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Executives

Charis Warshof – Vice President of Investor Relations

Edward J. Pettinella – President, Chief Executive Officer & Director

David P. Gardner – Chief Financial Officer & Executive Vice President

Analysts

David Toti – Citigroup

Steve Sakwa – ISI

Robert Stevenson – Fox-Pitt Kelton

Michael Salinsky – RBC Capital Markets

Michelle Ko – Bank of America Merrill Lynch

Michael Levy – Macquarie Capital

Home Properties, Inc. (HME) Q2 2009 Earnings Call August 7, 2009 11:00 AM ET

Operator

Welcome to the Home Properties second quarter earnings conference call. During the 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, August 7, 2009. I would now like to turn the conference over to Charis Warshof.

Charis Warshof

Thank you for participating in Home Properties second quarter 2009 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 website at www.HomeProperties.com. We also have posted our new release, supplemental schedules and a PDF of the slides on the website in the investors section under news and market data. The call replay and script will be posted later.

If you are participating on the call via the webcast, please advance the slides as we go through the presentation since they won’t advance automatically. 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 describes certain risk factors that may affect our future results. Each slide is numbered in the lower left corner.

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

David P. Gardner

The first chart I’ll discuss is on Slide Three, this chart discusses our funds from operations per share of $0.84 for the second quarter of ’09 which was $0.05 lower than the FFO for the second quarter of 2008. It was also $0.04 higher than both the midpoint of our guidance range and the average of analysts’ estimates for the quarter. We are very pleased with the results given the top line pressure our sector is experiencing.

Slide Four shows our core property performance for the quarter. We define core properties as same store properties owned since January 1, 2008. On a sequential quarter-over-quarter basis, total revenues were down 2.1% although base rental revenue excluding utility reimbursements was up 0.7%. Expenses were down 9.8% largely due to higher first quarter seasonal expenses for natural gas and snow removal costs. NOI on a sequential basis was up 3.8%. Physical occupancy was up 70 basis points to 95.1% compared to the first quarter.

Comparing these results for the quarter to the second quarter a year ago, base rent was up 0.7%, average monthly rental rates including utility reimbursements were down 0.2% with a 10 basis points increase in economic occupancy growth in same property rental revenue including reimbursements was down slightly at 0.1%. Weighted average rent per unit is now $1,135 per month and physical occupancy was 95.15, up 10 basis points from the year ago quarter.

Turning now to expenses, we saw an increase in operating expenses at our same store properties of 1.7% compared to last year’s second quarter. The major area of increase was in repairs and maintenance and personnel. These increases were partially offset by reductions in insurance, natural gas heating costs and property management G&A allocation. As far as natural gas heating costs go, for the 2009/2010 heating season we now have 94.9% of heating costs fixed at an all in weighted average costs of $6.81 per dekatherm which compares to the cost for the ’08/’09 heating season of $8.44.

At this point in the year the level of costs fixed for the upcoming heating season is the highest we have ever had. For the 2010/2011 heating season we have 10.4% fixed at a weighted average costs of $6.59. We would like to have fixed more for that second winter season but some suppliers would not write contracts for more than 12 months out and they are just now beginning to write those contracts.

The various income and expense changes resulted in a 1.4% decrease in NOI for the quarter compared to the second quarter of 2008. Some of our same property NOI reflects incremental investments in our communities above and beyond normal cap ex. After charging ourselves a 6% cost of debt capital on these expenditures, adjusted NOI for the second quarter of ’09 was -2.2%. Turnover the quarter was 10.5% down from 11.1% in the second quarter of ’08. The highest reason for move out was employment related at 16.4% above the 15.2% level a year ago but less than the 17.7% we reported in the first quarter of ’09. Some of our peers have experienced more move outs for home purchase. Our level of 12.2% was higher than the first quarter but this is the seasonal trend. The level in this year’s second quarter was lower than in the second quarter of ’08 when it was 12.6%. In the second quarter of ’07 it was 16.6% and it was higher than 18% in the quarters of 2006 through 2004.

