarter average rental rates were down 2.7% compared to 2008, and down 1.7 % versus the first quarter.

Rental income has continued to decline as we expect to see this trend continue for the rest of the year. Same property occupancy ended the quarter at 94.3%, a decline of 160 basis points from a year ago. Second quarter traffic declined slightly compared to the same period last year. Meanwhile resident credit quality has become more of a challenge with application denials of 10.2% reflecting an increase of 380 basis points over 2008.

Consistent with the deterioration in the economic environment, rates on new leases decreased 7% for the quarter based on 6,600 new leases. Renewal rates for the quarter were flat based on 3,500 renewals. Overall, resident turnover is up 70 basis points compared to last year.

Financial and job related turnover was up roughly 960 basis points to 27.8%, a trend that we expect to continue. Turnover related to home buyers was 14.7% up 180 basis points sequentially but down 440 basis points from a year ago.

Improved housing affordability is allowing many of our major markets to work through the elevated single-family home inventory, which is down approximately 23% from a year ago. Over the next several quarters, we anticipate upward pressure on our move-outs related to homebuyers. For the quarter, turnover due to renting a home was 3.2%, a 90 basis points sequential increase.

Now onto our disposition activity, during the quarter we sold 53 condominium units for total sales proceeds of $6.3 million. As a result of these sales, we have completely sold out of Azur at Metrowest and Capri at Hunter's Creek condominium conversion projects.

We've also signed contracts totaling $19 million to dispose of the remaining 14 units at the Grander, the remaining 93 units at Murano at Delray Beach, and the remaining 118 units at Portofino at Jensen Beach. At as result of these signed contracts, we recorded impairment charges totaling $2.4 million in the second quarter. We anticipate these sales to occur in either the third or fourth quarters this year.

As we discussed on our last call, we transferred our remaining 15% interest in the Colonial Pinnacle Craft Farms joint venture to the majority partner. Subsequent to quarter end, we have been active in our efforts to simplify our business. We have entered into an agreement with one of our joint venture partners, CMS, to sell all of our ownership interests in four multifamily joint ventures comprising 1,212 apartment units. We will receive a cash payment of $2 million and will no longer be responsible for our portion of the associated debt, which is $15.3 million.

Additionally, on a separate joint venture with CMS at our Colonial Grand Canyon Creek property in Austin, Texas, we have agreed to provide the capital for any shortfall in the refinancing of the existing construction loan in the form of preferred capital. We will have a cumulative preferred return of 8% on that capital. Upon the funding of this preferred capital of approximately $11 million, it is anticipated that the joint venture property will be consolidated on our books.

Also, we've entered into an agreement with our retail joint venture partner, OZRE Retail LLC, to unwind our existing joint venture with them that is comprised of 11 retail properties with approximately three million square feet.

As part of the agreement we will acquire one of the retail assets in exchange for the transfer of our 17% ownership interest in the joint venture. We will make a cash payment of $37.9 million to repay existing mortgage debt and a payment of approximately $7.5 million for the discharge of a deferred purchase price owed to former unit holders who elected to redeem their units in June of last year.

The company will no longer be responsible for it's pro rata portion of the $292 million of joint venture debt, which represents approximately $50 million to CLP. The transaction remains subject to lender and unit holder approval and is expected to occur in the third or fourth quarter of this year.

Moving on to our remaining development activity, we had two multifamily developments totaling 742 apartment homes under construction at quarter end with unfunded commitments remaining of only $2.9 million. We had three active retail projects totaling 600,000 square feet under construction at quarter end with $14.1 million remaining to be spent to complete them. As Tom mentioned earlier, we began construction of an additional phase at Craft Farms which will be anchored by Publix. We anticipate this development to produce a return of 10% to 11%.

Our second quarter interest coverage ratio was 1.9 times and our fixed charge covered ratio was 1.7 times. The ratio of net debt plus preferred to gross assets was 58.2%. As previously disclosed in May, we closed a $156 million secured facility with Fannie Mae, which has a fixed rate of 5.31% and a ten-year term. The facility is secured by eight multifamily properties with 2,816 units.

Four debt maturities over the next two years are a fraction of what they were at start of the year. We have no loans for which Colonial is entirely responsible maturing in 2009. We do have $82 million that represents our pro rata portion of the secured debt in our joint ventures. We continue to work with our partners on refinancing these loans. Approximately 78% of the loans maturing in 2009 have extension provisions which we intend to exercise leaving $18 million of maturities to refinance this year.

