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Mid-America Apartment Communities (NYSE:MAA)

Q4 2007 Earnings Call

February 8, 2008 11:15 am ET

Executives

Leslie Wolfgang – Vice President, Director of External Reporting & Corporate Secretary

H. Eric Bolton, Jr. – Chairman & CEO

Simon R. C. Wadsworth – Executive Vice President & CFO

Albert M. Campbell – Executive Vice President & Director of Financial Planning

Thomas L. Grimes, Jr. – Executive Vice President & Director of Property Management

James Andrew Taylor – Executive Vice President & Director of Asset Management

Analysts

Kristin O’Connor – Morgan Stanley

William A. Crow – Raymond James Financial, Inc.

Richard C. Anderson – BMO Capital Markets Corp.

Napoleon H. Overton – Morgan Keegan & Co.

Bi Kin Kim – Credit Suisse

Paula Poskon – Robert W. Baird & Co.

Carole L. Kemple – Hilliard Lyons

Andy McCulloch – Green Street Advisors

Operator

Good morning ladies and gentlemen and thank you for participating in the Mid-America Apartment Communities fourth quarter earnings release conference call. The company will first share its prepared comments followed by a question and answer session. At this time I would like to turn the call over to Leslie Wolfgang, Director of External Reporting. Leslie you may begin.

Leslie Wolfgang

Good morning everyone. This is Leslie Wolfgang Director of External Reporting for Mid-America Apartment Communities. With me are Eric Bolton, our CEO; Simon Wadsworth, our CFO; Al Campbell, Treasurer; Tom Grimes, Director of Property Management; and Drew Taylor, Director of Asset Management.

Before we begin I want to point out that as part of the discussion this morning company management will make forward-looking statements. Please refer to the Safe Harbor language included in yesterday’s press release and our 34-X filings with the SEC which describe risk factors that may impact future results. These reports along with a copy of today’s prepared comments and an audio copy of this morning’s call can be found on our website.

I’ll now turn the call over to Eric.

H. Eric Bolton, Jr.

Thanks to everyone on the call for joining us this morning. Simon and I will provide a few comments on the quarter and our forecast for 2008 and then we’re going to open the line for your questions.

As reported in yesterday’s earnings release Mid-American ended 2007 on a very positive note. Our fourth quarter same store result was one of the best performances we’ve had over the past 10 years. For the quarter Mid-America captured 12% growth in FFO per share and 19% growth in AFFO per share. Year-end same store occupancy increased 60 basis points over the same point of the prior year to 94.8%. This is the highest year-end result we’ve posted over the past 11 years. In addition to the strong occupancy leasing concessions were down a significant 38% over the comparable prior year quarter. The strong fourth quarter supports our belief that leasing fundamentals remain in an overall healthy position across our portfolio. As we head into 2008 we believe we’re in position to generate another year of solid results.

Simon will walk you through the details of our 2008 guidance but our basis for expecting another good year is built on the following three key points. First as we commented in last quarter’s call Mid-America’s portfolio is not heavily exposed to the pressures from the excess of single-family and condo inventory that is impacting apartment leasing in a number of markets across the country. At our properties traffic levels are holding up well. We continue to see evidence that the return to more disciplined mortgage financing is reducing our resident turnover attributable to home buying. Continuing the pattern that emerged in the third quarter resident turnover due to home buying dropped again on a year-over-year basis declining by almost 8% in the fourth quarter as compared to prior year. Overall we expect to see continued positive absorption and stable leasing conditions in 2008. In fact last week’s same store occupancy for January month end was 95.3%. It’s worth noting that’s an increase of 90 basis points in occupancy from the same point last year and up 50 basis points from year end just a few weeks ago.

Secondly, we believe that during 2008 we will capture year-over-year momentum from various new systems and technologies implemented over the past year. We continue to see upside from the implementation of LRO, the automation of processes associated with up-front application and move-in fees, additional fee opportunities in the area of utility billings and additional efficiencies recently introduced integrating our software with outside collection agencies. By the end of the second quarter we expect to complete installation of new web-based advertising and leasing programs which will provide a fully automated seamless leasing process for potential residents. In 2008 we also are introducing new web-based tools for interacting with our existing residents as well as enhancing several aspects of our inventory management and term processes.