A few words about our bad debt in the quarter which is now down to 1.06% compared to 1.13% in the year ago quarter. Sequentially, the bad debt has come down from a recent high of 1.4% in the third quarter of ’08 to 1.35% in the fourth quarter of ’08 and 1.3% in the first quarter this year. The increase occurred largely from collection practices related to resident utility billing. Last fall we began best practice training programs on collections and have changed the way we handle collections so we feel we now have the past uptick in bad debt corrected despite the current economy.

Slide Five shows our current capital structure. With the stock price of $34.10 at the end of the 2009 second quarter, leverage was 59.9% on our total market cap of $3.9 billion with approximately 93% of debt at fixed rates. The stock price at the end of the second quarter was at the lower end of the recent trading range. Based on the closing price of $40.76 on August 5th, leverage was 55.6%.

Looking now at capital market activities on Slide 6, during the second quarter the second quarter we have a lot of activity regarding the line of credit renewal. We are increasing the line from the $140 million that we currently have. We made a presentation on July 22nd to 15 interested banks with nine attending in person and six on a conference call. The presentation was followed by a short two property tour. We have an indication of strong interest totaling approximately $300 million with verbal commitments totaling $180 million. Based on this very high level of interest, we may round up the new line to $175 million or more. M&T, our lead bank, has committed to providing $60 million of the facility and remaining formal commitments are due from the banks the first part of next week.

The tentative closing date is August 19th. When negotiations are finalized we will issue a news release detailing the terms of the facility. Because of investor interest in the line and the refinancing of our debt maturities, I’ve included an updated three year cash flow projection in the supplemental schedules this quarter. It’s the second to last schedule in the package right before the detail on guidance. On the cash flow schedule you will see that we will pay off our refinance in 2009, a large portion of the debt maturing in 2010 and 2011. After refinancing over $200 million of 2010 maturities in the coming months, the reaming loans maturing next year will be down to a very comfortable level of $125 million with most of that due in May of ’10 and the balance due in October 2010. We end each year with more than adequate cash or line levels to fund our normal operations and the current dividend.

We’re now on Slide Seven, before our review of guidance for the balance of ’09, I wanted to review how we did in the second quarter compared to our expectations. For the quarter, as you saw earlier FFO per share was $0.04 above the midpoint of our guidance range. Revenue was -0.2% versus guidance of 1.2% due to lower rent and utility reimbursement revenue. Both vacancy and bad debts were better than forecasted but that improvement cannot make up for a lower run rate than forecast in rental rates.

Utility recovery was lower than anticipated reflecting lower natural gas heating costs than forecast due to milder weather. Overall, expenses were up 1.7% versus guidance of 6.7%. Ed will give you more color later on our current cost saving measures but as you can see, they had a measurable impact on our property operating and maintenance expenses. NOI growth was -1.4% versus guidance of -2.4% resulting in core properties NOI per share higher than guidance by about $0.01. Contributing an additional $0.03 to our $0.04 FFO beat was a combination of reduced D&A and also resulting from our cost saving initiatives and reduced interest expense.

For 2009 we are affirming the midpoint of the FFO guidance we previously provided of $3.16 while tightening the range to $3.10 to $3.22 per share from the previous $3.07 to $3.26. Maintaining the $3.16 FFO midpoint guidance for the year results in a decrease of $0.02 in the guidance ranges for both the third and fourth quarters essentially giving back the $0.04 beat in the second quarter. Guidance for the third quarter is now $0.74 to $0.80 and for the fourth quarter is $0.73 to $0.79. In the second half of the year we are expecting continued top line pressure mostly offset by continued pickup from operating cost reductions and interest expense saves. For more detail about 2009 guidance I would suggest that you look at our supplemental where we have provided more detail assumptions than are in the earnings news release.

Please go to the next slide, Slide Eight and I’ll turn it over to Ed.

Edward J. Pettinella

We’re now on Slide Eight where I’d like to give you an update on recent property results in our key regions. I’ll give you some color on what we saw in the second quarter on renewal rates versus new lease rates. The spread between the new lease rates and renewal lease rates was approximately 7%. In the second quarter if a lease expired and was not renewed the rent on the new lease was approximately 5% lower than on the expired lease. Our renewals were able to achieve and increase of approximately 2% over the expiring leasing amount.

