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Colonial Properties Trust (NYSE:CLP)

Q4 2007 Earnings Call

February 5, 2008 2:00 pm ET

Executives

Jerry Brewer - Senior Vice President, Corporate Treasurer.

C. Reynolds Thompson III – Chief Executive Officer.

Weston M. Andress – President and Chief Financial Officer.

Paul F. Earle – Chief Operating Officer.

Analysts

William Atkinson - Merrill Lynch

Alex Goldfarb - UBS

Nap Overton - Morgan Keegan

Richard Paley - ABP

Susan Berliner - Bear Stearns

Operator

Good afternoon, my name is Michelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Colonial Properties Trust Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. (Operator Instructions) Thank you Mr. Brewer. You may begin your conference.

Jerry Brewer - Senior Vice President, Corporate Treasurer

Thank you Michelle and welcome to everyone joining us today. We released our earnings this morning via Business Wire. A copy of this earnings release may be found on our website at colonialprop.com. We are also webcasting this call and for your convenience replay we will be available on our website for one week after the call.

Today's call will be led by Reynolds Thompson, Chief Executive Officer, Weston Andress, President and Chief Financial Officer, and Paul Earle our Chief Operating Officer.

On the call, they will present an overview of our business developments and operating highlights for the fourth quarter of 2007, discuss our financial results, and review guidance for 2008.

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

These forward-looking statements are intended to fall within the safe harbor provisions of the securities law. These estimates of course are based on a number of assumptions, any of which if unrealized, could adversely affect their accuracy. Please see our latest SEC filings for the details and explanations of risk.

Any non-GAAP financial measures that we discuss today are reconciled to the closest GAAP financial measure and filings that can be found on the website. I will now turn the call over to Reynolds.

C. Reynolds Thompson III – Chief Executive Officer

Thank you, Jerry. Good afternoon everyone. During our call today, I will begin with a recap of our 2007 highlights, comment on the current economic environment, and discuss fourth quarter results. Paul will discuss core operations and provide an update on our markets. Weston will review the balance sheet investment activity; and I will conclude with 2008 guidance.

2007 marked the completion of our strategic initiative to become a multifamily focused company. Today, over 75% of our net operating income is produced by multifamily assets. The quality and geographic diversity of our portfolio combined with the operating expertise of our team produced 5.2% same profit NOI growth in 2007.

We continued to improve the quality of the portfolio with a delivery of newly developed units and a sale of older units. The execution of commercial joint ventures walked in very attractive prices for those assets and allowed the company to distribute the value to shareholders to a special dividend. We successfully delivered two shopping centers and one office building continuing our track record of value creation through commercial development. In addition, the company's leverage was reduced by 310 basis points.

As we look ahead, it is important to recognize the challenges we face in the current economic environment. The issues related to subprime mortgages, single family housing, the credit markets, and economic growth are all well documented and there are wide variety of opinions about the impact on our business. In light of this uncertainty, we believe it is prudent to be conservative and build financial flexibility in our 2008 plan.

Consistent with this view, we have made the following adjustments to our plan. First, we reduced overhead costs. Second, we've taken a more cautious view of new development spending. Third, we'll continue to deliver the company through the sale of older assets, and fourth, we have improved our liquidity position by expanding our line of credit.

Our primary capital priorities are to maintain a high level of liquidity and a strong balance sheet. This strategy will provide the foundation for sustained long-term performance. A strong capital position gives us the flexibility to consider developments, acquisitions, or the repurchase of corporate securities on an opportunistic basis.

During the last economic cycle, we took advantage of a downturn in the multifamily business by acquiring the Roberts portfolio in 2004, and most notably the acquisition of Cornerstone Realty Trust in April 2005, the Cornerstone acquisition expanded our portfolio deeper into the Carolinas and Texas, which have been some of our best performing markets over the last couple of years. Today we continue to see development as a priority. That said we're constantly evaluating our investment opportunities.

For the fourth quarter of 2007, we recorded net income of $0.07 per share compared with $2.85 in the fourth quarter of 2006. The decrease in earnings per share is primarily due to gains associated with the sale of assets during the fourth quarter a year ago. The reduction in income as a result of our joint venture transactions that were completed in the second quarter and a reduction in gains from the for-sale residential business.

