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Executives

Jerry Brewer - Executive Vice President, Finance

Thomas Lowder – Chairman, Chief Executive Officer

Reynolds Thompson – President, Chief Financial Officer

Paul Earle - Chief Operating Officer

Analysts

Eric Wolfe – Citigroup

Jana Galan – Bank of America, Merrill Lynch

Alexander Goldfarb – Sandler O’Neill

David Toti – FBR

Haendel St. Juste – KBW

Richard Anderson – BMO Capitals Markets

Colonial Properties Trust (CLP) Q1 2011 Earnings Call April 28, 2011 2:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Colonial Properties Trust First Quarter 2011 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 Thursday, April 28, 2011.

I would now like to turn the conference over to Jerry Brewer, Executive Vice President, Finance. Please go ahead, sir.

Jerry Brewer

Thank you, Mara and welcome to everyone joining us today. We released our earnings this morning via Business Wire. A copy of this earnings release maybe found on our website at colonialprop.com. We’re also webcasting this call for your convenience. A replay will be available for your convenience at our website after the call.

Tom Lowder, our Chairman and Chief Executive Officer and Reynolds Thompson, President and Chief Financial Officer will lead today’s call. On the call, they will discuss our business developments, financial results for the first quarter and our guidance for 2011. After their comments, we’ll open up the call to take your questions. Paul Earle, our Chief Operating Officer, is also here to field the questions.

Let me remind you that much of the information we discuss on this call, including answers we give in response to your questions may include forward-looking statements regarding our beliefs and current expectations with respect to various matters.

These forward-looking statements are intended to fall under the Safe Harbor provisions of the Securities Law. These estimates are also based on a number of assumptions, any of which, unrealized, could adversely affect our accuracy. Please see our latest SEC filings for the detail and explanation of risk. Any non-GAAP financial measures we discuss are reconciled to the closest GAAP measures and filings that can be found on our website. None of the statements we make during this call shall not constitute in offer to sale or solicitation and offer to buy any of the Company’s common shares.

I’ll now turn the call over to Tom.

Thomas Lowder

Thank you, Jerry and welcome to everyone joining us. On the call today we’ll discuss our first quarter results and update our outlook for 2011. Before we get into our first quarter results, I’d like to present an initial report of the storms that passed through the south east over the past couple of days. While there has been devastating damage with these storms, our residents, tenants and properties only experienced minor damage. A few of our properties sustained wind damage with down trees and power outages, but we do not have any major structural damage to our properties. Our initial estimate is that the clean-up and repairs that are not covered by our insurance will be somewhere in the range of $100,000 to $150,000. Once we’re able to receive a full assessment of all the damage, we’ll give you an update if there is any change to our current estimate.

Now, to our first quarter earnings. I’d like to characterize the business cycle that we had experienced in this way there are three phases that we have moved for reduction, restructure and now renewal. Having managed our way through the reduction phase and now with only a few targets left to be achieved in the restructuring phase, we’re well within the renewal or growth phase in building momentum.

Three CEO focus items for this year are, first of all, to grow the company, next, improve operations and last, achieve our balance sheet targets. As I discussed on our last quarterly call, our internal growth will come from growing our core multifamily through increasing our rental rates. Externally we will grow our asset base through the development of multifamily apartment communities on the land if we have any inventory and by acquiring young well located multifamily assets in our core Sunbelt markets.

During the first quarter, we executed in each of these areas with an increase in same store revenues of 2.4% over the prior year, an increase in same store net operating income of 5.7%, the acquisition of three class A multifamily properties for $93 million and the start of a new multifamily development in Austin, Texas.

The multifamily fundamentals continue to improve. Resident turnover continues to decline. The home ownership rate continues to fall. New supply remains virtually non-existent. And new jobs are being created. All of these factors have allowed us to push both new and renewal rents higher resulting in the improved margins. We’re close to achieving our balance sheet targets as well. The $100 million at the market equity program, we announced in the fourth quarter of last year was substantially completed in the first quarter and we finished the full $100 million program in early April.

Now, I’d like to ask Reynolds, to provide more detail on our operating performance and activity during the quarter. I’ll conclude the call with our 2011 guidance and update. Reynolds?