We are now offering renewals in the 1% to 1.5% range as we send out renewal notices for the early winter months. The increase is based on the resident’s current rent in relation to where we believe street rents will be at the time the lease renews as well as the dynamics of each property and market. We have not seen an uptick but we seem to be steady at what we hope is the bottom. With occupancy high we will have better pricing power when rates turn the corner and start improving.

Apartments available to rent or ATR which is usually a good predictor of future occupancy, at the end of July was 6.3%, 70 basis points worse than at the same time a year ago but, down from the end of June and declining each week in July which is good news for us. Market concessions are staying relatively steady in our markets except Florida which is a little higher. Two weeks ago we began a limited program of giving concessions at selected properties, becoming more aggressive on specific unit types of certain properties primarily in Philly, Baltimore and DC. Typically, we are offering up to one month free rent and in some cases are just waiving certain fees or lowering security deposit amounts.

Early results show that this has been effective in reducing the amount of apartments available to rent. One example is Philly where our submarkets have been hit particularly hard with job losses and where mom’s and pop’s who are our competition are giving away the farm. Philly moved 50 units in just two weeks where in the prior month ATR got worse by 38 units. For our Baltimore properties in the test, reduced ATR anywhere from 2% to 24% in the two weeks the program has been in effect compared to the prior two weeks. We will continue to test and tweak the response to this challenging operating environment.

Each quarter we rank our markets from high to low based on property management’s perception of current market strength. This quarter we still rank Washington DC number one, followed by the New York City suburbs, Baltimore, Boston, Chicago, Philadelphia and Southeast Florida. That covers our recent regional property results and pricing experience. We have no acquisitions or dispositions to report for the second quarter. We have no acquisitions projected for the balance of the year. We expect two additional dispositions before we close 2009.

Slide Nine, shows the results of expense cuts we initiated this year. Although our G&A to toll revenue is the third lowest or best in the public apartment sector, we have continued to look for ways to become more efficient and improve performance in this tough operating environment. In the first half of the year we identified $4.2 million in annual run rate savings in both G&A and property operating and maintenance expense. Not all of the $4.2 million will hit in 2009 as not all occurred on January 1st and the savings will be netted against some onetime severance costs.

Specific actions include staff reductions, with nine reductions in the corporate office and six who were performing property management support functions. Also, property management has renegotiated various vendor contracts at the property level reducing expenses for repairs and maintenance, pool, cleaning, grounds and advertising. In the process, the renegotiating of our central office lease we reduced our total square footage for additional savings. This second round of cost savings comes on the heels, as you recall, of the $1.3 million identified and communicated to you last fall for a total run rate of $5.5 million.

Right now, I am very comfortable with our guidance and our positioning from both an operating and balance sheet standpoint. As in the recession from 2001 through 2004 we expect our NOI growth to exceed the sector and if history repeats itself, our total return to shareholders also should be superior. That concludes our formal presentation, now we’d be happy to answer any of your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from David Toti – Citigroup.

David Toti – Citigroup

Just a quick question on dispositions, are you seeing any change in buyer demand? I’m just sort of wondering why you’re not being a little bit more aggressive with the disposition agenda this year. Is it more to do with your own strategy internally or demand environment?

Edward J. Pettinella

A couple of points David, our first is we have $110 laid in this year, $68 or $69 million has been done. As I mentioned in my text, two more are going to be done here in the next few months, that’s all we had projected to sell number one. Number two, this is not exactly an opportune market to sell a lot of properties. The ability for stabilized cap rates in any of our markets that we could sell is not there. Three, we’ve done a lot of our heavy lifting, the regions or half region which was most recently done in Hudson Valley has now been completed.

About $600 million was done in the last three of our years. We like our geographic footprint and quite frankly there’s not much we would want to give up at this particular point. So, there’s not a big demand for us to sell and we don’t think the market is conducive to selling a lot more at this point.