FFO for the fourth quarter was $0.62 per share compared with $1.33 per share for the same period in 2006. For the year, our FFO per share was $1.76. Weston and Paul will provide additional details on our fourth quarter performance and transactions in just a moment. But before I turn the call over to Paul, I want to recognize him for his promotion to Chief Operating Officer. Paul is a 16 year Colonial veteran and has served as Executive Vice President of the multi-family division since 1997. He's an excellent operator and has a proven track record. We look forward to his valuable contributions to the future success of our company.

In connection with Paul's new role and responsibilities, Ray Hutchinson has been promoted to Executive Vice President of the multi-family division. Ray has 18 years of experience in multi-family operations and has been with the Colonial since 2004. He's played a major role in the success our multi-family division today. Paul?

Paul F. Earle - Chief Operating Officer

Thank you, Reynolds. For the fourth quarter multi-family same property next operating income was up 5.1% as compared to the fourth quarter of 2006. Same property revenues increased 3.3% for the fourth quarter as compared to the fourth quarter of '06. And expenses increased only 0.4%. Physical occupancy for same property closed at 96.1%. For the full year same property NOI was up 5.2% with revenue growth of 4.5% and expense growth of 3.4% as compared to '06.

(Year-to-date) same store properties was up 2.4% over 2006, and our turn over rate decreased to 63% in 2007. Move outs relating to home buyers continues to decline. Move outs as a result of home buyers in December was down to 19.2% of our total move outs. This is the lowest number since early 2005.

With respect to the NOI growth in our major markets Austin was up 23.6%. Dallas-Fort worth up 9.1, Atlanta was up 8.1, Charleston 7.8, Raleigh was up 7.1, Richmond was up 6.7, Charlotte was up 6.2 and Orlando was down 4.7. For the full year, Orlando was down 1.3%, in line with our guidance.

Orlando, and to a lesser extent Phoenix are the only markets where excess housing supply had significantly impact our operation. We don't have exposure to many of the most over heated housing markets such as South Florida, Las Vegas, Washington D.C and Southern California. In Orlando, we continue to maintain a very high occupancy level of 96.3% and the market has essentially absorbed all of the condo units that re-entered the rental pool.

Another point I would like to mention is only 10% of our portfolio or roughly 3000 units are in three bedrooms apartment homes. These units are the ones that are most susceptible to single family homes that may enter the rental pool. Most of our markets were not overheated from a housing perspective. So we believe our primary markets in the Sunbelt are well positioned.

The most important economic measure to track is job growth. In the Sunbelt we continue to experience better job growth than the national average and we have favorable population demographics such as retirees moving from the Frost Belt to the Sun Belt and a growing student population.

With very little relative exposure to high growth condo or condo bus markets and with very few three bedroom units that will compete with single family homes, we believe our young portfolio will perform very well.

Next I would like to touch on the success of our other income efforts in three areas. First, our bulk cable program which is marketed under the Colonial Vision Brand which have rolled out in 2006. As of December 31st, we had 48 properties participating generating $2.4 million of net income. We will launch an additional 53 properties in 2008 and with combined potential net income of over $3 million this year.

Second, we have 80 properties or about 84% of our same store portfolio participating in our water recovery program. In 2007, we were reimbursed 81% of our water expense. And third, we started our trash recovery program in early 2006 and we now have 86 properties or 90% of our same store portfolio participating and we recovered 83% of our trash expense.

Now on to the commercial side of our business, our commercial portfolio made up of assets primarily held in joint ventures performed as planned in the fourth quarter. We are responsible for managing 16.3 million square feet of office space and 8.8 million square feet of retail space. As of December 31st, the office portfolio was 93% occupied and the retail portfolio was 90.4% occupied.

To provide more details on the investment and financing activities, I will turn the call over to Weston

Weston M. Andress – President, Chief Financial Officer

Thank you, Paul. First our development activity. As of December 31st, we had 10 multifamily projects totaling 2800 in 75 apartment homes underway. With total project cost of $240 million including unfunded commitments remaining of 113 million.