Reynolds Thompson

Thank you, Tom. FFO and operating FFO for the first quarter was $0.27 per share, compared with $0.28 a year ago. As Tom mentioned, we continue to see improvement in our multifamily fundamentals as evidenced throughout the same property NOI increase of 5.7% compared to the first quarter of 2010. Half of our major markets achieved NOI growth of 7% or better, to include, Austin, Charlotte, Dallas, Fort Worth, Orlando, Phoenix and Raleigh.

First quarter revenue grew 2.4% and expenses were down 1.8% versus last year. Revenue was driven by improved financial occupancy of 40 basis points as well as higher rep per occupied unit of 1.3% for the quarter. We expect to sustain these improving trends as our physical occupancy was 96.1% at quarter end. We continued to experience strong renewal pricing with renewal rates up 6.2% for the first quarter. New lease rates included 2.8% over expiring rates in the first quarter. Our current April physical and financial occupancy is trending ahead of March and last year.

Our strongest first quarter markets for revenue were Austin, Charlotte, Orlando, Phoenix and Raleigh. Our only markets with negative growth were Atlanta and Huntsville. Atlanta is still experiencing negative job growth and unemployment remains above 10%. However, Atlanta is showing signs of improvement with occupancy in April of 200 basis points sequentially, renewal rates up, 6.4% and new lease rates up 1%. The expense decrease is primarily due to lower churn cost, advertising, taxes and insurance expenses. Turnover has improved 420 basis points over last year mainly because of the reduction in resident transfers within the portfolio. This is another indication of an improving economy. Move outs (inaudible) remain low at 13% consistent with continued weakness in the housing market. Our successful rev initiative has allowed us to realize a 19% reduction in advertising and promotion over last year because of less reliance on print media. We’ve had some early success with our tax appeals, and the majority of our tax work will occur late in second quarter through the end of the third quarter. The insurance variance is a result of reduced claims in the quarter related to our General Liability Self Insurance program as compared to the first quarter of last year.

Our first quarter results include $587,000 in acquisition related cost, a $400,000 charge for casualty losses and a $1.5 million charge for a loss contingency related to litigation. With the favorable SunBelt fundamentals and limited new supply, we expect to produce strong multifamily operating results in 2011.

We were active on the acquisition front during the quarter acquiring three apartment communities for a total of $93 million. In February, we acquired to 336-unit Colonial Grand at Wells Branch in Austin, Texas and the 236-unit Colonial Grand at Cornelius in Charlotte. In March, we added a second property to our Las Vegas portfolio with the acquisition of Colonial Grand at Palm Vista, a 341-unit Apartment Community. All three of the acquisitions were new construction averaging three years old. We’re excited about improving the quality of our portfolio with these properties and look forward to the revenue growth we expect them to generate over the years ahead. The acquisitions were funded with prestige from the ATM program and borrowings on the credit facility.

We’ve been active on the development front as well with the start of construction on the 296-unit Colonial Grand at Double Creek located in Austin. This is our second development in as many quarters and helps us unlock the value of the undeveloped land on our books. The development is expected to cost $31.7 million, and will be completed in the third quarter of 2012.

Leverage at the end of the first quarter was 48.5% of net debt cost preferred to gross assets, compared with close to 60% two years ago. Fixed charge ratio was likewise improved to 2.13 times for the quarter. We paid off our only 2011 maturing, consolidated debt in early April of $57 million senior unsecured net. The balance sheet improvement is the result of the equity raised through our ATM programs over the past two years, $82 million of which was retrieved during the first quarter and the final $10 million raised in early April.

With a $100 million program announced in December, we completed it in an average price of $19.4. Yesterday our board of trustees authorized a new ATM program providing for the issuances of up to an additional $75 million in common shares. Our 2011 capital plan will continue to strengthen the balance sheet. When combined with the improved multifamily fundamentals and commercial asset sales, our credit metrics will move closer to our targets. Finally, consistent with last quarter, our board declared a quarterly cash dividend of $0.15 per share.

I’ll turn the call back over to Tom.

Thomas Lowder

Thanks Reynolds. Our full year 2011 FFO and operating FFO guidance remains unchanged at $1.08 to $1.14 per share. These estimates are based on a full year of multifamily same property net operated income increase of 4% to 6% with same property revenues expected to increase in the range of 3.25% to 5%. Same property expenses are expected to be up 2 in a quarter to 3 and 3 quarters, primarily driven by an increase in utilities and property taxes. The majority of the utility expenses are recoverable.