As most of you know we’ve made a major effort over the last few years to retool and automate many aspects of our operating platform. Our systems and property management folks have done a terrific job with these projects. We continue to build capabilities in asset management and property management that has a growing competitive advantage over many of the management companies that we compete with in our local markets and submarkets.

And finally we expect earnings momentum in 2008 to remain solid as a result of the excellent results being realized from our unit and tier renovation program. Our team completed just over 2,000 unit renovations in 2007 and we expect to complete around 3,000 this year. Our properties are putting through very strong rent increases averaging 15% above and beyond the normal market rent increases we capture on non-renovated units. As we penetrate more of the portfolio with this program the overall impact to operating results will increase. The benefits from this initiative are of course both on the revenue side from rent increases as well as increasingly lower turn expenses as these units are upgraded and the number of new features are installed.

On the transaction front we believe it is likely that opportunities are improving for making new acquisitions. Obviously some of the aggressive leverage buyers are out of the game for the moment. Well capitalized balance sheets with proven performance in closing transactions are in a stronger position and we’re optimistic about improving opportunities to capture investments that meet our hurdles. For our own account we are currently looking at a number of investment opportunities that will enable us to continue upgrading the age and quality of the portfolio at an average age of now 15 years Mid-America’s portfolio remains one of the youngest among the apartment REITs and clearly one of the higher quality portfolios for the markets and submarkets where we operate. As noted in yesterday’s earnings release we recently closed on our first acquisition for Mid-America Acquisition Fund One a joint venture we established last year. The property located in a strong job growth inter-tier suburban location in Atlanta represents the sort of turnaround and value-add opportunities targeted for this Fund. Through repositioning both the curb appeal of the community and unit interiors along with the ongoing on-site operating platform we expect to capture a very attractive investment return for the Fund and for Mid-America shareholders. We have another acquisition opportunity for the Fund currently under contract and undergoing due diligence.

We have quite a bit underway and are indeed optimistic about the opportunities and outlook for 2008. While we expect to see some slight moderation in operating results in 2008 as compared to the very strong performance captured over the past two years we nevertheless expect to deliver another year of steady progress and good results. We’re comfortable that our regional focus and unique diversification strategy across the Sunbelt coupled with a disciplined capital deployment program and a very strong operating platform will continue to generate performance and returns to capital that will be very competitive in the apartment reach sector.

That’s all I’ve got. Tom, I’m going to turn it to you.

Thomas L. Grimes, Jr.

Fourth quarter FFO per share of $0.93 was $0.02 ahead of the midpoint of our guidance driven by strong operating results and lower interest expense. Included in our results was a $0.02 non-cash charge associated with the refinancing of Series F Preferred and income of $0.01 from the sale of a land parcel both of which were included in our guidance. For the fourth quarter year-over-year same store NOI growth was at the top end of our guidance at 7.9% and one of our first quarterly results. Same store NOI growth prior to the accounting adjustment of straight line concessions was 8.9% also close to a record. Same store revenues for the quarter were up 4%. Without the straight line revenue adjustment the increase would have been 4.6%. Effective rent increased 3% on the concession reduction that Eric mentioned and on a 1.5% increase in average rent per unit. Before the impact of straight line rental concessions effective rent was up 3.5%.

Same store expenses dropped 1.2% compared to the fourth quarter of 2006. Excluding taxes and insurance property level operating expenses grew by 2.4% but our insurance expense dropped 25% effective with the renewal last July and we had a good quarter for real estate taxes which increased only 1.8%. A year ago we issued guidance for 2007 of FFO per share of $3.40 to $3.50 and same store NOI growth of 5 to 6%. We ended the year at the upper end of the range on each of these metrics. Our NOI growth rate was only slightly below that of 2006 and FFO grew while we continue to expand our investment in projects that have a long term value but carry short term FFO dilution such as our modest development program growing investment in properties and lease-ups such as Talus Ranch in Phoenix and the sale of four higher cap rate older properties. Together we estimate that our three lease-up properties plus our four dispositions cost us over $0.13 of FFO dilution last year.

