Post Properties Inc. Q1 2010 Earnings Call Transcript

May. 4.10 | About: Post Properties (PPS)

Post Properties Inc. (NYSE:PPS)

Q1 2010 Earnings Call

May 4, 2010 10:00 am ET

Executives

Dave Stockert - President and CEO

Jamie Teabo - EVP Property Management

Chris Papa - CFO

Analysts

Eric Wolf - Citigroup

Michelle Coff - Bank of America-Merrill Lynch

Austin Wurschmidt- KeyBanc

Operator

Good day everyone and welcome to the post properties first quarter 2010 earnings conference call. As a reminder this call is being recorded. (Operator Instructions).

At this time, I will turn the call over to Post Properties' President and Chief Executive Officer, Mr. Dave Stockert, for opening remarks and introduction. Please go ahead.

Dave Stockert

Thank you, very much and good morning. This is Dave Stockert. Welcome to post property's first quarter conference call. With me are Chris Papa, Chief Financial Officer and Jamie Teabo, Executive Vice President, at Property Management.

Before we begin the business of this call, I'll reference the Safe Harbor statement. Statements contained in this conference call regarding expected operating results and other events are forward-looking statements that involve risks and uncertainties.

Actual future events or results may differ materially from these statements. Such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and are made based on our current expectations, assumptions and beliefs as well as information available to us at this time.

A variety of factors could cause actual results to differ materially from those anticipated, including those discussed in the risk factor section of our Annual Report on Form 10-K, dated December 31st, 2009. Post Properties undertakes no obligation to update any information discussed on this conference call.

During this call, we will discuss certain non-GAAP financial measures. Reconciliations to comparable GAAP financial measures can be found in our earnings release and our supplemental financial data.

I'll now begin the business of this call.

We're very pleased with our financial and operating results for the first quarter. Funds from operations of $0.31 a share, we are ahead of our plan, as were same store results. Although, we're not providing new detailed guidance at this time, we do currently believe we're on pace to produce results within the upper end of our existing guidance for FFO and for same store revenues and NOI.

Revenues for the same store portfolio were nearly flat on a sequential basis in the first quarter, primarily because we've been able to raise occupancy on generally higher demand for apartments. In the month of April, the overall rent roll also turned modestly positive for the first time since the downturn began. So, barring something unforeseen, we believe fundamental [spend to drop] in the fourth quarter of 2009 and should generally improve over the course of the year.

Increasing the cash flow from our stabilized portfolio, and our properties and lease-up is the most important near-term driver of value and we're very focused on doing so. Our on-site staffs are doing a great job in that regard. We've added some information to our supplemental financial data to ad analysts and investors and understanding our operations. You can find new detailed same store revenue and expense line item information on pages seven and nine of the supplement and a new margin analysis on page 25.

We have not yet issued any shares under our after market equity program, although, we expect to use it to grow and strengthen the capital base overtime, we are mindful of the share price cost of capital and use of proceeds. To date, we've been satisfied for let the stock reflect increasingly favorable supply and demand conditions for multi-family along with improving asset prices.

As to external investment, we believe that our most attractive value creating opportunity is the development of the second phase of Post Carlyle Square in Alexandria, Virginia and we're working toward a start of that project in the second half of the year.

We're also focused on delivering the four seasons condominium project in Austin with closing scheduled to begin shortly and are negotiating resolution to the construction loan on the Ritz-Carlton Residences in Atlanta that would let us begin signing contracts and closing units of that project.

We still expect to record an impairment in the second quarter, about the $40 million related to our condominium projects. We will have more detailed analysis of those projects in our 10-Q filing this Monday.

Finally, we were delighted with the recent Circuit Court ruling regarding land Pentagon Row, the value and cash flow of that asset are improved by owning the fee interest in the land particularly at an attractive an attractive price. As we expect to rest of this year, we continue to see immediate supply and improving demand. We expect to revisit our FFO and same store guidance with our second quarter earnings release, once we have more information on the actual recorded impairments of our condominium projects and a clearer picture of the spring and summer leasing season. Until then, we'll enjoy what increasingly feels like a breeze at our backs.