With our performance results in the first quarter, we now expect to be in the low end of this range. Development spending is projected to be $50 million to $100 million, this assumption includes the two multifamily developments we currently have underway and at least two additional multifamily starts before year end.

For acquisition we’re estimating to $100 million to $150 million to be completed during 2011 with $93 million completed today. The three apartment properties required in the first quarter of prime examples of the opportunities we are looking for. We estimate our dispositions to be $50 million to $150 million, however, this is now likely to be towards the lower end of the range as we do not expect to sale three with any of them. We did not achieve the pricing target that was set for that sale. However, it is possible that we will have other commercial assets, particularly, retail assets to sell later in the year. The completion of the $100 million ATM program we initiated in December was factored into our (inaudible) to be completed in the first half of the year. We exceeded that projection through our acquisitions that are completed sooner than originally anticipated. Our current guidance includes the additional $75 million of common equity that we planned to raise over the balance of the year to support the ramp up in our development activity.

The cooperate G&A range remains $19 million to $21 million. Again, our focus will be the three directives and we will continue to report to you on our progress this year in growing the company, improving operations and achieving our balance sheet targets.

Operator, we would now like to open up the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Eric Wolfe with Citi. Please go ahead.

Eric Wolfe - Citigroup

Thanks. I noticed in your supplemental that you started reporting financial occupancy along with your physical occupancy. It looks like the physical went up modestly while the financial went down 80 bps. Is that just due to your higher rent units moving out and just that sort of sends you a signal that maybe you’re pushing the rates a little bit too hard on those higher priced units?

Thomas Lowder

No, not really, I mean, we are trying to find the balance between maintaining physical occupancy and achieving the highest possible rent on new leases and renewals. And if a delicate balance especially in the first quarter as we go into the spring leasing season, it becomes much more easier to balance those two things and not aggravate turnover. But, I don’t think it’s an indication of, at this point pushing our rents at a point where we are going to create problems, or if anything we are now starting to see as move into April, we’ll certainly see things firm up nicely in ahead of performance as you compared to last spring. So, things are actually accelerating as we go through April.

Reynolds Thompson

Eric, I’ll add, this is Reynolds. We wanted to include the financial occupancy because we felt like it was the piece of the picture that was missing that helped you get, from the numbers from quarter-to-quarter. And we’ve been given it to you in our comments that we thought it would be easier to put it in the supplemental, so that everyone could see, what was happening with the rents in the physical occupancy in it, (pass out) to what’s really moving the revenue number.

Eric Wolfe - Citigroup

Yeah, okay. And I guess two questions followed from that. I guess, first, is it typical for your financial occupancy to tick down in the first quarter. And where has it gone now that you’re going into March and April, where have you seen that trend to?

Thomas Lowder

It is typical to it will be somewhat flat forcing into first quarter or somewhat down first quarter. First quarters are usually our weakest demand period but we are seeing things firm up nicely in April, usually that occurs in May. And in this year we saw a bounce earlier than normal. So sequentially, we’re experiencing a nice up tick, so we’re setting the stage for a promising second quarter.

Eric Wolfe - Citigroup

Okay. That’s helpful. And then on the $75 million new ATM, just wondering if you’re planning to use the proceeds to fund investments on a leverage neutral basis or if it’s going to be used to continue de-leverage balance sheet. I’m just wondering whether the split of debt and equity is now is going to be more of 50-50 versus call it like 70-30 to kind of continue to bring your ratios more inline?

Thomas Lowder

Eric, we feel like we’ve gotten the balance sheet generally where we wanted in this last slog of equity that we’ve announced is much more in the keeping it balanced between debt and equity. And as we expect to, start to see our development pipeline rise, this will help us keep the leverage levels in check. And when you combine that, what’s happening on the operating side, we believe by the year end, we’ll have the operating metrics or the leverage metrics where we want them. And we’re very much in a position of balancing that going forward.

Eric Wolfe – Citigroup

Great, and then just one last question. On three Ravinia, what sort of valuation were you looking for on that asset? And how close were the bids to getting to that valuation?

Thomas Lowder

I don’t want to give you the details, but they weren’t terrible off, but we did not get to our expectations. We heard that we can revisit that opportunity in the future. But at this point, we just didn’t reach the numbers that we’d expected. The overall office market in Atlanta is still difficult. And I think, we saw that shell off when the later bids came in from the people that looked at it.

Eric Wolfe – Citigroup

Okay. Thank you.

