Executives
Dave Stockert - President and CEO
Chris Papa - CFO
Jamie Teabo - Head of Property Management
Analysts
Michael Salinsky - RBC Capital Markets
Andrew McCulloch - Green Street Advisors
Daniel Greenberger - GEM Reailty
Dustin Pizzo - UBS
Ross Nussbaum - UBS
Eric Wolff - Citi
Haendel St Juste - KBW
Ralph Davies - JP Morgan
Steve Boyd - Cohen and Company
Michelle Ko - BofA Merrill Lynch
Rod Petrik - Stifel Investment Research
Karen Ford - KeyBank
Eric Wolff - Citi
Post Properties Inc. (PPS) Q3 2010 Earnings Call November 2, 2010 10:00 AM ET
Operator
Good day, everyone and welcome to the Post Properties Third Quarter 2010 Earnings Conference Call. This call is being recorded. Today’s question-and-answer session will be conducted electronically. (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 introductions. Please go ahead, sir.
Dave Stockert
Good morning. This is Dave Stockert. With me are Chris Papa, our CFO; and Jamie Teabo, Head of Property Management. Welcome to Post Properties’ third quarter conference call.
Statements made on this call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. A number of factors could cause actual results to differ materially from those anticipated, including those discussed in the Risk Factors section of our 2009 annual report on Form 10-K.
Forward-looking statements are made based on current expectations, assumptions and beliefs as well as information available to us at this time. 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 supplemental financial data.
I’ll now begin the business of this call. The company produced better than expected operating results in the third quarter, with FFO before net gains of $0.39 per share.
Our game plan all year has been to run the business and manage the balance sheet in order to drive earnings and cash flow and to close the gap between post equity valuation of the public market based on multiples of earnings and based on measures of net asset value.
The key elements of that game plan are producing solid portfolio revenues, controlling costs, effectively managing the balance sheet in ways that preserve strength in liquidity while minimizing dilution, reducing the risk associated with condominium projects and being discerning about investments in capital outlays.
By executing this plan, we have among other things produce run rate trends from operations sufficient to allow us to raise our earnings guidance by more than 30% since the beginning of this year more than any other apartment rate. In company’s portfolio operations, Jamie and her team continue to make the most of a favorable environment to push rents and occupancy.
Notable in the quarter was our strong sequential revenue growth, positive year-over-year net operating income and our performance in Atlanta. All of the conditions that are benefiting multifamily, namely gradual economic and job growth, net absorption of existing stock, limited supply and a declining rate of homeownership are playing out in our largest market.
With the Sunbelt traditionally capturing more than its share of growth and with total housing supply running at historic lows, we expect those favorable conditions to persist. And with post communities among the best quality and best located in their respective markets and with our sustained high occupancy, we believe the portfolio enjoys a strong relative market position.
Our operational guidance for the rest of the year reflects the generally favorable backdrop I just described. We have consistently forecast a normal seasonal pattern to our traffic and leasing during the winter months and we continue to take that into account in our guidance. We also, however, expect to see the typical uptick in activity that accompanies the spring.
Turning to transaction activity, we were pleased to complete a series of transactions that clear the path, open and begin selling our Atlanta condominium project. Combined with the ongoing sales activity at our project in Austin, we have measurably reduced the basest risk of those assets and modestly reduced our leverage in the process.
This past month, we also took care of our only near-term debt maturity accessing a favorable interest rate window to offer attractively priced investment grade rated public debt. Proceeds from that offering will be used to pay off our public bonds maturing next month.
Chris is also working now to replace our lines of credit, which mature in April. We continue to be disciplined about the use of the at-the-market equity program. We know that stock issued under the ATM reflects the upside potential of the existing portfolio and ongoing recovery on the market conditions, so proceeds from any issuance must be used in ways that acknowledge that embedded upside potential.
Taking advantage of our relative access to capital particularly against private competitors, we continue to focus our primary investment activity on developing the company’s existing land positions were favorable construction costs and return expectations justify. We expect they have more to say about development starts in 2011.