For the full year of 2007 AFFO increased 12% to $2.91, $0.04 above the midpoint of our beginning year guidance. Recurring capital expenditures dropped to $0.64 a share a reduction of $0.10 from the unusually high number in the prior year. Excluding the redevelopment program total property capital expenditures at existing properties was $700 a unit in 2007 or $1.00 a share and we expect this to continue at approximately the same levels in the future.

Results for the quarter included double digit same store NOI growth by our high growth markets with strong revenue performance in Dallas, Houston and Nashville and strong overall performance in Greenville and Tampa. Other markets with double digit NOI increases include Memphis, Austin, Jackson, Mississippi, Chattanooga, Augusta and Lexington. Revenues were down on a comparative basis by 1.8% in Jacksonville mainly because of competition from single-family homes at just one large property. In Columbus, Georgia revenues on two properties grew 1% because of troop deployments.

Strengthening markets and the implementation of yield management software have enabled us to reduce concessions in the fourth quarter on a cash basis from $460 per move-in a year ago to $201 this year a 56% reduction and down from 3% of net potential rent to 1.3% which is likely now approaching a stabilized level. Turnover increased 1.6% for the quarter compared to the same period a year ago mainly because of an increase in job transfers including military. As Eric mentioned the number of people leaving us to buy a house continued to decline dropping to 25.9% of move-outs from 28.5% in the fourth quarter of 2006. The number of people leaving us to rent a house dropped by 30 basis points to just 2.8% of move-outs. Net collection loss also declined from 0.74% of net potential rent to 0.69%.

Turning to the balance sheet our leverage defined as debt plus preferred total gross fixed assets dropped by 80 basis points from the end of last year to 59.2%. As a percentage of total market capitalization our debt plus preferred stands at a sector median 51.4% and our fixed charge coverage continued to improve from 2.15 in the fourth quarter of 2006 to 2.37 ahead of the sector median. We have just extended the maturities of our Fannie Mae credit facility to between 2,014 and 2,018 and we have a lot of balance sheet capacity. We’re fortunate that the apartment sector is unique in having Fannie and Freddie to provide debt financing and our conversations with them indicate that they have plenty of lending capacity. The two agencies have been our primary lenders for many years and we have strong long-term relationships. We have over $300 million of unused pre-committed credit under our agency and bank facilities of which $160 million is available under in-place mortgages and an additional $150 million is committed at our existing credit spreads.

Also we have benefited as Treasury and swap rates have dropped and as agency debt securities are trading very favorably compared to LIBOR. We’re well positioned to reduce our average cost of borrowing in 2008 as we have $180 million of debt maturities we anticipate the financing of $150 million of acquisitions and 15% of our debt is floating rate. This will help us take advantage of what may become an improved opportunity to make some attractive investments. We’re glad that in this environment our business strategy is safer than most apartment REITs. We don’t have a lot of capitalized overhead and interest expense or a major development pipeline to fund. Our FFO is not dependent on businesses that carry a lot of transaction risk and we’ve seen over the years that our three-tier market strategy provides additional stability in operating performance during tough market times.

Our 2008 forecast detailed in the release takes into account slowing economic growth and a continuation of what we think is a long-term shift of households back to the rental market. There’s a lot of uncertainty but we think revenues will continue to be fairly strong in most of our markets especially in Texas and the Carolinas. We expect solid growth in some other markets including Atlanta, Memphis and Nashville and in many of our growth and income in stable markets. Florida will likely continue to grow at a more moderate rate coming off some years of extremely strong performance. We have a couple of advantages that are helping us offset slower market growth rates. Our revenues will be helped on a relative basis for at least the first six to nine months of 2008 by the implementation of NRO in the second quarter of last year. Secondly, we believe that the straight line adjustment that cost us $0.05 a share in revenues in both 2007 and 2006 should no longer be a drag in 2008. The combined impact of these should be 150 basis points of same store revenue growth. So we think that our forecast of same store NOI growth in the 4 to 5% range compared to 5.8% in 2007 seems to be reasonable with revenue growth of 3.5 to 4.5%.