For 2010, we now have $44 million in consolidated unsecured bond maturities and $57 million maturing in 2011. We repurchased a total of $315 million in unsecured senior notes during the second quarter with discounts totaling $16.2 million or $0.28 per share bringing us to $417 million repurchased in the first half of the year with gains of $0.71 per share.

Our $50 million at-the-market equity offering program that was initiated in May raised net proceeds of $4.8 million during the quarter with the sale of approximately 600,000 shares at a weighted average price of $8.16 per share.

I will now turn the call back over to Tom.

Thomas H. Lowder

Our 2009 guidance range, which is consistent with our announcement on June 1, is as follows. Net income of $0.20 per share to $0.50 per share, total funds from operation is expected to be $1.95 to $2.15 per share with operating FFO in the range of a $1.13 to $1.20 per share. Same property net operating income is expected to show a decline of 5% to 7.5% in 2009. Development spending will be roughly $35 million to $40 million. Dispositions will be $50 million to $150 million, of which $58.6 million has already occurred.

Transaction gains in developments and outparcels are expected to be in the range of seven pennies to $0.10 per diluted share. We've already achieved $0.07 per share in the first half of the year. Gains from the repurchase of our corporate securities are expected to be $0.75 to $0.85 per share. To date, including third quarter activities, we've achieved $0.73 per share.

Corporate G&A is expected to be $16 million to $18 million, which is down $2 million from a quarter ago. Consistent with last quarter, the board declared a quarterly cash dividend of $0.15 per share, which is conserving approximately $80 million on an annualized basis compared to 2008. We've disclosed, and Reynolds has discussed, a number of sales contracts that have not closed. We want to inform you appropriately but not over promise. Getting any transaction to the closing table in this environment is always a challenge and never a 100% given.

The job losses continue to mount and are having a marked impact on our rental revenues, but we continue to believe that the long-term demographics of our Sunbelt markets will be positive for the multifamily business. Again, our goals remain the same, focus on multifamily operations simplify our business structure while ensuring that we have the solid balance sheet and liquidity to execute the business for the long-term.

Operator, we'll open the call up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first call comes from Richard Anderson - BMO Capital Markets.

Richard Anderson - BMO Capital Markets

So just on the joint venture transactions or the changes that you illustrated in the press release, the sale that gets you $2 million cash payment, so that's to say that the assets were sold just barely above the debt on them. Is that right?

Thomas H. Lowder

Yes

Richard Anderson - BMO Capital Markets

Just barely, not underwater but sort of –

C. Reynolds Thompson, III

Yes, that's where the $2 million payment is coming from and, Rich, that represents something around the seven and a quarter cap.

Richard Anderson - BMO Capital Markets

Now for the other asset, CMS asset, you're injecting some capital into that joint venture. Is that to get the eventual permanent financing to 70%? What does that do for the joint venture?

C. Reynolds Thompson, III

Yes, we are putting some agency financing on that property and the construction loan is up-to-date. The loan to value we're targeting is about 70% and then we're going to fill in the gap between what the existing construction loan is and what the eventual permanent financing ends up being.

Richard Anderson – BMO Capital Markets

Now, on the condominium sales, the number you have now on your books is about $30 million, that's what you say in the first of May. Is that what it is today or is that as of June 30th?

C. Reynolds Thompson, III

That's as of June 30th and that's our ground up condominium developments that we have. And then we've got about another $20 million in the conversion projects category, so total $50 million.

Richard Anderson – BMO Capital Markets

So does that include like residential lots and all that sort of stuff, too?

C. Reynolds Thompson, III

No, that's just the vertically constructed units.

Richard Anderson – BMO Capital Markets

What is your residential all-in aggregate number on your books today, so $50 million plus what?

C. Reynolds Thompson, III

For the residential land piece?

Richard Anderson – BMO Capital Markets

Everything, like residential land, condominiums and all that stuff.

C. Reynolds Thompson, III

Seventy-three million.

Richard Anderson – BMO Capital Markets

So $73 million today and tell me how, and the plan, I guess, Tom, to you is for that number to go to zero by the end of this year, is that correct?

Thomas H. Lowder

Well, I think we discussed it on the last call. We're making a lot of progress. I would be disappointed if we don't plow through this by the end of next year, I think, as I told you last time.

Richard Anderson – BMO Capital Markets

Can you tell me where that $73 million is relative to last quarter and the quarter before? How has it been trending down? I'm trying to get an apples-to-apples comparison about your progress.