Operator

Thank you. Our next question comes from Jana Galan with Bank of America, Merrill Lynch, please go ahead.

Jana Galan - Bank of America, Merrill Lynch

Hi, good afternoon. We’ve been hearing from some of your peers that construction lending is loosening up. Can you please give us an update on what you’re seeing in your markets and what level of supply you may, we could potentially see come online at the end of ‘12, or beginning of ‘13?

Thomas Lowder

Well, we currently don’t see an awful lot of activity. They’re an awful lot of people out there that are trying to create development opportunities for themselves by raising equity and arranging for debt. But, we don’t see that activity resulting in shovels going in the ground. I think, looking forward, we probably will see some supply coming in 2013. That gives us a very long run of probably outsized revenue growth for the whole industry. But, I don’t really see any pressure until 2013. And then, as anybody’s guess, what job growth will look like and will there be a good balance between job growth and economic expansion and the supply that comes in. But it is, the moment is a very difficult environment for developers.

Reynolds Thompson

We’re still seeing much of builders looking for capital. We’ve received a number of those calls that is not how we planned to move forward with our development. But, few historic that we do believe will happen in our markets are coming from the other public rates.

Jana Galan - Bank of America, Merrill Lynch

Okay. And then, within your own development starts. Are you seeing any changes in the cost of construction materials?

Reynolds Thompson

We still, well, we all know commodity prices are trending up. But, it’s still a very competitive market out there among all the sub contractors. And for instance, on our Tampa project that is underway, we were able to do a bid pricing that brought it certainly within our budget and probably 5% to 10% underway we thought where it’s initially going to be. So, it’s still very competitive.

Jana Galan - Bank of America, Merrill Lynch

Okay. Thank you very much.

Reynolds Thompson

Thank you.

Operator

Thank you. The next question comes from Alex Goldfarb with Sandler O’Neill, please go ahead.

Alexander Goldfarb - Sandler O’Neill

Hi, good afternoon.

Thomas Lowder

Good afternoon.

Alexander Goldfarb - Sandler O’Neill

Just some market questions here. The first is on Atlanta, just anecdotally had heard just some very strong rent increases coming out of Atlanta from people trying to rent apartments. In your numbers it was a little bit it was a one of your weaker performance from a revenue perspective. Just curious if that was just some submarket stuff or like maybe there was some new lease ups or competitive landlords were really slashing rents just. I wanted a little more color on what’s going on there?

Thomas Lowder

Well, Atlanta is a tale of two stories. Urban product in Atlanta is performing much better than the suburban properties in the outer perimeter we don’t have a third ring out. And then you really have to focus on what it looks like Kirk County. And Gwyneth County is where we have seven properties and we’re experiencing some pressure. So, some of our peers with the urban portfolio are probably going to report numbers that are substantially above ours. Once I’ve offered a suburban portfolio equal to ours or is probably going to be similar. But it’s really Gwyneth County story, we have several of our residents that were moved out of Gwyneth and moved to our (Karb) and to (Cab) in Fulton county and two and three years ago, we did not experience that. And so –

Alexander Goldfarb - Sandler O’Neill

And then from a macro point of view, Atlanta is one of our major markets that continues to struggle with lack of job growth.

Reynolds Thompson

I will say April, even in Atlanta, now this trend is across our entire portfolio has experienced a really good April. In Atlanta, just falling inline with the other markets, we’ve seen about a 200 basis points increase in physical occupancy in Atlanta during the month of April. So we look forward to maintaining that higher level of physical occupancy which will give us some pricing power for the first time in several quarters. But it’s, of course it’s a Gwyneth County story. And we’ll just have to manage through that.

Alexander Goldfarb - Sandler O’Neill

Okay, that would make sense. Because, yeah, what I had been hearing there were people trying to rent like in bucket Midtown where the rents were some pretty eye popping increases but that makes sense then. As switching coast, Vegas, you guys acquired there certainly, it’s been one market that’s been hard to hit. What are your thoughts about, I mean, obviously you like it. Just sort of curious what your outlook is for that market. Just given all the hemorrhaging it’s gone through and especially because you could go to Phoenix, which seems to be having some job growth. And it seems like you’re doubling down on two hard hit housing markets. So just want some more color on that.