I told I’m very pleased with what the entire company has accomplished so far this year, and with the contribution those efforts have made to earnings, net asset value and the performance of the stock. I’m also pleased with how we are set up to go forward.
That concludes our prepared remarks. Operator, will you please open the phone lines to Q&A.
Question-and-Answer Session
Operator
(Operator Instructions)
We’ll take our first question from Michael Salinsky with RBC Capital Markets.
Michael Salinsky - RBC Capital Markets
Couple of questions actually for Jamie. Can you talk about October trends across the portfolio in terms of rate, and also what new lease rates were as well as renewals for the quarter?
Jamie Teabo
For quarter three, our renewal average increase was 3.4%. We did see that trend up each month throughout the quarter; we were at 2.6%, 2.8% and at 4.5% through quarter three. What we’re seeing so far for October, which we closed down in the last few days is 4.5% average renewal increase. We’re seeing positive trends as well for what we signed so far in November and December, we start work to do closed those months out, but we are currently at 5.3% in November and 6.6% in December on the renewal increases.
On the new leases, if you look at what we accomplished in quarter three, first is our [employees count where we were up] 2.3% on the new leases that were signed in quarter three, and also we’re pleased to see that we had sequential GPR since April, but we final finally saw in October year-over-year GPR growth occur with the (inaudible), so we’re very pleased to see we’ve crossed that threshold and we’ll continue to move that up as we finish out the year.
Unidentified Company Speaker
For folks who aren’t familiar with GPR, that’s just the average.
Jamie Teabo
In place rent, the current lease design in place.
Michael Salinsky - RBC Capital Markets
You guys have also been very successful this year in terms of controlling cost. As we look ahead to next year, now what are the opportunities to cut on that expense front, or additional cost savings there? Are you’re seeing any pressure in any areas, we should be particularly concerned about?
Jamie Teabo
We have a little bit of a spike in the quarter three, sequential expense, which we expected. We had paint timings that head in quarter three and we also had some increased utilities in quarter three, which was really a seasonal increase and we had a particularly hot summer season and unfortunately [summer] returning into a peak tier based on usage, so we did see the quarter three expense climb a little bit from where we’ve been in the first and second quarter of this year.
We expect quarter four to be a more normalized rate and we expect we’ll fall within the guidance that we put out for the year. As far as going into 2011, just generally, we’re not going top that any guidance for 2011, but we’ve done a good job of controlling personnel cost, we’ll continue to do a good job of dealing that .And taxes, we had a great success taxes this year as far as getting the values down. We don’t have a crystal ball that say what the rates will do for next year, but that’s something we always focus very hard on. That is a large percentage of their expenses.
Michael Salinsky - RBC Capital Markets
Just two more questions. Just on development. In terms of, I know you said you’ll give more detail for ‘11 in terms of starts, but we’re doing projects right now are starting to come close to the kind of targeted rates we’re are looking at right now. Obviously, you started the one in D.C. earlier in the year, but just curious other ones in the pipelines are starting to look like they may be feasible at this point.
Dave Stockert
We’re still working on underwriting a lot of different deals, but if you go to Orland, page on page 14. In [Orlando], we hope the development, I would just simply that, just not because we are not excited about Atlanta, we are. In fact, our results in Atlanta are really good relative to the rest of portfolio, because of our concentration there; we are focusing some of our attention on markets like our Austin site, that market is coming back. Our Houston site, our Orlando site, (inaudible) site, but then ultimately as well the Atlanta sites, but I’d say the Texas and Florida markets in the North Carolina are higher on the list in a short run.
Michael Salinsky - RBC Capital Markets
Finally, just a question for Chris. With the refi negotiation ongoing right now, what should we expect with regard to terms in terms of maybe the size of the revised facility and where pricing terms are starting initially?
Chris Papa
I don’t want to get too specific, Michael, we’re already in the middle of talking to the banks and in the middle of that process. I expect overall I mean from a size standpoint, we’re probably going to look to take down the line capacity of somewhat over where we are now. We had taken it from 600 down to 400. we will probably take that down again just based on our future outlook and the business plan and reflective of the financing today. You have seen some comps out there recently for some of our peers. That gives you a pretty decent indication of where the market is today from a pricing standpoint. Obviously, it’s more expensive both on the upfronts and the continuing fees and spreads going forward. So, we’re anticipating that.