You will note on page 19, the supplemental, the unclaimed project in uptown Charlotte was moved from our for-sale residential pipeline to the multi-family pipeline. We determined in the fourth quarter that in this environment the development was better suited as in rental project. The multifamily development activity remains focused in key target markets such as Austin and Charlotte. As you will notice on pages 19 and 20 of our supplemental, we have categorized our development pipeline into both active projects where we have begun vertical construction and the land held for future developments.

In commercial development at year-end, we had two class 'A' office projects in the pipeline totaling 329, 000 square feet and four retail projects totaling one million square feet. The six projects in total represented investment of approximately $218 million, of which 85 million is left to be spent in 2008. The leasing in our metropolitan mix use project is progressing well with approximately 75% of the office building pre-leased. We are scheduled to open three retail properties in 2008. Colonial Promenade Fultondale is currently 95% committee. Colonial Promenade (inaudible) is 89% committee and Colonial Promenade Tannehill is 78% committee. Consistent with our strategy, we would expect to sale our joint venture the properties upon completion and recycle the capital.

As we discussed and anticipate on the third quarter call, Colonial and our joint venture partner DRA completed the sale of non-office assets in Huntsville Alabama, totaling 1.7 million square feet. Colonial has initially reacquired a 40% interest in the assets and we expect to reduce our ownership to 10% through syndication over the next 12 months. We retained the management in leasing responsibilities of these properties.

Colonial and his joint venture partner sold Colonial Grand at Canyon Creek, a newly developed apartment community in Austin for a total sales price of $38 million. We expect to recognize $0.1 to $0.2 of developmental gains and net income in FFO in the first quarter from our promoted interest. We retained a 25% interest in the new joint venture and we will continue to manage and lease the property.

In December, we sold two retail assets and recognized a gain of $0.14 per share in the fourth quarter.

The projects were Colonial Promenade Alabaster II, a 355,000 square foot retail center, and Colonial Promenade Tutwiler II, which included two build-to-suit outparcel developments totaling 65000 square feet. Both properties are located in Birmingham and retained a 5% ownership as well as leasing and management responsibilities. Lastly, we have four active for-sale residential development and three residential lot developments with the price money of 40 million remaining to be spent.

As we discussed in our third quarter call, the impairment charge that we recorded was predicated on an standard sellout period for each of these projects, and reflected a slowdown in the market.

During the fourth quarter we closed 25 units and have seen increase in recent traffic. Additionally, in our board meeting last week, we have decided to move our Cypress Village Development Project located in Gulf Shores, Alabama from the for-sale residential pipeline to the rental pool. Once again, given the current market conditions, we believe Cypress Village is better served as a rental property than as a for-sale property.

Once completed, the company's total exposure to these for-sale residential projects will be a $140 million, or less than 5% of the company's assets. Our fourth quarter interest coverage ratio was 2.9 times and our fixed charge covered was 2.4 times. The ratio of net debt plus preferred to gross asset value was 57.7% on December 31st, a 310 basis point improvement from December 31st, 2006.

Looking ahead to 2008, our current plan calls for lowering our leverage by an additional 300 to 400 basis points, primarily through dispositions. Cash on hand at the end of the quarter was $93 million and our unsecured revolving credit facility was largely unused.

In January we increased our borrowing capacity under the line to 675 million by exercising the accordions feature. With this additional capacity and no significant bonds maturing until 2010, we have adequate liquidity to support our operations and fund our existing development commitments without having the excess outside capital.

We took two charges in the quarter and that’s worth noting. We completed the termination of our defined benefit pension plan resulting in a charge of $900,000 bringing the total charges recognized in 2007 to $2.3 million or $0.04 per share related to the termination of this plan.

During the quarter we also took significant steps to reduce our corporate G&A expenses in order to closely align our cost structure with our business strategy. We have cutout approximately $4 million annual corporate G&A expenses. As a result we recorded severance charges of $1.5 million in the quarter.

One of the opportunities to buyback corporate security Reynolds referred to earlier, is the potential redemption of our 8 1/8 percent Series D perpetual preferred stock that is redeemable in April of this year. If we redeem the entire series and our cash charge of $0.08 per share would be recorded related to the original issuance cost which is excluded from our current guidance.

Finally the board has approved a dividend of $0.50 per share for the fourth quarter to be paid in early February. This represents an annual run rate of $2 per share which we anticipate will meet the required pay-out on our earnings or gains from sales for the year in accordance with the REIT distribution requirements.