That concludes our prepared remarks. Operator, will you open up the phones to Q&A.

Question-and-Answer Session

Operator

(Operator Instructions). And our first question comes from Eric Wolf with Citigroup.

Eric Wolf - Citigroup

Michael is on the line with me as well. David, you mentioned that operating results exceeded your expectations. Could you just share what specifically be your expectations was it just the occupancy or was it high renewal rates and new lease rates, lower operating expenses or just a combination of everything?

Jamie Teabo

Hi, Eric. This is Jamie. It was really a combination of several factors that you mentioned. Renewal performance was better than quarter four. We saw that picking up on our last conference call, but we were happy to see as the quarter progressed. We saw more attraction in pricing from January to February and again from February to March and we're seeing that trend continue out into the second and even we've actually already started on July renewals in the third quarter.

So, each month, we're seeing an up tick in the renewal increase that we are getting. And we're actually seeing that pretty much across all markets. We were able to push the occupancy from quarter four again pretty much every market was up over the prior quarter. So, that we're not really seeing it in the job growth numbers we are seeing higher consumer confidence in the prospects in the visiting communities and we're seeing really the trends improve in all of those areas.

Eric Wolf - Citigroup

Okay. And it seems like real estate taxes came in pretty favorably and overall operating expense were pretty low with the 0.4% increase. Do you think there is potentially some upside to your previous estimate for 2% same store expense decline increase?

Christopher Papa

Well, we're working hard on that. So, I hope we're going to try and drive it to the more favorable end of that but the big wild card obviously is property taxes. The property tax savings that you see is really has a lot to do with how we accrue in one-year versus recoveries of prior year appeals and things like that.

Eric Wolf - Citigroup

Instead of the first quarter exceed your expectations, I think, it was a 5% decline from last year?

Christopher Papa

First quarter expenses were generally better than what we had budgeted.

Eric Wolf - Citigroup

Right, okay. Sorry. Go ahead.

Christopher Papa

No. I was just saying more favorable than what we had budgeted.

Eric Wolf - Citigroup

Okay. And then lastly, you mentioned that you didn't utilize your ATM program, it seems, from the capacity of having your line of credit, it seems like your maturities and development funding has pretty well taken care of and just from your comments it sounds like you're only going to use the ATM if you find some external growth opportunities, am I interpreting that right?

Dave Stockert

I think that certainly yes, we would be working at external growth opportunities and I think those are, we are going to be fairly disciplined about that. The next opportunity for us to really show up our balance sheet is when we've got some bonds maturing in December. So, we're assessing a number of ways that we will refinance those bonds.

Eric Wolf - Citigroup

Right, okay. Thank you.

Dave Stockert

But short of that we've got nothing else coming due in the meantime and as you say plenty of capacity on the line.

Operator

Our next question comes from Michelle Coff with Bank of America-Merrill Lynch.

Michelle Coff - Bank of America-Merrill Lynch

I was wondering, if you could talk a little bit about which markets you thought did better or did worse this quarter that kind of either beat or what you were disappointed by their performance?

Jamie Teabo

Michelle, first of all let me state that all of the markets really performed as we had budgeted and expected. So, although, the market, as a whole did better than we had anticipated, no one market actually did worse than we had anticipated. We were pleased to see the sequential revenue growths that we saw. We're particularly please we had DC Florida and Austin I know some of our other repeaters had sort of the positive feelings we've had about Tampa and Orlando, but we actually see some, an improving metrics there better driving down to the bottom-line for us.

We're still most challenged obviously in New York and Houston and Charlotte and our uptown Dallas market. So, while they didn't perform worse than we had anticipated we would like obviously to see them do better and we actually are seeing some positive trends from the first quarter to the second quarter in occupancies in both Charlotte and New York. So, we also are seeing a little more pricing power in those markets too.