David Toti – Citigroup

The flip side to that question is are there any markets where you think you could see some opportunity to expand in to?

Edward J. Pettinella

Not really. Every couple of years we bring in Ron and really go through our strategic planning in terms of where we could add incremental cities. First I’d tell you, we don’t see many opportunities based on our acquisition model to buy anywhere, even in our core markets. So, my guess is we’re going to be out of all markets for some time to come but when we do get back in to our core markets, the fact that we only have less than 1% to maybe 3% in Philly, the propensity to grow is still there. We’re not a dominate player in any one market. So, when the market place gives us some deals to really look at we’re looking at a 8.5 unlevered IRR at this point and we just don’t see many deals that even get close to penciling out.

David Toti – Citigroup

Then just relative to operations and the tenant base, obviously your outlook relative to the same store results changed a bit from the first quarter through the second quarter. Do you think that’s being drive a little bit more by the tenant resistance or is it actually do to the job losses and turn? Do you see that change towards the end of the quarter and in July towards a more positive direction?

David P. Gardner

I think one leads to the other, certainly I think our markets have held up relatively more favorably in job losses, unemployment rate continues to compare favorably but it’s still getting worse, we’re all getting slightly worse. It was good news that came out where it kind of settled down this past month a little bit but I think it’s catching up to us a little bit and because of that people are being a little bit more picky, they’re being a little bit more cautious and expecting some more potential reductions.

We’re finding the spread between renewal and new street rents is becoming a little bit larger than we had last quarter. So, it led us to see June a little worse than May, July slightly worse than June, so we definitely see a little bit more down slide for the next quarter to two before we can really predict any kind of uptick.

David Toti – Citigroup

Then my last question is relative to the trade down trends that you were seeing early in to this recession, is that still a pretty strong dynamic and your capture of new customers or has that dissipated at all?

Edward J. Pettinella

You’re talking moving from As to Bs?

David Toti – Citigroup

Yes.

Edward J. Pettinella

That started a few quarters ago and it’s still quite prevalent. I’d say that’s certainly one of the factors that’s allowing us to perform like we have and probably will for the rest of this year.

Operator

Your next question comes from Steve Sakwa – ISI.

Steve Sakwa – ISI

Just a follow up on pricing power, when you provided guidance initially the rent rate growth forecast was 2.3, now with these new numbers for revenue for the second half of the year could you update us on that metric?

David P. Gardner

Just looking at the supplemental, the revenue growth that we had projected for the third quarter, if you look at my guidance that we gave you a quarter ago, we thought that the third quarter was going to be up 1.6 year-over-year and the fourth quarter was going to be up 1.4 year-over-year. That new guidance is -5 and a -1.6. It really is all kind of contingent on what we just experienced say in June and in to July where I think normally at this time of year – kind of coming out of the winter and in to early spring we started seeing a nice little pop that we normally do in demand and we felt that we had a little bit more pricing power and occupancy picked up nicely.

It kind of got in to June when we really started seeing that much more push back and when June came in less than expectations, the domino effect for the balance of the year for any kind of numbers we’re putting together so we had to reduce our anticipation there accordingly.

Steve Sakwa – ISI

So just on this weakness in June and July versus expectations, incrementally would you say it’s more related to renewals or new tenants?

David P. Gardner

Well, it’s really a combination. Historically, I think a quarter ago we were talking about getting renewal rates we were looking at were well in to the 2.5% to 3% range many times and we were looking at new street rents of -3%. The differential there was maybe 5% to 5.5%. Today, if we look at what just transpired in the second quarter, renewal rates were up about 2.3%. So, we saw anywhere from a 20 to 50 basis point drop in renewals so we’re still doing a reasonable job holding on to those.

Street rents are down now like -5% off of the expiring lease so that spread is getting a little greater. That spread use to be about 5% and now it’s about 7%. The good news is we retained more residents than any of our peers and we’re continuing to see a little more uptick in renewals and that’s going to be very positive. But, the fact that we’re seeing a little bit slight push back on both sides, is affecting our run rate.