No we'll turn the call back over to Reynolds to discuss our 2008 guidance. Reynolds?

C. Reynolds Thompson III – Chief Executive Officer

Thank you, Weston. As detailed in our earnings release this morning, our guidance for full year 2008 is as follows: Earnings per share of $1.20 to $1.50, and FFO of $2.15 to $2.25 per share. This guidance is based on the following major assumptions: Multi-family same property net operating income growth of 3.5% to 4.5%. This is based on revenue growth of 3.75% to 4.5% and expense growth of 4% to 4.5%. This range is 50 basis points less than our previous guidance due to our view of the economic conditions previously discussed.

Development spending of $350 million to $400 million. Development spending is down significantly from the $600 million previously expected and is consistent with our view on the economy and a strong liquidity position. Dispositions are expected to total $450 million to $500 million. Dispositions are up over $100 million compared to our previous expectations and will help achieve our leverage goals.

Development gains are $0.15 to $0.25. The majority of the development gains are projected to come from the sale of two retail developments. We also expect to sell two multi-family developments, one of which Weston mentioned has already closed.

Corporate G&A expense is expected to be $21 million to $23 million and reflects approximately $4 million of normalized annual expense savings. In fact and finally land and out parcels sales would contribute $0.06 to $0.08.

In summary, our FFO per share guidance range has not changed from what we outlined for you in October. However, we've made a number of important changes, which reflect our view of the economic environment today. Our plan will improve the balance sheet and give us the financial flexibility to take advantage of opportunities.

Operator we would like to open up the call for questions at this time.

Question-and-answer session

Operator

(Operator Instructions). Your first question comes from William Atkinson of Merrill Lynch.

William Atkinson

Hi guys. How are you doing?

Reynolds Thompson

Good afternoon.

William Atkinson

Hi. Looking at the development lease-up Huntersville and Shelby Farms too you have a fair degree of momentum in the fourth quarter. I was wondering, I mean first of all are you seeing any impact of the slowdown in the economy? Were you able to get your pro-forma rents on those and what is the situation now regarding that?

Paul Earle

Well this is Paul. So far so good and we have had tremendous velocity in both Shelby Farms and at our two lease-up properties in Charlotte, one south Ayrsley and one north Huntersville as you mentioned. Traffic was up for the fourth quarter over '06. Traffic is up 1% in January this year. Our closing ratio has been maintained and we're early in the lease-up but it looks like our yields are going to hold so. Charlotte and Memphis are two markets that have not been over-heated single-family home sector or in the condo conversion and reversion sector. And so we feel very good that we are going to achieve the results that we signed up for upon starting construction.

William Atkinson

Okay. Its just a little of accounting note. Here this the held for sale category went up by a factor of 5 times to 250 million like that and your listing just over $6 million NOI related to assets held for sale. Was that included in the income statement on top during the fourth quarter or was that in discontinued operations.

Paul Earle

That is included in discontinued operations.

William Atkinson

Okay. Thank you very much.

Operator

Your next question comes from Alex Goldfarb of UBS.

Alex Goldfarb

Good morning.

Reynolds Thompson

Hello Alex.

Alex Goldfarb

First just to Paul and Ray. On the guidance for next year, if you guys can just provide some color around the merchant gains that $0.15 to $0.25 just helping us identify, which assets on the page may go into that and also how much cautionary is that number. And then further going on to the FFO for the next year. If you could just walk us through the benefit, what the impact is from the dispositions, interesting expense, clearly interest rates have come down and that's probably a savings. And then also the benefit of the cable water and trash.

Reynolds Thompson

All right. I'll start with the development gains. As I mentioned in the comments, the Colonial Promenade Fultondale is one of the projects that we would expect to sell next year towards the third or fourth quarter. And then the other is Colonial Promenade Smyrna up in Nashville. And then we have got Shelby Farms that Paul just mentioned that's in lease-up that is part of a for-sale package that is out there. And then we have got opportunities for gains with the sale of condo units at the Metropolitan Project in Charlotte. Those are the major components.

Weston M. Andress

On the other income side, we're continuing to expand our cable program and so because of the additional 53 properties we will be able to grow income approximately $600,000 on cable alone. And then there will be about $5 per unit increase from our trash program and about the same about $5 increase per unit on our water program.