I commented about the $155 million of Series H Preferred in the past which is callable in August of 2008. Its coupon is 8.3%. We’ve issued to full caps one with and one without the $0.18 per share non-cash cost associated with calling this Preferred. We expect to increase a number of properties we’ll sell that are either old or are in some low growth markets. Assuming we sell approximately $60 million this could be potentially dilute FFO by $0.04 to $0.05 per share on a 12 month basis. We’ll continue our investment program in development and lease-up properties and our two development projects.

While our investment will be on the high return opportunities in our redevelopment program and our Fund One joint venture we’ve included $150 million of wholly-owned acquisitions in our guidance. In January we closed on the wholly-owned acquisition of Cascade at Fall Creek a new property beginning lease-up in Houston and our Milstead Village in Atlanta our first acquisition for Fund One. The acquisition environment continues to be very competitive but Cascade was a special situation adjacent to one of our existing properties in an exceptional submarket. We think we have an advantage over many in our sector in making some attractive investments in this environment as well our cost of equity has risen. Our cost of debt has almost equivalently dropped. We remain disciplined and frequently evaluate on an MPV basis the relative attraction of various strategies including repurchasing shares.

Excluding development property capital expenditures are forecast to approximate $28 to $29 million plus $2 million in newly acquired properties plus redevelopment. We anticipate that we’ll fund about $17 million for our share of the equity in Fund One our joint venture. We plan to finance our funding needs with almost $60 million in proceeds from property sales with debt under existing financing arrangements and if the equity markets recover with equity from the continuous equity plans. We anticipate that our borrowing and leverage will rise slightly but our fixed charge coverage should end this year at only about 10 basis points below current levels.

H. Eric Bolton, Jr.

Our plans for 2008 are focused on deploying capital in a manner that will deliver steady and high quality earnings, cash flow and long-term value. We’ve always been disciplined about capital deployment and underwriting practices. We believe this discipline has enabled us to avoid some of the pressures in earnings volatility and balance sheet strength now evident with other strategies. With the solid earnings platform and balance sheet now in place we do plan to pick up efforts a little with capital recycling and will monetize internal rates return out of some our secondary and tertiary markets that I believe will surprise some people. We are committed to a steady program of continuing to upgrade our portfolio properties and retain one of the younger portfolios in the REIT sector and in the markets where we operate. We believe that we’re in a good position to continue delivering earnings performance and returns to capital that compete very well within the apartment REIT space and we believe it’s being done without a lot of the volatility and risk inherent in other regions, markets and strategies.

Matt, that’s all we have in the way of prepared comments and we’ll turn it back to you for any questions.

Question-And-Answer Session

Operator

(Operator Instructions) Our first question is from Kristin O’Connor with Morgan Stanley. Your question please.

Kristin O’Connor – Morgan Stanley

Simon, hat level of job growth are you expecting in your 2008 forecasts and how does that compare to 2007?

Albert M. Campbell

We’re basing our forecast primarily on REITs and www.Economy.com and other providers like that and generally what they’re calling for, for 2008 that we can see is GDP growth around 2 to 2.5% and with job production I think a total of about 1 million jobs adding in 2008. In our markets we think that most of our markets have favorable job growth and we expect that and we put that in our revenue performance and in general a modest growth period is what it’s based on.

Kristin O’Connor – Morgan Stanley

Can you comment on the price and the cap rate that you paid on the Cascade at Fall Creek asset during the quarter?

Albert M. Campbell

I can. We paid about a 5.6 cap rate which is a little 6 to 6.4 NOI yield on that. We paid about $3.5 million for that deal at Cascade.

Thomas L. Grimes, Jr.

And of course that property was just beginning lease-up.

Albert M. Campbell

It was.

Thomas L. Grimes, Jr.

So that’s a stabilized cap. So we will have some dilution from that for the six or nine months.

Albert M. Campbell

We will and we expect to have 2.5 to $0.03 over the full year dilution from that. But once it’s stabilized those are the cap rates that you should see.