As far as the term of the facility, you’re probably looking at something today that’s in the three year range. That’s pretty much typical of the market today.
Operator
We’ll move on to our next from Andrew McCulloch with Green Street Advisors.
Andrew McCulloch - Green Street Advisors
On the multi-family development pipeline, how many of those are shovel ready that you can start on tomorrow if you wanted to?
Dave Stockert
We’ve got plans that probably weren’t progressed on those deals but there’s still a little bit of work to do. It’s not an entitlement work. We’re going back on many of these in fact and revisiting some of the plans, taking into account what we know about our customers. In some cases, we are looking to maybe shrink the average unit size and somethings like that. There is some work that we are undergoing and then to go from plans that are substantially complete to those that are ready to be bid out to contractors will take a little bit of time.
Andrew McCulloch - Green Street Advisors
On the condo front, can you talk a little bit about how pricing is coming on sales? It’s a little bit hard for us to see great visibility without individual unit sales.
Dave Stockert
On the Ritz deal?
Andrew McCulloch - Green Street Advisors
On the Ritz and the Four Seasons?
Dave Stockert
You’ll see on the Four Seasons the closings in the quarter just completed were at 623 a sq ft. If you look on page 15, Andrew, in the supplement you will be able to see the gross revenue and the square footage of the closings during the quarter. So, those prices continue to run in that low 600 range.
On the Ritz-Carlton residences, we continue to believe that those prices will be in the mid 300s to 400 a foot depending on the units.
Andrew McCulloch - Green Street Advisors
In the Four Seasons there’s no individual unit mix that you would expect that price per square feet to trend down?
Dave Stockert
No, I mean, I don’t know if there’s anything particular about the unit mix that we’ve sold to-date. Again, on a year-to-date basis or a project-to-date basis, we are 625 a foot. In the quarter we were 623 a foot. There were a couple of the largest units that were sold very early last quarter, not the one just completed but the quarter prior to the second quarter, and those tended to be a little bit higher per square foot because they were more penthouse units and things like that.
Pricing generally is holding up. As we have said though in the past, we’re going to complete the unit sales that we have under contract that you expect to fall out from the number of contracts that we list and we’re still working through that. Then we will assess the market conditions as we go through next year.
Operator
Daniel Greenberger with GEM Reailty is next.
Daniel Greenberger - GEM Reailty
Just wondering if you could talk a little bit as Atlanta continues to stabilize how your portfolio will shape up sort of relative to the market?
Dave Stockert
In terms of performance?
Daniel Greenberger - GEM Reailty
Just looking out over the next couple of years, obviously starts have ground pretty much to a halt.
Dave Stockert
Yes, that’s true. The thing about Atlanta and the sunbelt is its not starts of multi-family but also starts of single family. Those starts as well have ground to a halt. So, this market Atlanta produces a fair amount of household formation, in migration and economic growth and we expect that to be the case although I doubt it to be as robust as it was maybe in the 1990s, but it will still grow more than the national average and supply will be muted and then if you look within Atlanta, now we are just exclusively and in to the locations, where the surrounding home prices are high and there is not a lot of competition.
We feel like our Atlanta portfolio is performing well and they get better. Is that market recovers? It continues to recover, you should benefit a little bit more than in the market?
Operator
Next question will come from UBS, Dustin Pizzo.
Dustin Pizzo - UBS
Dave, just following up on the condo sales. You have pretty good sales momentum there, so given what you have under contract and where the book values are at this point? What’s holding you back from including any additional gains and guidance?
Dave Stockert
It’s the condo business. It certainly been uncertain and particularly with the [REITs] we do have contracts the number is reflected there the 500 contract. That mostly reflects the fact that we had a contract norm probably three or four weeks ago that we can start negotiating with people those are five that we brought across the finish line.
We have many others that will working, but over the next couple of quarters all that will become much more evident. The condo business and the home sale business tracks somewhat the seasonal pattern that the apparent business or at least our apartments tracks for the winner hence to be the slower time.