Steve Sakwa – ISI

Last question on this point is we’ve talked a lot about how things played out for your earlier this decade, this spread of 700 basis points that you just mentioned, how does that compare to what you saw last time around?

David P. Gardner

I would say it’s considerably more than what we experienced in the last recession. I can’t say that I have those figures available in front of me but in the last recession we never – I think there was never a year where we had negative rental growth. Obviously this year we’re projecting very slight -.2% revenue growth and we only had I think one year we had negative NOI growth. So clearly it’s a little worse than the last recession and the spreads – again, I can’t quote you a number but I’m positive the spread is higher now than we saw a number of years ago.

Operator

Your next question comes from Robert Stevenson – Fox-Pitt Kelton.

Robert Stevenson – Fox-Pitt Kelton

Dave when you were talking about the spread of new and renewals to expiring was there any market that sort of stands out as significantly greater than the company as a whole?

David P. Gardner

Well Florida certainly is the absolute weakest market so that’s probably one of our bigger ones.

Robert Stevenson – Fox-Pitt Kelton

That’s like really two properties though right?

David P. Gardner

Yes. There’s not any one market that is greatly different than the rest. I mean DC is getting the best renewals, we’re still getting about 3.3% positive on renewals and we’re getting about -5% on the new street rents so that’s like an 8% differential. Philly is actually the closest, we’re getting 1.5% renewals and we’re only getting -1.5% on new street rents so that’s the tightest market but the rest are gravitating closer to that 7% spread that we talked about.

Robert Stevenson – Fox-Pitt Kelton

Then back in [inaudible] you seem to think the pricing on the new line was likely to be in the neighborhood of 300 to 350 basis points over LIBOR versus the 75 or so that you have on the current line. Is that pricing still holding up or is it coming in better?

David P. Gardner

Since we’re so close to finalizing and still in final negotiations, I’d prefer to hold back on any specifics there. But, we are very pleased with the strong interest and the book is already over what we would need it to be so we’re hopeful that we can have a little bit of pricing power there.

Robert Stevenson – Fox-Pitt Kelton

Then last question, Ed what’s been the recent conversations on the board with respect to the dividend? You guys have probably a modest shortfall this year and then looking in to whatever you guys are internally thinking about 2010 at this point. A lot of your peers have proactively cut the dividend to be one of the trees in the forest and haven’t really been penalized for that. How do you guys think about it these days?

Edward J. Pettinella

I’d say first kind of a number of points, we generally have had a higher payout ratio in others in the sector and one of the main motivators is to attract OP unit transactions which we actually believe is going to be back in vogue again once capital gains moves up to 20% which we think is going to happen. A couple of points though, in the last eight years our payout ratio has average over 103% and in the last recession over a four year period of time it averaged almost 107% so at 104% to 105% right now it’s not an unusual spot for us to be and we don’t see it spiking from this point.

We think we’re going to outperform the sector and we think the gap between us and others will continue to widen. If you take going forward a 4% FFO growth, it will reduce the payout approximately 5% which would get it at 100% or just under and we believe this is doable. Secondly, we have more predictable cash flows primarily because we have a large block of fixed rate debt. We have the lowest variable rate debt among the 12 of us.

Third, we’ve got other sources of capital, we think we’ve got ample liquidity, we’re literally probably days away from inking our LOC renewal and we have debt on unencumbered that we could put on in our portfolio, we’ve got a sizeable chunk there. Then lastly, we just don’t have any immediate use for the cash. I said earlier Rob that we’re not looking at any acquisitions. Our guess is that we probably won’t be in the game until the turn of the year.

Operator

Your next question comes from Michael Salinsky – RBC Capital Markets.

Michael Salinsky – RBC Capital Markets

Kind of following up on the last question, I think it’s interesting you mentioned that there’s no need for the cash but you have 18% of your debt maturing over the next 18 months. Also, you’ve kind of transitioned in to the development. I just kind of wonder, the business model for Home has changed a little bit over the past and I just wonder if you still think paying out over 100% is a prudent decision at this point.