Michelle Coff - Bank of America-Merrill Lynch

And you talk a little bit about, you weren't really seeing that much job growth but it seems like consumer sentiment has picked up, I guess, can you give us a sense for how much further you can see the improvement just on the sentiment basis versus not seeing the job growth and what are your expectations for job growth?

Dave Stockert

Well, the short answer is I have no idea, how to relate those with great accuracy. There is clearly more the apartment demand is generally tracking ahead of the job growth and that is just the dynamic just out there right now. And I'm sure it's due to a whole lot of complicated reasons.

You know, I believe we're finishing the down cycle, which sort of by definition means we're starting a new period of expansion in this economy and if something doesn't happen to derail that some external sort of thing, I think, businesses have run a lot of efficiency out. And I think that you're starting to see a lot more companies that need to hire people, as things improve and then as Jamie commented on as consumer confidence is improving, it's leading to some improvement in retail sales and it starts a more virtual cycle that, we are versus the destructive cycle that we've lived through for nearly two years.

So, generally speaking again, I think, we're starting a period of pretty favorable supply and demand conditions in our business. And again to-date the demand side has been actually better than what might be predicted by job growth. So, if we get job growth then maybe things get tighter.

Michelle Coff - Bank of America-Merrill Lynch

Okay, great. Thank you. And then just lastly, you have seen some same store revenue growth sequentially in some of your markets, which was impressive, I was just wondering, when you thought you might see I guess overall same store revenue growth on a year-over-year basis?

Dave Stockert

On a year-over-year basis, I think that would be obviously late in the year just the math makes that difficult. What we're really tracking. The thing we look at most closely obviously is what we're doing month-over-month sequentially and are we moving in the right direction and as I said in April and it's modest but in April our rent roll average rent roll is higher than it was in March and that is a good thing. That is the first time that's been the case for many months and so since the downturn began and so that's really the primary metric. Once that rent roll gets positive and starts to grow then good things happen from there.

Operator

(Operator Instructions). And our next question comes from Karin Ford with KeyBanc

Austin Wurschmidt- KeyBanc

Hi, this is Austin Wurschmidt for Karin Ford. You mentioned that you were beginning to see loss to lease. Could you just quantify that across some of your markets?

Jamie Teabo

Austin, we use the revenue optimization system so, we don't really quantify what the loss to lease is, the rent changes on a daily bases. What can I tell you, we've seen each of the last five months, we've seen the decline in the new lease rates come down. December to January to February to March and April and to May. So, every month, we're seeing an improvement and as Dave mentioned our overall rent roll was basically flat from February to March and we did see an up tick from March to April and currently are seeing the same trend for May.

Austin Wurschmidt- KeyBanc

Okay, great. And then, would you say that concessions are running more or better or worse than you previously anticipated? And then, could you just run through some markets on that as well, please?

Jamie Teabo

Sure. We typically only offer concessions in our New York market in our stabilized pool and then on our reset properties. We have very few concessions running about $10 per unit on a stabilized portfolio. So that may be half a month offered on a renewal at a higher market rate. To intent them to renew at that rate but typically concessions with our optimization system are not something that we offer.

Austin Wurschmidt- KeyBanc

And then, could you just run through on the lease-up portfolio how those are running?

Jamie Teabo

Sure. We have three in lease-up and they actually have a very good quarter. We're hoping actually to get, Sierra leased-up by the end of the second quarter, which would be ahead of their third quarter goal. That would be our Dallas project and then we have West Austin, which is scheduled for a quarter three lease-up. They actually netted 76 leases in the first quarter.

So, they are running about 20 leases a month pace and we need to average about four a week to get that project done on-time. And then, we have the lease-up in Maryland Post Park which is about 55% leased today and they are scheduled to be leased up by yearend and again we need about four leases a week to track that target.

Operator

And there are no further questions at this time. I'd like to turn the conference back over to the speakers for additional or closings remarks.

Dave Stockert

Well, that was quick. Thank you all for attending. And we will talk to you in a quarter and see you there. Thanks. Bye-bye.

Operator

And that does conclude today's conference. We thank you for your participation.

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