Reynolds Thompson

Well, I want to get Tom Lowder something to talking you about every single day of my life. I used to live – I lived in Las Vegas in the late 70s, now that property in Las Vegas, my entire career, and I really like North Las Vegas. And the reason I like North Las Vegas, that’s where we developed a property, that’s where we bought second property and we hope to develop a third property in the future as the market recovers. But the reason I like North Las Vegas is it’s just not completely dependant on the gaming industry. There is a large air force base – Nellis Air Force Base is right around the corner from our facilities. And that provides a more stable rental base, not far from there is a huge NASCAR facility and a lot of ancillary businesses have filled in around the NASCAR track. And then, there is a university component to North Las Vegas. And the last thing that we like is VA is building a $1 billion hospital that will also provide for some long term in the assisted living care. So, we are hoping in early 2012, when that opens, it’s going to bring a lot of families to Las Vegas that will relocate permanently or at least for several months at a time to be closer to their loved one, that’s in the long term care facility. So, North Las Vegas has a more diversified employment base. And the rents are down 30% in the peak. And so, we like buy when the markets are down and on their backs. And as Tom Lowder something too talked to me about because he has challenged why I’m so excited about Las Vegas. So I hope it turns out like Phoenix and we get these huge rent increases.

Alexander Goldfarb - Sandler O’Neill

And then as far as Phoenix, is it the same sort of philosophy like, perhaps like Scottsdale is your only focus or what is your view on Phoenix then.

Reynolds Thompson

Well, Scottsdale for sure, we own 30 facilities. We love Scottsdale, Gilbert and Chandler in the South in the East, they’re in the East Valley. Chandler and Gilbert, we love those two submarkets. And so we’re seeing some really rapid increases in Phoenix and a swift recovery. And so we have a lot, all of the reach that hold the assets in phoenix have a lot to look forward to going down the road.

Alexander Goldfarb - Sandler O’Neill

Okay, thank you.

Operator

Thank you. (Operator instructions) Our next question comes from David Toti with FBR, please go ahead.

David Toti – FBR

Good afternoon guys, just one quick question. Tom, in your outlining your strategies for the year, you did mention simplification, this time around. Is it for us to read that the simplification process is largely done? I know, you discussed three Ravinia a little bit. But what’s your status of some of the other assets? And do you really see that as complete at this point?

Thomas Lowder

Well, thanks for the question. No, it is not complete. And I think it will probably take another couple of years for us, two years or so. When we look at the business, three year business plan to try to get there on the outer limits, we thought it might take as five years to get to that 9010 focus. And we’ve been able to execute the Ravinia sale that would have pushed this up in the near say, 84% multifamily. And we probably could have gotten there with a little growth. So, admittedly the Ravinia sale, being a large asset did set us back a little bit. But we’re still focused on that simplification in the 9010 and we’ll get there with some additional sales. We just have some retail sales in joint ventures teed up that we could possibly move this year. With that and with the growth we see on the multifamily side that should move us into the 80 plus percent and move us toward that goal that we have stated of the 9010. So it’s still work to be done.

David Toti – FBR

Okay. Thanks much.

Operator

Thank you. Our next question comes from Haendel St. Juste with KBW. Please go ahead.

Haendel St. Juste – KBW

Yes, good afternoon. Couple of quick ones here, I was wondering what your minimum threshold today is for acquisitions and how do the three first quarter assets you required fit within that?

Thomas Lowder

Haendel, we have been thinking about acquisitions less in terms of current capital rate and more in terms of the growth potential that in a way could experience over the next couple of years. And obviously, they’re more attracted to basis in the property they’re more attracted to that long-term proposition looks for us. If you look at what we’ve done, we’ve been lying in the kind of 5.5% to 6% range, kind of our current income. But that’s really, that’s part of our thought process. But really thinking about the growth and help, with revenue pressure those markets have been under and what the potential growing that back to overtime. And we still feel like we’re buying, add or maybe slightly below replacement cost. So we like the basis, we like these markets long term and we think we’ve got upside in these acquisitions.

Haendel St. Juste – KBW

Right, right, and I clearly agree with you on the return projection. I’m wondering what that is, what type of IRO projection are you underwriting for this acquisitions?

Thomas Lowder

Around, between 8% and 9% on an hour unleveled IRO.

Haendel Juste – KBW

Okay. And, how about the projected yield on the new Austin development?

Thomas Lowder

Between 675 and 7.

Haendel Juste – KBW

Okay. And can you give some of the mechanics to that, assuming that’s the trended yield you’re speaking to.