Alex Goldfarb

And those are annual or quarterly members?

Weston M. Andress

Annual numbers.

Alex Goldfarb

Okay and what about interest expense, any savings from rates coming down.

Jerry Brewer

Alex, this is Jerry. We still got roughly $90 million of cash on the balance sheet and with dispositions planned throughout the year, and our land right now is largely un-drawn so there is not going to be -- and we got 90% of our debt which is fixed today. So, there is not going to be a huge amount of interest savings that we will see as the rates have declined recently.

Alex Goldfarb

Okay. And just going back to the four deals that you outlined on the merchant developments. So, the $0.15 to $0.25, lets say hypothetically you did all these deals. Would that put you at $0.25 or would that theoretically put you above that range?

Jerry Brewer

That would put us at the high end of our range.

Alex Goldfarb

Okay. So, you need to do all four plus the deal that you already closed to get to the high end.

Jerry Brewer

That would be correct.

Alex Goldfarb

Okay. Then, if we can just talk a bit about the Huntsville the JV with DRA? If you could just walk us through, it sounds like you did the deal back in June, and then you reacquired it and you're going to repackage it to sell it back out. May be I missed it in earlier calls, but that was the game plan, but if you could just walk us through what went on with that deal and how the 8% cap rate of today compared to where that deal was valued previously?

Weston M. Andress

Okay. This is Weston, Alex. We had agreed with DRA when we originally entered into the joint venture with them on our entire office portfolio to allow them to sell the Huntsville assets. We as a management team, we feel like we have a very capable management team in Huntsville and wanted to retain that team in kind of whatever opportunities that they could drove up in the future. So, we were doing whatever we could to try to remain and keep an interest in those assets there. So, we stayed in close touch with the auction the DRA was running and ultimately found a tenants in common syndicator that want to be or essentially match the other high bid in the sale and we ended up coming in for a 40% interest which is a larger interest than we had in the DRA venture, but would expect through syndication of these tenant in common interest to get down to 10% by the end of this year. I mean that the additional sale by DRA and Colonial enter to this new venture was done in net cap.

Alex Goldfarb

Okay. But, how does that pricing compare to what the deal was eventually valued at?

Weston M. Andress

It's the same.

Alex Goldfarb

Okay. And, just remind me why did you guys have to step up to be at 40% stake in the sale?

Weston M. Andress

They needed the additional capital to close the transaction. It just worked out in that manner and there is positionally a ground lease involved. So, we have really less money, less cash invested in today than we had in the DRA venture, but because of accounting the 40% shows a much bigger investment today.

Alex Goldfarb

Okay. And then just finally on that, do you have intended sale buyers lined up or you have to now go market the property?

Weston M. Andress

We have some buyers lined up and they are aggressively marketing to retail investors.

Alex Goldfarb

Okay. Thank you.

Operator

(Operator Instructions) Your next question comes from the line of Nap Overton of Morgan Keegan.

Nap Overton

Yes. One of my questions has been answered already and the other one is probably for Paul and that is the multifamily maintenance CapEx if I'm reading it correctly on page 9 of the supplemental was over $1000 per unit last year. Am I reading that correctly and do you expect it to remain that part?

Weston M. Andress

Yes. Nap, we'll have Paul give you some color on the details there.

Paul F. Earle

It is up a little bit in '07. There were four properties in the Cornerstone merger that we originally earmarked for sale and upon further review we decided to bring those back into the 100% owned category and renovate and probably provide more of a substantial renovation than we typically do and those dollars were inside our 07 CapEx number. Property in Richmond, one in Charlotte, one in Charlottesville, and a property in Dallas, so we expect great performance out of those four assets. In 08', our budget is back down to $650 per unit, which is more typical with our run rate and we don't see changing that our going forward, but there was a little bit of an increase in '07 because of some value that we think we can create on some cornerstone assets.

Nap Overton

So 650 per unit is more like what you think you would spend going forward

Paul F. Earle

That's correct/

Nap Overton

All right. And then back to the gains question, you remained, you know quite a lot has transpired in the capital market since your last call really and so you remained confident in meeting at least the low end of that 15 to $0.25 gain range from your merchant development activities in land parcel sales for 2008.