Edward J. Pettinella

Let me start with the second question first, we have no new development that we’ve okayed in the pipeline. We’ve got East West that will finish out in the early part of 2010 and only the Huntington project which will need not a large block of cash and that’s it. So, development for us at the moment is going to be very, very minuscule going forward. The cash that we will need – we’ve got roll overs, Dave told you that we have about $224 or $225 million that we’re going to renew in October.

We’re working off the premise that not only is Fannie and Freddie going to be in business but they are offering very attractive pricing for shops that I think give premium pricing like us since we’re a major player with the. So, we see between the LOC being locked in at a higher level than we have at the moment and the roll overs occurring as we think they will, we feel quite comfortable. As a matter of fact I think in the supplemental David put in a cash flow over the next three years with our line of credit alone put on the sheet, we should be comfortable.

Michael Salinsky – RBC Capital Markets

But wouldn’t you like to have some of the added fire power, some added capacity over the next couple of years here? You’ve been talking about acquisition opportunities improving, I just think you’d want to have some kind of margin of safety there?

Edward J. Pettinella

There’s a couple of things I think philosophically I think where we’re coming from, one we’ve got a large block of unencumbered, we can go to say Fannie and Freddie within a number of weeks and get cash. Two, doing anything beyond that say equity is still dilutive in our minds. The third reason is we have is we hear you but the use of proceeds right now is very limited for us right now. We don’t see acquisitions or development needs at the moment. The last point I would tell you, for us in particular, and I said we’re working off the premise that Fannie and Freddie will be there, if you don’t buy that then you might have a problem with our thinking, if you do then you may be okay, coupled with the fact that our investor bankers say that for Home’s balance sheet and our earnings the equity window over an extended period of time will be there for us.

We’re trying not to load up. After we get our LOC in place and this first block of 2010 maturities get put to bed in October we just don’t want to burn up pennies per share just to have it sitting on a shelf laying dormant. We feel conversely that we’ve got a number of sources on the capital markets to tap.

Michael Salinsky – RBC Capital Markets

Then just a file question here, the revenue guidance for the second half of the year, what does that look like if you strip out utility reimbursements on the revenue and expense side?

David P. Gardner

Utility reimbursement is every part of our revenue. So, we don’t operate that way, certainly when we report it will be segregated but as far as our projections I really couldn’t give you that much of a sense of that. I mean I think we’ll still continue to – I don’t think utility reimbursement for the balance of the year will be a significant variance item year-over-year. I think we experienced quite a big variance in the second quarter but we had a very warm second quarter. If we have a warm fourth quarter I’ll get less utility reimbursements but I’ll correspondingly have a lot of less expense to kind of match it up so I don’t see that as being anything that ultimately net/net is going to be that volatile. I think you should look at it mostly as that’s what’s going on with rental income.

Operator

Your next question comes from Michelle Ko – Bank of America Merrill Lynch.

Michelle Ko – Bank of America Merrill Lynch

I was just wondering if you could help us think about in terms of your same store revenue guidance for the second half of the year, if your new lease to renewal spread is 700 basis points right now and let’s say it’s maybe at the widest point at this point then it starts to narrow towards the second half of the year do you expect when it narrows for the renewal to have more of a loss or do you expect the new leases, the rates to get better?

David P. Gardner

I guess I would argue that we’re kind of positioning our expectations on what we’re seeing today. So, I don’t know if we’re suggesting the spread is really going to get any different. I think for the most part what we experienced in June, we’re going to continue to have a little bit more difficulty getting the same kind of rental increase that we got on renewals so I think those will slide down a little. I don’t think the street rent should go down much more negative than this so I guess if there’s some compression on the spread it’s because the renewal will come down slightly.

Michelle Ko – Bank of America Merrill Lynch

Can you also just give us more details about the same store expense guidance improvement like what’s changed from last quarter to this quarter that’s caused the improvement?