Thomas H. Lowder

Well, let me say on the vacant land and lots piece that's probably going to take us longer to work out, but I don't view it as a significant part of the piece of business, and that's going to depend on home building coming back. And we'll be trying to dispose of that land to developers and homebuilders in the future, so that will take a little bit longer.

But I am a little more optimistic on the $50 million piece that we are plowing through. I can give you a spreadsheet about what's remaining here, but just to click them off, at the beginning of the year, to go down the list, in Atlanta, Georgia we had 23 units they're all disposed of. In Orlando, we had 561 units they've all been closed since the first of –

Richard Anderson – BMO Capital Markets

I don't want to take up too much time on this specific question, maybe offline with you, Jerry, but I just want to get a sense of if it's $50 million today, where was it last quarter, where was the –

Thomas H. Lowder

From the first of the year, we've closed 87, we've closed 843 units out of 970 units of condos.

Jerry A. Brewer

And it represents about $26 million since the beginning of the year.

Thomas H. Lowder

And on the conversion piece, we had 659 units at the beginning of the year, we have closed 448 units.
So we've made significant progress and we have a good, we've just detailed contracts to bulk sell a lot of this stuff, but we also have a good pipeline of end-users on the rest of that condo project that is working through since the end of the quarter. Just last week, we had nine contracts, we had five in Charleston and four in Charlotte, so we're having good activity and I'm optimistic we're going to work through this.

Richard Anderson – BMO Capital Markets

Turning to operations, would you say the second quarter was roughly in line with your expectations or was it a little bit weaker than you thought?

Thomas H. Lowder

I would say it was slightly weaker. When we saw a lot of our friends in New York here at the first of June and we had updated our guidance from 5% to 7.5%, we thought we would, for the quarter, end up somewhere around 7% and that actually increased to 7.5% as you know, just slightly less than 7.5%. So if you do a run rate for the rest of the year based on, if we have the current same shortfall in revenues continuing for the rest of the year, we would end up at 6.1% average for the year on that same store downward performance.

Richard Anderson – BMO Capital Markets

So no need to at this point to change your internal growth projections for the year, you're comfortable in that range?

Thomas H. Lowder

Well, we're comfortable. And some of that, Rich, as you know is we're comparing to last year and so third and fourth quarter were down in business last year. But we have trended where we are in the current month and if we do so, we'll end up at that 6.1% number, so we do have some room there for it to get a little worse which we all hope it won't, but that's how the math works.

Richard Anderson – BMO Capital Markets

One last question on traffic, Reynolds, it was interesting, you said traffic was down. That's a surprise to me I figured traffic would be up. Maybe credit quality would be down, but traffic would be up in this market. Why do you think your traffic is down when others are saying traffic is up?

C. Reynolds Thompson, III

It's actually very close to flat. I mean, if you look at the math, it's down, but we're talking about minusculely, but I did mention that the credit quality issue has changed on us and that has deteriorated.

Operator

Your next question is from [Michael Aurorean].

[Michael Aurorean]

Quick question for you regarding just your income statement, it appears that I guess the net loss was a result of higher property operating expenses, depreciation and interest expenses. Is that essentially correct, because obviously your revenue line is a little bit overall, so am I right in that assumption?

C. Reynolds Thompson, III

Yes, that's correct. I mean, as we stated on our calls of the last couple of quarters, the rise in the interest expense is primarily a result of us ceasing capitalizing interest on our projects that are held for sale, so that's that piece. And then on the depreciation, that's just our developments coming online through last year and this year.

[Michael Aurorean]

And do you do, in terms of the depreciation, do you do that as a straight line or accelerated, because when I look at your balance sheet just on a percentage basis, it looks like your real estate assets, in general, went up about 1%, but your depreciation year-over-year went up over 20%. So is that just a result of how you recognize depreciation?

C. Reynolds Thompson, III

There's a couple of things going there. We do straight line our depreciation under FAS 144, we did have some assets that were held in the held-for-sale category last year, and since last year those have been moved from the held-for-sale to the held-for-use category, so there was so catching of the depreciation that occurred in this quarter. That's causing a little bit of that increase there.

[Michael Aurorean]

Then just a final question just in terms of your commentary on credit ratings, you've obviously taken your lumps recently, and in the past you've said that investment grade credit rating is very important. Obviously, you kind of have one leg in and one leg out. I'm assuming your strategy is just to continue to delever and improve liquidity.