Kristin O’Connor – Morgan Stanley

And then can you just comment on the overall trends you’re seeing in cap rates in your markets? Any change since last quarter?

H. Eric Bolton, Jr.

I would tell you that it’s still a little fuzzy out there right now. Clearly there’s a lot of capital still lining up for good transactions and good deals that we’re looking at, both new deals as well as some of the repositioned value add-plays. It appears to be still pretty competitive obviously the high leverage buyers are out of the equation now but for modest leverage buyers, and of course with Fannie and Freddie there, there’s still plenty of capital. But based on the deals that we’re looking at and all the things that we’ve studied it does appear that probably kind of a 50 basis point shift has taken place over the last four to five months, sort of holding all the other assumptions stable. That’s where we see pricing at this point.

Operator

Our next question is from Bill Crow of Raymond James. Your question please.

William A. Crow – Raymond James Financial, Inc.

Following up on that question, the $150 million of acquisitions is a little higher of a goal than we would have assumed. Do you think that’s going to be more backend loaded? Does it pay at this point to wait and see where cap rates ultimately go?

H. Eric Bolton, Jr.

I suspect that it probably will be more backend loaded. I think that right now frankly it’s still tough to make the numbers work. We look at a lot of things but as I was just saying there is still a lot of capital chasing these deals and some of the sellers are still getting some pretty good pricing. The only way we’re able to really make things work still right now is somewhat similar to Cascade where we’ve got a special situation where we own the property right next door or we have a unique relationship with the developer or the seller in some way where we can get it on an off-marketed basis. I do suspect that it probably will be more backend loaded. We continue to believe that the markets are recalibrating a little bit and we’ll just have to see how this spread between public and private pricing continues to work its way out and hopefully we’ll see some more opportunities here that make sense for us.

William A. Crow – Raymond James Financial, Inc.

Are you seeing any relief on – I know you’re not really doing development – but construction costs in your kitchen and bath program or just your normal turns? Is there any relief there given the slowdown in the single-family market?

Yeah, I would say not a lot. Drew, do you want to add anything about the kind of costs we’re seeing?

James Andrew Taylor

From a development point of view or a redevelopment point of view our costs now are essentially what they’ve been in the past. So we’re not really seeing any net change and what it’s costing us to redevelop or to develop at this point.

H. Eric Bolton, Jr.

I think on the development front where you may see some change over the next year is just in land cost. But I think material costs I don’t think we’re looking at any declines. At least from what we see. We don’t do a lot of it as you know. But we’re not seeing a lot.

William A. Crow – Raymond James Financial, Inc.

And then finally on the concessions, that’s clearly been a benefit to you as you brought those things down. How much is left to recapture and then are you actually starting to see concessions go up across any of your markets?

Albert M. Campbell

Bill, what we have in the forecast is a continued decline of concessions. I think this year they are about 1.9% of net potential rent. We project them to go down about 1.4% which is a couple million bucks in reduction. Then I think concessions will continue to be a part of our platform although on a much reduced scale. We are seeing some continued improvement [inaudible].

Operator

Our next question is from Rich Anderson from BMO. Your question please.

Richard C. Anderson – BMO Capital Markets Corp.

Just a clarification on your same store disclosure. The total same store, that takes out the straight line impact or that includes the straight line impact?

Thomas L. Grimes, Jr.

Including the straight line impact. If you go to our supplemental data you can also see it without that.

Richard C. Anderson – BMO Capital Markets Corp.

So the revenue for fourth quarter was up 4.6 operating, 4% total. The total has the straight line in it?

Thomas L. Grimes, Jr.

That’s correct.

Richard C. Anderson – BMO Capital Markets Corp.

Okay, so if it has the straight line in it, wouldn’t that suggest if the number is lower that your concessions are higher on a year-over-year basis?

Albert M. Campbell

What that suggests is just that the burn off of concessions during the year, Rich, they caused us to write off more of our balance sheet of prepaid concessions that we have. It’s really more related to the counting of our straight line. We had win because of that in this year.