Thomas Lowder

Yeah, yeah, we’re inspecting a little over dollar square foot in rents which is about 4% or 5% above our current properties in that very same sub market. And we’ll deliver the property in the late summer, early fall. So we’re expecting as Austin heals and as we work through our rent roles on a current portfolio, we’re expecting rents to be in line with our pro forma.

Haendel Juste – KBW

Okay. Two more quick ones here, any color you can share on the litigation loss contingency that you have here?

Reynolds Thompson

It’s an ongoing situation with some old joint venture related for sale residential project. That’s all the color we can give you at this point. We just felt like, given where we are in the legal process that was an appropriate step for us to take on the books this quarter.

Haendel Juste – KBW

Fair enough. And one more quick one, I’m wondering if you guys have sustained any damage in your assets from Tornado that swept aside yesterday?

Thomas Lowder

Well, as I mentioned on the top of the call. We just creased down against building so a minor damage. Fortunately, we came out in pretty good shape with the carter that the storms had carried, it really was estimated to be somewhere around the $150,000.

Haendel Juste – KBW

All right, thank you for that. I guess, I missed it. Have a good afternoon.

Thomas Lowder

Haendel, thank you.

Reynolds Thompson

Thank you.

Operator

Thank you. The next question comes from Rich Anderson with BMO Capital Markets. Please go ahead.

Richard Anderson – BMO Capitals Markets

Thank you and good afternoon everyone. So, a question on development and timing, first of all, when do you kind of foresee a return to a more normalized level of development activity generally speaking for the multifamily business?

Thomas Lowder

Normalized for us or normalized for the industry? Because we think obviously the companies have access to capital now. So everybody is ramping up and we want the early rather than late. And we think the merchant builders will come to the party as equity and capital becomes available to enable them to get the construction loans from the regional lenders.

Richard Anderson – BMO Capitals Markets

All right. I mean, what I’m getting at is, the last time around, we had a fair amount of impairments and other kind of issues that the REIT had to deal with when it reversed, and all this wonderfulness came to an end. And I’m wondering, at point do you kind of look forward a few quarters or a few years and say, okay, we’re going to scale down development. Even though it’s tempting to continue to do it, we’re going to slow down or stop it. Because we don’t want to develop and bring product to market when everybody else is. And that’s kind of the framework of the question, I wonder if you could respond to that?

Thomas Lowder

Yeah, I think, you’re right, Rich. We got caught with a lot of land on the balance sheet when the music stopped. Most of our problems as you know came in back in reaching out in the very entrepreneur way and merchant building and for sale activities that are not part of our game plan moving forward. Also in joint ventures, they were not planning on with the board. So, we think we have a more simplified model that will support the program and at least for your view to look at what we have planned, you can look on the balance sheet and see the sites that we already own. And, plan on us pretty much, building at a clip of one per quarter over the next couple of years. And then we’ll update you as we go through that. But that’s…

Richard Anderson – BMO Capitals Markets

But, do you think your development strategy is going to be altered this time around viewing history as your guide. I’m not speaking specifically about some of the past Colonial talk. I mean, you weren’t alone a lot of people had to take write-downs on land and what not. So, I mean, do you think that you’ll look at what happened last time around and maybe be a little bit quicker to slow down development as opposed to kind of muffling through it, and oh my god, all of a sudden there’s all those developments, there’s all these completions. And suddenly, it’s not leasing up the way it wanted to. And to maybe be a little bit more forward thinking and slow down development before that happens. That’s the question?

Thomas Lowder

Rick, we went through a long list of business rules over the last two years to develop those business rules, where they are board around the balance sheet to put the limits on what we would do as far as the percentage of the balance sheet that we would dedicate to this business. And set up a hard set of rules that I think will guide us better going forward and limit our exposure.

Richard Anderson – BMO Capitals Markets

Okay. Do you know kind of related to that, if you were able to in some sort of efficient manner used your single family land to develop multifamily on? Or is that just too much of a process?

Thomas Lowder

There are some cases where we have mixed use, where we’re able to redesign those. We had a big piece of property, I think, we announced a sale of part of it in Orlando either last quarter or quarter before last.

Richard Anderson – BMO Capitals Markets

Okay.