We look for this spring time and that selling season and if things progress as we said there maybe more opportunity in the condo business. In the existing condo, I want to be clearing existing condo business.
Dustin Pizzo - UBS
Yes, sure. Can you just walk us through how you are getting down to $0.31 in the midpoint in Q4, when I get the lack of the additional condo gains and the timing of the uncertain debt issuance, I guess lowers the capitalize interest from post part brings the rate down, but back of the envelope I would have expected that number to be a couple pennies higher based on the results of this quarter?
Chris Papa
If you look at the differences primarily interest related is about a little less than $0.05 impact there about $0.250 of which relates to the debt offering essentially the reinvestment of some of those proceeds in cash and cash equivalence until we actually pay off the 7.7% bonds in late 80 December.
The rest of the interest impact it decrease interest capitalization primarily related to the Four Seasons of 3630 projects as you know those delivered and available for sale. The rest of the impact like you commented at about $0.25 to $0.03 relates to the condo business, there is a little pick up in properties with some of that is offset by some reductions, where we are looking at in miscellaneous income categories, which we had in the third quarter.
Dustin Pizzo
Okay. That’s helpful. I believe Ross had a follow-up as well.
Ross Nussbaum - UBS
I want to circle back to the renewal rent increases that were touched on at the opening. If I’ve got the number rights it was trending up in the third quarter ended 4.5% in October, the numbers that were given for November and December of 5.3% and 6.6%, what’s the conviction level that you are going to end up at or around those numbers or do you think when all is said and done, do they end up looking more like the 4.5% in October?
Jamie Teabo
Ross it’s hard to say we are still four weeks away from closing out November and of course eight weeks away from closing out December. The resident that is committed so far, that have actually come in, taking the increase sign their renewal to about 44% so far for November at that 3.5%.
In December so far we are about 15%. We still have a long way to go for December. It could be we have some people out there that we received 3% increase that will come in sign and it could be we have some people out there that received 10% increase that could still come in and fine.
There is could still be some movement decent, could a bit movement in the December number with 44% in November that pretty close to the 50% we have averaging. That number is probably a little more solid at this point.
Ross Nussbaum - UBS
And as you go down through the market, can you just give some color which markets are leading in terms of above those numbers, which are trailing.
Jamie Teabo
Sure, on the renewal we’re seeing obviously the largest increases today and our DC, Maryland, Virginia market as well as [Atlanta] and we’re actually seeing some good numbers coming out of our Atlanta market. Our lowest increases would be shifting and (inaudible) at this point.
Ross Nussbaum - UBS
And is that I assume the same moment of new leases [around].
Jamie Teabo
That’s correct, yeah, just to mention we’re still seeing some price sensitivity in those markets, but in the other markets, we’re continuing to push.
Operator
We’ll move on to Eric Wolff with Citi.
Eric Wolff - Citi
Thanks. As you mentioned sales here were season kind of project are coming in the 625 (inaudible), I’m just wondering what your impaired cost basis is on this asset also on a per square feet basis.
Jamie Teabo
If you would, it’s not a page retain and which will see is that for the four seasons that the book value today $64,703 million you see that number and the cost complete which is basically the cost associated with units that arm built out and there are many of those but were few is $5,077 million cost retain as things we still have with the contract first of the total remaining cost basis is [$6978 million] and the project is 291,452 square feet you will see that on the page. Of which, we’ve sold through the quarter 70,234 square feet. So, there is a remaining 221,218 square feet but $69 million were roughly $70 million basis so that’s $350 (inaudible).
Eric Wolff - Citi
It’s roughly half of where you’re selling today.
Jamie Teabo
Correct.
Eric Wolff - Citi
And for your any of the calculation, are you marking this project the market mean taking at 625 or you’ve just down your impaired cost basis.
Chris Papa
If you look at our any of the worksheet which for the back (inaudible) page 19, you will see that the condo assets are held at you’re down in the other assets, four lines down the other assets 93,105, which is the just the some 28,402 plus 64,703 doesn’t include the cost of complete. So, as you complete that, that would be added to the asset book basis, but then would be a corresponding offset to line and credit debt.