Paul F. Earle

Yeah, we have been, I would say, conservative and assume that cap rates have increased, 50 plus basis point across the board on the different property types that we are selling. And then we have assumed also a very low level of residential sales, it is part of that guidance. So we are confident at this point, Yes.

Weston M. Andress

And Nap we've also stayed in very close contact with the National Firms that have sold these types of properties for us and the position that our properties are in today with the solid leasing and the good credits tenants that we have has given us a lot of confidence about our ability to create transactions with these retail assets.

Nap Overton

And the gains do primarily come from those couple of retail assets. Is that correct?

Weston M. Andress

They do.

Nap Overton

Okay. All right good. And do you have any just general comments about what you would see capitalization rates have done or the volume of transactions.

Weston M. Andress

Look, if you think about it Nap, I mean you can still hit a 7 to 7.5 given today the financing rate, even if you got a pay 250 over the ten year, you are still 6% or so, and you get very attractive leverage and today you have got a put up a 25 or 30% equity as opposed to relatively little equity six months ago, but know your leverage return at 7.5, 7.25, 7.5 cap, you know, 6% mortgage rate is still very attractive relatively speaking perhaps what you could have gotten over the past couple of years

Nap Overton

So the net-net of that you don't think cap rates have changed much is that what you are saying.

Weston M. Andress

We think cap rates have moved up 50 basis points or so across the board, may be on some of the lower quality assets, another 75 basis points, but that sort of a range, which we've seen. Really haven't been that many transactions out there, in the past three or four months.

Nap Overton

And since you are involved in three property types, would you say that this roughly equivalent across all three property types that you are involved with?

Weston M. Andress

I would say that's generally true, although the power quality multifamily asset seem to be a little bit more resilient than the B and C product in the multifamily sector and I think there is definitely a difference that people are assigning to the quality of the asset there.

Nap Overton

Okay. Thanks.

Operator

Your next question comes from Richard Paley of ABP.

Richard Paley

It’s Rich Paley.

Reynolds Thompson

Good afternoon Rich.

Richard Paley

Good afternoon. Just a couple of questions and a follow up, the project that you moved from I guess for sale development to rental the multifamily projects. What type of yield could we expect those to be stabilized at.. My impression and maybe I have the wrong impression, but generally condo stuff is done at a fairly high finish level?

Reynolds Thompson

Well that’s great rental properties because the resident gets a fabulous interior finish of what a normal apartment would be so our yields are going to be between 4% and 5%.

Richard Paley

And why did you justify to go ahead with those projects then versus just scraping the project or maybe there is too much data?

Paul F. Earle

The project is almost finished Rich.

Weston M. Andress

These properties are still….

Richard Paley

So these are not on a prospective basis?

Weston M. Andress

No.

Richard Paley

Right okay and then, it's just a quick perusal of the development schedule from last quarter to this quarter. You have described that you move some projects sort of back, I'd call them sort of kind of land held for future development. What's going on with those or you are just not seeing the right return level and my impression was that some of these were kind of close to starting and just maybe you could talk about that process and then I have two other questions.

Jerry Brewer

Your impression is correct. Those projects are close to starting. What we've done is we are looking at the markets and the submarkets for those projects are going to be built and we want to make sure that as we look in to the future that we are delivering those in a market where we've go an opportunity to be successful. We'll just continue to monitor those markets and submarkets on a monthly and quarterly basis and make decisions about moving forward if we have better information about what's going on in each particular market.

Richard Paley

Okay. Could you just remind me just still on this topic, could you remind of your, these guys trend rents so that you underwrite the current rents and we'll follow on that.

Weston M. Andress

We've got an in-house system of actually looking at current rents and then trending our rents and then we assign a probability factor on what risks there are in achieving the trended rent and so we've a pretty sophisticated model. First of all we've been developing for 35 years and we've been through down cycles before and we've been involved in significant economic expansion. So, we've a model that really measures what the probability is of the different in put inline items and that helps us make a decision to go forward.

Richard Paley

Okay. And then just to followup on I guess question on this joint venture transaction in Huntsville and then I believe one of the multi-families you also retained an interest then. How does the FFO accounting work for that because it seems like you are booking and promote and I don't want to speak specifically to the Huntsville one but are you, I'll ask another question (inaudible). Are you booking a promote on the gain that you received in the DRA?