David P. Gardner

It’s really across the board and in Ed’s prepared part of the script he mentioned how we identified $4.2 million of run rate savings, some of that is flowing through our G&A, a good portion of that is flowing through our properties, a lot of it you’re going to see it in the repairs and maintenance kind of area. We rebid cleaning contracts, painting contracts, pool contracts, the landscaping guys that cut the lawn, various items like that. We’ve reduced headcount so personnel you’ll see some benefits, advertising, we’re doing it a little bit smarter, so it’s difficult to pinpoint exactly but I think it’s mostly going to be in repairs and maintenance kind of line items as well as personnel.

Operator

Your next question comes from Michael Levy – Macquarie Capital.

Michael Levy – Macquarie Capital

Where do you think the acquisitions will take place once you sort of get back in to that mode? Is there any specific market that you’re targeting?

Edward J. Pettinella

I think DC, Baltimore, Northern Jersey are the likely suspects. We’re starting to see some movement of deals getting closer to penciling out Mike but I think at some point when cap rates, I think the biggest deter right now for buyers and sellers is stability in cap rates and/or more deals, more velocity of deals to be done. But, I’m pretty certain those will be the core markets, just the sheer size of deals that could come to the market. Those would be the answers.

Michael Levy – Macquarie Capital

May I ask why that is? I mean opportunistically wouldn’t there be a theoretical advantages in terms of buying long term property in places like Florida just because you’d be getting it at a presumably much higher implied cap rate?

Edward J. Pettinella

You would think that but the deals in Florida for us right now are not penciling out as well as some other areas. None of them are making our final cut but there’s still too much unstableness in the Southeast Florida markets and also from our standpoint we’ve only got 800 units there, we’re trying to watch what we want to do there. We initially wanted to start a hub down there a few years ago so we’re just waiting to see how everything shakes out. It’s still too unstable in Florida in my estimation to make a move.

David P. Gardner

I think when things turn we see more prospects, especially like a DC or around Baltimore’s core, a quicker turnaround there. Florida when it turns it may be a bigger turn but I think it’s going to be a while longer. So, when we get back in Florida would not be the first place that we’d go to.

Edward J. Pettinella

Right, it’s probably going to be a U down there in terms of recoveries is our guess, much more so than some other bigger MSA we operate in.

Michael Levy – Macquarie Capital

Just sort of as a follow up, regarding David’s question can I just get some clarification in the spread between the lease and renewal relationship. Is it change in markets that you’ve experienced from the last recession to this recession driving that at all or were you answering the question on a same property basis?

David P. Gardner

I wasn’t even thinking about the fact that we exited Detroit or whatever, I was just thinking in the same markets we have today versus those same ones that back then clearly the spread was a lot less than what we’re seeing today.

Michael Levy – Macquarie Capital

One final thing, in terms of obviously the turnover is great, that’s the only word I would use to describe it in terms of how low it is but just looking at why people are moving out, it looks like there’s location and convenience and the apartment size is becoming a more important factor than it was relative to the first quarter and the fourth quarter of last year. Also, the domestic situation has picked up. Is that surprising at all given in recessionary environments people tend to get divorced less, people tend to stay put more, just thinking about it in that regard how should I look at those numbers?

David P. Gardner

The domestic situation is kind of a catch all bucket, it could be divorce, it could be marriage, it could be something to do with children, it’s all sorts of things. If you look back at the second quarter and third quarter of ’08 they were both 10%. I read nothing in my mind in to that one. The location, convenience, apartment size, it ticked up a little but again if you look back to the third quarter, second quarter and first quarter of ’08 they were always around 11% or 10%. So, those I don’t give much stock in to. The ones that we may more attention to is home purchase which only ticked up slightly and I think it’s a very seasonal thing. Employment related we put more stock in and even though it’s higher than it was a year ago it came down from the first quarter. In addition skip is down and it’s the lowest level we’ve seen in quite some time. Those were the three more important ones that we pay attention to.

Operator

There are no further questions at this time. Please continue with your presentation or closing remarks.

David P. Gardner

If there are no further questions we would 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 and ask that you please disconnect your lines. Have a great day everybody.

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Source: Home Properties, Inc. Q2 2009 Earnings Call Transcript
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