Eric Wolff - Citi
Great, I guess is it fair to say that.
Chris Papa
We incurred at the book basis in our (inaudible).
Eric Wolff - Citi
Right. And so I mean, I guess relative to your initial impairment discussion that I’m just wondering why you market down so far, I mean was it that sales expectations came in better than expected or you’re just trying to be conservative may be just talk about that.
Chris Papa
What we’ve done in old projects we’ve looked at our cash flow over one was about 54 month projected sale that was about 60 mark projective sell out using market discount rates in that cash flow is taking our sales, less all the carrying cost etcetera getting down on net cash flow and just going that back at a rate of roughly 20 and 22% respectively. So, that the length of time and the discount rate really accounts for that differential between looking at putting discount of cash flows in the resulting discount of cash flow used to come up in fair value.
Eric Wolff - Citi
Would you say that your sales phase though and the sales (inaudible) have exceeded the expectations or is a pretty much in line relative to that initial impairment. The cash flow to be objective.
Chris Papa
It was a four seasons of it, I think it’s [frankly] pretty much what we run at long space on it again with it’s (inaudible) project we just because we didn’t know get to the portfolio we did really get the contracts something, it was based on a customer, based on market conditions that we look at, we still feel like that market conditions are what we thought. We haven’t seen the change in that so.
Eric Wolff - Citi
Last question. Your sequential revenue growth in New York was fairly soft [peers]. I know you only own 340 units there, but could you comment on your outlook for this market relative to some of your larger markets like D.C.?
Jamie Teabo
Yes. This is Jamie, Eric. We do have just a few assets in New York and we are on 421A program now, so we do have a restriction on renewal increases we can give until that program expires the middle next year, and fortunately, we are seeing some good growth on leases in that market, but we have a high renewal conversion made in 60% there. They were only able to capture new rent growth on about a third of the portfolio in that market. We are only able to grab a little over 2% renewal increase.
Eric Wolff - Citi
Once that expires next year, how much would you be able to push the rents up from the current levels?
Jamie Teabo
It all depends on what’s going on in the market. For this time a year from now, so it’s hard to say, but certainly more than the 2% we are getting today.
Operator
Taking our next question from Haendel St Juste with KBW.
Haendel St Juste - KBW
Dave, I was wondering you could talk a bit about your decision to sell the Citrus Park land parcel. What drove that and how does the pricing compare to your purchase price. And then, are there any other land parcels in your land pipeline that you’re either marketing or considering for sale?
Dave Stockert
Well, you answer that, and there are three questions there. The second one is the sell prices are lot lower than the purchase price, so we’ll leave it at that. To answer your last question, on page 14 of the supplement, we do list one parcel, which is a single-family parcel. Track up (inaudible) and that is listed as held-for-sale, in that parcel is actually under contract and we’ll see, and then with respect to the rep, or with respect to the decision on Citrus, it was just prioritizing the development pipeline in land positions and looking at some markets and really favoring in Orlando in that case more [endeavor] rather favoring some of our site, over the Citrus site.
Haendel St Juste - KBW
Any color you can give us on the pricing point for the one that’s currently being marketed for sale?
Dave Stockert
It’s under contract for at least the number that we are carrying now, because if there was less than that, we will bring it down.
Haendel St Juste - KBW
I want to follow-up on just a one quick item on the back to the condos for a second. Can you give us some more color the pricing for the five units that are under contract at the RITZ-Carlton. And then also any color you could give us on expected sales, pricing and pace going forward.
Dave Stockert
Well, with respect to pricing like I said the ranges are going to be in that, the average ought to be probably in the very high $300 per square foot. In terms of pace, as Chris mentioned, when he was talking about our impairment analysis, we evaluated that project assuming relatively long pace of 60 and so with 29 units rather it’s roughly 25 units a year or roughly two a month that we feel good about that pace.