And once you get to speculative, it can oftentimes be tough to get back to investment grade. I mean what's your sort of long-term strategy? I'm assuming it's the obvious, but is there insight you can give us in terms of what you plan to do? I'm assuming you want to get back to investment grade with all the agencies.

Thomas H. Lowder

Well, we do. We like that flexibility and we think what we're trying to do here with the balance sheet and concentrating on the balance sheets and what we need to do will give us an opportunity to present ourselves again in a positive light to the rating agencies.

[Michael Aurorean]

And is that a yearly type of thing, I mean in terms of the review, usually they review your credit every year? What's the timeframe in your mind? I guess you can't really tell if you could.

Thomas H. Lowder

Well, they just reviewed us back in the early spring, so normally they would review us once a year. And I think, honestly, we recognize in this environment, it's not going to, even if we improve, they're not going to give us an upgrade in this current economic environment. So it's going to be two things, the economic environment and our economy getting better and the company's balance sheet getting stronger.

Operator

Your next question comes from Michael Bilerman.

Eric Wolf for Michael Bilerman – Citigroup

This is Eric Wolf here with Michael. You mentioned a moment ago that you purchased about $0.73 worth of your unsecured debt year-to-date. And given your guidance says $0.75 to $0.85, can we infer that you've done just about as much as you're going to do there and that maybe the window of opportunities there have dried up a little bit?

Larry A. Brewer

We're still very active in looking for those opportunities. It has been slower, but we still got another 12 pennies or so to go toward the high end of our range, so we're going to remain to be active out there.

Eric Wolf for Michael Bilerman – Citigroup

Aside from repurchasing debt, I know you have the ATM offering 50 million, but those two combined wouldn't seem to necessarily get you to the target range of leverage that you have been talking about in the past given some difficulties in the disposition from it. What kind of ways are you looking at to reduce leverage and improve the balance sheet and what kind of timeline are we looking at there?

Larry A. Brewer

Well, those are three primary areas and we're going to keep pushing all of those buttons and work toward getting our company back to where we believe we need to operate on a long-term basis and it's going to take some time. This is just something that we are taking advantages or opportunities when they're out there, and if we get some asset sales done, we'll do that. We're certainly going to get some equity out the door. We're going to keep looking for these opportunities to buy bonds back.

Eric Wolf for Michael Bilerman – Citigroup

I guess just lastly, you said you've done some good work on the overhead side, but you mentioned in your comments that going forward simplification will reduce overhead. I was just wondering if you could maybe expand on that a bit. What exactly are you looking to simplify and how that will maybe translate into you being able to squeeze out some more costs?

Thomas H. Lowder

Well, obviously the OZRE transaction will give us enough opportunity to simplify part of our business, and with that comes some overhead savings and we're looking for other opportunities and some other JVs to do similar type transactions.

Operator

You have a follow-up question from Rich Anderson.

Richard Anderson - BMO Capital Markets

I just wanted to – a little bit longer term on the process of unwinding some of your joint ventures. Is the overriding strategy to get out of the residential and office business at some point and just be exclusively multi0family? Have you taken it that far in your minds?

Thomas H. Lowder

I think what we talked about previous, Rich the short-term goal is an 80/20 and longer term 90/10. We think that a 90/10 we'll still have 10% of our business in mix use and some long-term relationships that we have such as with DRA and some of the office products. So I would say 90/10 is the immediate goal.

Richard Anderson - BMO Capital Markets

So no change, this is just –

Thomas H. Lowder

I think we're making great progress particularly, and we'll knock on wood here, that we continue to have this kind of activity, but we're making significant progress there.

Richard Anderson - BMO Capital Markets

Even becoming simple is complex, I guess.

Thomas H. Lowder

Well, there are a lot of people at the table. It's not just the two parties, as you know. It's the lender and rating agencies are involved in some of this.

Larry A. Brewer

There are a lot of people at the table.

Operator

Your next question is from Dustin [Piezo].

Dustin [Piezo] - Unidentified Company

Just to follow up on Rich's and some of the other questions on the joint venture strategy. Tom, so can we infer that you guys will no longer be managing the OZRE assets going forward?

Thomas H. Lowder

That's correct

Dustin [Piezo] - Unidentified Company

And I'd imagine as you're looking to potentially exit some of the other joint ventures down the road and simplify the strategy it would be exiting the management contract side of it as well.

Thomas H. Lowder

That's correct.

Dustin [Piezo] - Unidentified Company

And I believe Ross has a follow-up as well.