Thomas Lowder

Where, we sold off the residential land part that left us with the commercial and multifamily site. We also have another example in Orlando where we own a good bit of land that was dedicated for office that we have now gone through the process of converting that to a multifamily site. So, we are trying to be creative on what Dirk is out there and fitted into, what our game plan will be and if not continue to try to market and get it off the balance sheet.

Richard Anderson – BMO Capitals Markets

Okay. And maybe a question, last question for Paul. Can you talk about traffic and also conversion ratios and how that’s changed over the past year?

Paul Earle

Traffic continues to run ahead of last year. So, it’s a good indicator that there’s a slow economic expansion underway. And we’re seeing it walk through our front door. Closing ratio is down a little bit we’re still running about 30%, I guess, at the peak, we’re running about 33%. We’ve tightened up our credit stands a little bit as the additional traffic has been walking through our front door. We’ve worked hard to bring in the most financially qualified renter. Our bad debt in fact for the first quarter was at a historic low for the company since we’ve been operating in the public format. So, the traffic increase over last year is an indication of our slow economic expansion that we’re experiencing in the country.

Richard Anderson – BMO Capitals Markets

Okay, sounds good. Thank you.

Thomas Lowder

Thank you.

Operator

Thank you. And the next question is a follow up question from Eric Wolfe with Citi, please go ahead.

Eric Wolfe – Citigroup

Yeah, just a couple of quick last ones, I know you said you would end up on the low end of your guidance for expenses. Just wondering, what’s going to make the negative 1.8% to get up to 2.6% for the full year. Because it would seem like you’d need to run over 4% same store expense growth to get to that level. And the turnover staying down, I’m just wondering what could make you see that over 4% expense growth for the rest of the year?

Reynolds Thompson

We had an unusually low turnover number in the first quarter. So we were able to create some benefit with lower turn cost. Our average turn cost per unit in the first quarter was $310 that was over $100 per unit less than a year ago. It just kind of perfect storm, we were able to do a lot more in-house because of the way the notices and the way the turns were flowing through the quarter. And we’re not sure how we’ll manage our tax appeals throughout the year. Now the first quarter, we had some success and it’s just not on -- we’ve hadn’t had enough work on the tax side to declare a victory. We’re going to work hard in the second quarter and early into the third quarter. And we’ll report, what our progress is with the new valuations. But, those are the two biggest wildcards that we have to manage through.

Thomas Lowder

And Eric, I’ll point out in the third quarter of last year, we had a nice benefit. We picked up through our self insurance program. And we had about $500,000 goody in our insurance line. We’re not planning on being able to replicate that this year. So that is, from a comp standpoint, something that’s going to be a little bit of an outlier when we get through the third quarter.

Eric Wolfe - Citigroup

Got you. But the turn over, I mean it hasn’t, it stayed low through April right. I mean, there is nothing that’s changed there.

Thomas Lowder

No.

Eric Wolfe - Citigroup

Okay.

Thomas Lowder

We hope, we can give you some good news on that front.

Reynolds Thompson

Yes.

Eric Wolfe – Citigroup

Right. And then, I think I may have missed this in your remarks. And I know you said where renewals, new leases came in the first quarter. But did you say where they came in, in April. And also if you could give us a bit of detail where renewals are coming in, like 30 or 60 days out?

Thomas Lowder

Well, we’re trending renewals just around the 6% mark so far and about the 2% mark on new leases. And so, with our physical occupancies are ahead of March, and financial occupancy ahead of March, so our days vacant, the number of days vacant is down. So things are shaping up going into the prime leasing season, very favorably, really, we’ve seen a surprising amount of strength in April. But usually shows up in more like May and June. So I think everybody will report in the entire multifamily sector that the same optimism that April was a month where things accelerated. And we’re seeing an early spring leasing season.

Eric Wolfe – Citigroup

Got you. And then, there is one, one last one. Were any of the $2.1 million in charges that you mentioned, none of those were included in the original guidance, right?

Thomas Lowder

They were not.

Eric Wolfe – Citigroup

Okay. All right. Thank you.

Operator

Thank you. And Mr. Brewer, there appears to be no further questions at this time. I’ll turn the conference back to you. Please continue with your presentation or closing remarks.

Jerry Brewer

Thank you, Mara. Thank you for everyone joining us today. And we will look forward to seeing you maybe in June. Have a great day.

Operator

Thank you ladies and gentlemen, that concludes our conference call for today. We thank you for your participation. And ask that you please disconnect your lines. Have a good day.

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