Operator
We will move on to Anthony Pallone with JP Morgan
Ralph Davies - JP Morgan
It’s Ralph Davies on the line with Tony. I was just looking at Table 3 and I was looking at the kind of incremental pick up in your lease-up portfolio and I was just wondering can you guys talk about where occupancy sits for those four assets? How long its going to take stabilize those and what’s the NOI run rate should look like on a stabilized basis on Post (inaudible) side?
Dave Stockert
Yeah, talking on the development lease-up communities and looking at the NOI contributions on Page 26, they have based four projects in that line item, Eastside, Sierra, Post Park and Post West Austin. Post Eastside, Post Sierra and Post West Austin at least with respect to the residential components are at stabilized occupancy plus or minus 95%. Park is also in that line item and you will see on the development page that it’s in the low 80% lease. Post Park is the principal opportunity in terms of the results of that group of assets and the margin and that’s where we (inaudible).
Ralph Davies - JP Morgan
Within that table as well, it looks like you also saw some incremental growth in the commercial portfolio. So, if we look at that on a three month basis kind of strip out the last two quarters that was up as well. Is there seasonality or is there is something behind that improvement?
Dave Stockert
That has much more to do with specific lease activity because our commercial portfolio is relatively small in relation to the rest of the portfolio. One lease renewal or something can have a big impact.
Ralph Davies - JP Morgan
In that case that was probably what it was?
Dave Stockert
Probably one of those.
Ralph Davies - JP Morgan
Finally, if you look at your performance in Austin I was just kind of looking at that relative to some of the peer performers we are seeing and the strength that we are kind of seeing from some of the other apartment guys and I was just wondering particularly given what it looks like and improvement in occupancy why your revenue still looks pretty modest, your revenue growth?
Jamie Teabo
We had sort of a one time cable payment that was $36,000. So when you are looking at a comparable set that its hurting us. You are right, the occupancy is at nicely. We are up 2% year over year and 2.3% sequentially. The GPR sequentially is up 0.7%. So it’s the other income line item for Austin that we are being penalized for right now and effect of one time.
Dave Stockert
The fact that it hit too like the (inaudible) it was very small portfolio, it’s two assets.
Jamie Teabo
Two small assets.
Dave Stockert
I want to go back to the commercial question because there’s one other thing that I did mention and that is, as I said, some of the development properties have commercial space in them too. So as those vacant developed commercial spaces are leased out that’s obviously going to drive up the commercial line and that’s happened.
Operator
We will take our next question from Steve Boyd with Cohen and Company
Steve Boyd - Cohen and Company
My questions were on Table 3 as well. Can you maybe address why the expenses there declined sequentially against the quarter where same store expenses were up 5%? I am really referencing the partially stabilized in the development lease-up and commercial.
Jamie Teabo
We had some tax savings that hit in quarter three on our Post Park asset in the development pool and then also in one of the assets in our partially stabilized pool. So we made a tactical adjustment in the third quarter.
Steve Boyd - Cohen and Company
Okay. So just to be clear, I mean it seems like in the second quarter the increase in NOI from these assets contributed about 40% for the growth, and then it was a little more than 100% this quarter with the same store NOI down sequentially. So I’m just kind of curious, are these assets pretty much fully stabilized as part from the new commercial that may come online?
Dave Stockert
Yeah, I mean on partially stabilized assets those are season mail; they in fact will stabilize before this year. So they’ve been progressing as the year is going on, but they have ticked up a little bit. The development lease up as I said, they are still going to benefit -- the numbers you are looking at on page 26 the year-to-date number. So that reflects not only Post Park being roughly 80% leased today, but that would also reflect East Side and Sierra and Post West Austin having been less than stabilized for the first and second quarter. And so they have now recently become stabilized, so if you look at the quarter itself you got three stabilized plus one that stabilized.
All of those are going to grow a little bit over the next few quarters because they’ve been in lease-up which means we’ve been trying to lease 300 or 350 units very rapidly, and so concessions tend to be higher. Lease rate reductions tend to be more aggressive. And so what ends up happening is that they go into partially stabilized next year. Then we’re not trying to lease an empty development. We’re trying to just rollover an already stabilized development. Does that makes sense?