Ross Smotrich – Barclays Capital

It's a little bit of a fall on to Dustin's question and it may be somewhat of a mute point it sounds like, but I wanted to focus in on the DRA CRT joint venture in particular and just clarify the game plan with respect to the $940 million of debt on that portfolio. Can you just remind me, I know the average remaining term is 14 months, but how much of that can really be extended?

C. Reynolds Thompson, III

The majority has a one year extension, so it's roughly 90% that has that in 2009, but I mean all that's really going to do is buy us another 12 months.

Thomas H. Lowder

What we are actively working with DRA on those refinancing and in some cases we expect to put some more equity into those and we'll bring up pro rata share to the table and we're just going to work through those hand-in-hand with DRA to work out the best situation that we can with regard to getting some more term.

Ross Smotrich – Barclays Capital

Is my math right on just as a portfolio for that joint venture that the debt yield is now about a 9.3%? That's the second quarter NOI. It's about a 9.3? Does that sound roughly right?

C. Reynolds Thompson, III

Yes, that sounds roughly right.

Ross Smotrich – Barclays Capital

Where is DRA, I know you can't necessarily speak for them, but it would seem as though the restructuring of that debt would require a significant equity contribution from the partnership. Where are they in terms of being able to do that given the fund that these assets are invested in?

Larry A. Brewer

I certainly cannot speak for them. I can say that they're looking at each one of these on an asset-by-asset basis and the exercise that we're going through is trying to understand what makes sense from our current position is to how you approach the refinancing and how much new money it makes sense to put in those. And that's where some of these discussions are going to be interesting with lenders to sit down and actually have those discussions.

We've got one building that we've put to bed last year and it made some sense to put some new equity in that deal and get the loan to value straightened out, and we both brought our pro rata share to the table and got that done.

Ross Smotrich – Barclays Capital

Are there any covenants on any of your corporate debt that get violated if you were to do something, I use the word drastic, on an individual asset?

Larry A. Brewer

No, they're not.

Operator

Your next question is from Jeff Donnelly.

Jeffrey Donnelly – Wells Fargo Securities

Can you share with us what's in your guidance for 2009 same store NOI declines away from the multifamily space and more on the retail and office space?

Thomas H. Lowder

We are seeing pressure there. Our retail portfolio is relatively flat. We clearly are feeling the effects of the economy there, but it hasn't made its way to the bottom line and, therefore, we think that it's going to be relatively flat. On the office side between the various partnerships, we're seeing pressure somewhere in the 3% to 4% down range.

Jeffrey Donnelly – Wells Fargo Securities

And you think those will hold for '09?

Thomas H. Lowder

Yes. That's what we would expect our full year of '09 to look like.

Jeffrey Donnelly – Wells Fargo Securities

And I guess on multifamily, just curious, how conservative do you feel that 5% to 7.5% NOI decline is if year-to-date you're down 5.4. I'm not asking you to restate your guidance, but in an environment where we continue to see sequential changes in revenue and expense to the negative, if you will, or at least the wrong direction, there's got to be some embedded roll-down. I guess I'm wondering is that range more safely or more likely to be a 6% to 7.5% as opposed to a 5% because it seems difficult to see how it can improve as we move to the back half of the year.

Larry A. Brewer

Well, as Tom mentioned, if we trend out where we are today, it's slightly over 6%, but to bust it on the high side, we'd have to be almost 9.5%, 10% down for the second half of the year to bust it out on the high side based on what's happened year-to-date.

Jeffrey Donnelly – Wells Fargo Securities

And I'm curious, what's been the trend this year say as of Q2 maybe versus 2008 in delinquencies and bad debt across the portfolio?

Paul F. Earle

This is Paul. Our bad debt was 1.4% in 2008, and in 2009 June it's 1.44%. And to give you a comparison to those two years, back to 2007 it was 1.2% in 2007.

Jeffrey Donnelly – Wells Fargo Securities

This last question is actually on a specific market, in Charlotte it's clearly a significant market for you guys and year-to-date it's actually held them relatively well. Are you guys picking up any signs locally that financial sector layoffs whether it's in BofA or I guess Wachovia's former presence there or presence there, could be another shoe to drop in that market or do you get a sense that maybe some of that risk is beginning to pass by.

Larry A. Brewer

We're feeling pressure in Charlotte and we think that pressure's going to continue throughout this year and well into next year.

Operator

(Operator Instructions)

Larry A. Brewer

Thank you all for joining us today and we look forward to speaking with you next quarter.

Operator

Thank you for participating in today's Colonial Properties Trust second quarter 2009 earnings call. You may now disconnect.

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