Paul F. Earle

To promote in the Huntsville transaction and there's no gain.

Richard Paley

Didn't have one. Okay. And then on the multifamily one? Is that the case?

Paul F. Earle

On the multifamily one we had a promote on our partner's interest.

Jerry Brewer

And once we achieved developing yield above a certain level and that will result in a 1 to 2 penny promote and we will book.

Richard Paley

And you still retained this ownership once you sold to a third party after that with a joint venture?

Unidentified Company Representative

Yes. We own 25% of the asset. We were the JC of developer and we own 25%.

Unidentified Company Representative

We owned 25 before and we own 25 now. It was their 75% that was sold to a third party and we earned a promote of their 75%.

Richard Paley

For their 75%? Okay. That clears things up. And, then one last question on the commercial development projects, is there a specific lease of level that you look to get to before you sell these assets or is it sort of catch kind of buyers more interested may be and they are trying to do something on lease up, would you sell it to them?

Unidentified Company Representative

Our typical game plan is to stabilize the asset to maximize the value and sell it. It would be a unique situation for us to do something earlier than that.

Paul F. Earle

We have generally believed in hiring a broker and broadly exposing these assets to the market versus trying to find somebody that would buy an asset is not stabilized yet.

Richard Paley

Right. And then for somebody that's kind of got the way over the years from retail and office, what is stabilized occupancy level, is it in the low 90s?

Unidentified Company Representative

Yes. I mean somewhere between 93% and 95%.

Richard Paley

For both the retail and the office?

Unconfirmed Company Representative

Yes.

Richard Paley

Okay. Thank you.

Operator

Your next question comes from Susan Berliner of Bear Stearns.

Susan Berliner

West I was wondering if you could kind of update us with your conversations with Moody's in particular, 'cause it sounds to me that your being pretty conservative, reducing development spending, reducing debt. And I was wondering if you can just kind of update us and then tell us where you expect fixed charge coverage to go to his year?

Weston M. Andress

Okay. I mean I think that the more conservative approach that we are taking to our liquidity position in our balance sheet should meet some of the rating agencies. I can't specifically address Moody's, but the rating agencies and some of our creditors issued. We have reduced our development pipeline from close to 30% of the value of our assets to less than 20%. We have increased the size of our line of credit, so that we now have funding in hand to complete any of the projects that we have started from a vertical construction standpoint and meet whatever other obligations that we've got out there, so that there's no need to go the capital markets. And we are also planing additional sales of older multi-family properties to reduce our overall leverage.

So all that from our perceptive is very prudent given the economic environment, the challenges that we're facing. We like everybody else, you don't really know what's, we assumed that we're going to have a slowing economy but how slow I guess is anyone's guess at this point. But we have prepared this company to live through that and to be able to pursue opportunities as we come out of this. All that not only is the right thing to do for the company but is, we believe is certainly should be attractive to our creditors and the rating agencies as well. The fix charge coverage is 2.2 times.

Susan Berliner

And if I could just follow up, I just want to make sure I understand. I know it sounds like you guys are in a pretty good liquidity position. Do you've any thoughts of potentially issuing in any market? And I guess, if you were to issue with the convert market look interesting or which markets would look interesting to you?

Weston M. Andress

None of them look interesting. That being said, I mean we are opportunistically looking at where the Series D Preferred. We are trading in or looking at the opportunity potentially to take that out. It deals 8.5 and 8%. We're looking at some of our debt that’s traded out at a very wide spread's. The one market I would say would be attractive if we were to decide to do some more secured debt, which is not been our, we'd been mostly an unsecured bar where and tried to move our balanced sheet in that direction. The Fannie Mae you can get that at 1.80-1.85 over treasuries at this point for 75% loan to value. That’s pretty attractive.

Susan Berliner

Got it. Thank you very much.

Operator

And there are no further questions at this time.

Reynolds Thompson

All right. Thank you everybody for participating today. I like to remind you that our supplementals is available on the website and we look forward to speaking with you on the first quarter call. Thank you.

Unconfirmed Company Representative

Thank you.

Operator

This concludes today's conference call. You may now disconnect.

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Source: Colonial Properties Trust Q4 2007 Earnings Call Transcript
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