Steve Boyd - Cohen and Company
It does. It does. Yeah. I just looking at each quarter it was about 28% NOI margin in Q1 and 43% in Q 2, and now it’s about 57.4% in Q3, which is pretty consistent with the same store portfolio. So, I just wanted to see if you thought there was sort of additional upside there. But I think you have answered it. Thank you.
Operator
Next, we’ll move on to Michelle Ko from BofA Merrill Lynch.
Michelle Ko - BofA Merrill Lynch
Hi, I was wondering if you could tell me how far off your rents are for the total portfolio from peak rents and also by major markets.
Jamie Teabo
Sure, hi, Michelle. As we progressed through the third quarter we were off about 7.5% in July from the peak, August was just over 6%, and September was just under 5% and more at or above the peak today in Austin, Maryland, DC and we still have room to maneuver. The most room in Charlotte, but we also have some room to pick up in Tampa, Atlanta, Dallas, Orlando, New York, and Houston.
Michelle Ko - BofA Merrill Lynch
Okay. And so today you would stand at, you are just 5% off from the peak of the total portfolio?
Jamie Teabo
Correct, right, at the end of September.
Michelle Ko - BofA Merrill Lynch
Okay, and I was just wondering, it sounds like you are getting good, you are asking for renewal increases. Have you seen any resistance on the occupancy as you have asked for those higher renewals?
Jamie Teabo
No, we finished quarter three quite strong in the occupancy. We’ve seen a little bit of a seasonal drop off in the fourth quarter which is what we typically see and what we anticipate seeing, and of course that accounted for that all along in our guidance. So the economic occupancy for October was about 95.3 which has come a little bit from where we were in the third quarter, but we are still seeing good traction on the renewal conversion and increases are being accepted, so still feel good about that.
Michelle Ko - BofA Merrill Lynch
Okay. I was just wondering if there was any feedback from the field in terms of what you are hearing incrementally on job growth. Are you hearing about more hiring or are there still more layoffs out there, in your markets?
Jamie Teabo
You know we are seeing both Michelle, we are seeing some markets where we are seeing increased movement on the property because of employment change or employment loss, typically we are seeing that in our, more in our Texas market today and of course we are seeing more job growth in our DC market and sort of the east coast markets are doing a little better on the job front. Florida is still real tough, but Houston is really good, the biggest employment loss and change market for us.
Michelle Ko - BofA Merrill Lynch
I’m sorry. Houston was the biggest loss?
Jamie Teabo
Yeah. That’s correct.
Michelle Ko - BofA Merrill Lynch
I was just wondering, you are talking about development starts in ‘11, possibly. When do you think that should come online would that be in 2013 or?
Dave Stockert
It depends on the product type. Some of them would be wood frame, so they could be delivered in 2012. It would basically be ‘12 and ‘13.
Michelle Ko - BofA Merrill Lynch
Okay, and then just lastly. You said, you are looking in developments in Texas, Florida and North Carolina. Are you also looking for acquisitions in those markets, just because those markets seem to be recovering a little bit better or do you think it makes more sense to do developments versus acquisitions? What you’re seeing cap rate wise?
Chris Papa
Yes. That’s accurate. Obviously, we’re seeing low cap rates everywhere, and so as I said in my remarks, we just want to be very disciplined about capital and to make an acquisition means we got essentially issue equity to do that.
While there might be upside in the acquisition that we make, there is also, we believe, upside in the portfolio that’s represented by the stock, the same dynamics is going to drive our portfolios might drive acquisitions, so we think again that favors development at this point.
Operator
Rod Petrik with Stifel Investment Research.
Rod Petrik - Stifel Investment Research
Good. Any thoughts on dividend policy? You are running around 70% pay out year-to-date, I think on adjusted FFO basis, so I’m assuming there’ll be some growth next year plus you are going to add in condo sales?
Chris Papa
I don’t have anything to say about dividend policy today. Obviously, it’s something that the board puts out over time and we’ll continually be doing so. In the meantime, picking up to the extent that we have extra repaint earnings That should be a good thing.
Operator
Karen Ford with KeyBank.
Karen Ford - KeyBank
Hi. Just was wondering if there are redevelopment opportunities in the portfolio for 2011, and if so, how big do you think the opportunity could be?
Chris Papa
Karen, I think I don’t know that there’s any redevelopment. The portfolio is really pretty universally young and well positioned, and so we do have some what we’ll call white rehab opportunities well we can take properties that are in that 15 to 20-year age, where they are well dated and do some freshening up and we will do some of that, but we’re not likely to do something where we are going to do a massive rehab that involves vacating large parts of the property, we’re probably going to do program at several properties would be focused on freshening up units on terms and we would expect of course that we would be paid for that freshening up through an appropriate return on that cost.
Karen Ford - KeyBank
Helpful, and just finally, I think you said last quarter that Carlisle Phase 2 was projected to yield 700 a quarter based on current rent levels. Just talk about given sort of your rent growth expectations where you think that development might be trending from a yield standpoint?
Chris Papa
Well, it’s really early Obviously, we just broke ground, we’re driving potholes, but rents are climbing Carlisle Phase ,1 so if everything holds up the yield will be north of what we talked about. We won’t deliver until 2012, so it has zero impact on 2011, other than getting constructive effects of capitalized interest and overhead, but as we get closer to 2012, I’m not trying to be cagy. We can maybe be more precise.
Operator
Our last question will be our final follow-up from Eric Wolff.
Eric Wolff - Citi
Yeah. Just a couple of follow-ups. Obviously plenty of capacity on your line of credit to fund the development, but I’m just wondering whether you would expect to fund increased development and leverage neutral way or just sort of drawing a line?
Dave Stockert
No, I think we will probably run our business fairly leveraged neutral from this point.
Eric Wolff - Citi
Should that probably involved tapping ATM next year as you (inaudible) development.
Dave Stockert
Yes, I would assume so now, the Carlyle development we believe will be largely funded through condo sales.
Jamie Teabo
All those units as we spent money on the construction of the Carlyle development, we think that is leverage neutral self funded in this point. But the extent we announced new projects and we would expect to give those leverage neutral.
Eric Wolff - Citi
Right. And then just a question on I think you said earlier that there’s going to be too full impacted the fourth quarter from not capitalizing as you much interest is that rate as you were in the third quarter after you delivered the remaining units at post park.
Chris Papa
Yeah, I mean our interest this is sequentially our interest capitalization obviously coming down as we’ve been delivering units on both the RITZ condominium, and the four seasons condominium project and sequentially over the third quarter that’s about $0.02 our share in that net of what we’re picking up on Carlyle. The rest of the difference is about [$0.25] per share related to the consumer debt offering that we just completed in October until those proceeds are essentially used to pay down the bond and maturity in (inaudible).
Eric Wolff - Citi
I mean so as looking at next year I mean, you had a low in terms of the capitalized balance, but I mean that impact should lessen throughout the year as you pickup on your development earn. Is it really give the capitalizing more interest next year.?
Chris Papa
To the extent yes in two respects, one to the extent that we continue to develop Carlyle across will obviously the weighted average cost will continue increase on that interest capture go up and secondly to the extent that we started a new development projects.
Eric Wolff - Citi
Right and just one last question given where interest rates are I mean is there any potential to pre-fund any of your maturities obviously saw in strong demand for your unsecured offering, I’m just wondering there is another opportunities to pre-fund some debt maturity slow that further out.
Chris Papa
Yeah, I mean you look at our maturities coming up on next couple of years have been a 11 has very nominal maturities, we’ve already tendered for those public bonds back in early 2009 so, we have less than 10 million left, we had some coming due in ‘11 and ‘12, yeah, I think you can say that there is some opportunity, but I guess where we stand today with rates where are they the YOKUR where it is, I mean I think we are comfortable where we are right now and our focus more on funding our development pipeline and closing condo sales keep in our leverage relatively neutral.
Operator
Mr. Stockert, I’ll turn the conference back over to you for any additional and closing remarks.
Dave Stockert
Well, I want to thank you all for joining us today and we will see many of you and talk with many of you next quarter. Thank you.
Operator
Ladies and gentlemen that does conclude today’s conference. We thank you for your participation.
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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
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