Richard C. Anderson – BMO Capital Markets Corp.

Tom, you mentioned the $0.04 to $0.05 of dilution. I didn’t catch what that was tied to. Potential annual dilution.

Thomas L. Grimes, Jr.

The $0.04 to $0.05 of annual dilution from the three lease-up properties.

Albert M. Campbell

We have several things in general in our 2008 forecast in a cost solution. I think we took development properties that we have and that’s probably together about $0.04 or $0.05 and that’s Cascade, Farmington Village – I’m sorry.

Thomas L. Grimes, Jr.

And the four dispositions that we made.

Albert M. Campbell

Together all of our lease-up and our four dispositions are expected to be about 8 to 8.5%, Rich, for 2008.

Richard C. Anderson – BMO Capital Markets Corp.

Okay, so the lease-up properties are $0.04 to $0.05 and then the dispositions are another, say $0.04. $0.03 or $0.04.

H. Eric Bolton, Jr.

Roughly.

Albert M. Campbell

For 2008. That’s correct.

Richard C. Anderson – BMO Capital Markets Corp.

Question on acquisitions, $150 million target. The question is if you miss your acquisition target, fall short of it, will that be a positive or negative FFO for the year?

H. Eric Bolton, Jr.

It really has no impact.

Richard C. Anderson – BMO Capital Markets Corp.

Can you talk about how your return hurdles have changed in this environment from an acquisition standpoint, if at all, and how those return hurdles might be different for transactions done in the Fund?

H. Eric Bolton, Jr.

Our return hurdles haven’t changed in terms of the methodology and the way we define our hurdle process, if you will. What changes is our cost of equity and our process has always been based on looking at our cost of equity plus a 20% premium to that. It essentially becomes our internal rate of return hurdle and that’s whether we are putting capital into a new acquisition, into a new joint venture or into redeveloping our existing properties. The methodology is the same. So there’s been no change, it’s just as our cost of equity continues to fluctuate with the market it will change.

Richard C. Anderson – BMO Capital Markets Corp.

But no change to the absolute number because your cost of equity might have gone up but your debt costs have gone down. Is that a fair way of looking at it?

Thomas L. Grimes, Jr.

Let me elaborate just a little more, Rich. That is, we look at our returns on a leveraged basis. So our cost of equity has gone up and so our hurdle rate has gone up very significantly. But the effect on pricing has been mitigated because our cost of debt has come down. And so that’s the way it’s been working.

Richard C. Anderson – BMO Capital Markets Corp.

Last question is hopefully not too grim. Any impact on the tornado activity on your portfolio?

James Andrew Taylor

No, frankly. Other than we had a lot of folks under desks and things like that. It was really pretty quiet across and we got through Little Rock and then we realized Memphis was fine and then we worried about other places and other than a few sticks down and a little bit of siding blowing off, we were fine.

Operator

Our next question is from Nap Overton of Morgan Keegan. Your question please.

Napoleon H. Overton – Morgan Keegan & Co.

Just a couple of things. One, did I understand you correctly to say that your straight line rent adjustment negatively impacted both 2007 and 2006 by $0.05 per share?

Thomas L. Grimes, Jr.

That’s correct.

Napoleon H. Overton – Morgan Keegan & Co.

And you expect that to be around to zero for 2008?

Thomas L. Grimes, Jr.

That’s correct. Maybe slightly positive. It should be close to zero.

Albert M. Campbell

The drag is removed from our 2008 forecast, yes.

The 6.5% - I think I know the answer to this – but the 6.5% NOI yield on acquisitions that you’re assuming, that’s before deducting a capital reserve? Is that correct?

Thomas L. Grimes, Jr.

That is correct, Nap. It probably equates to a 5.75% cap, something like that.

Operator

Our nest question is from Bi Kin Kim of Credit Suisse. Your question please.

Bi Kin Kim – Credit Suisse

Just a quick follow up on a previous question. What profits do you use to calculate your cost of equity?

Thomas L. Grimes, Jr.

We use several methods but the one we use routinely, take our dividend yield plus long-term growth rate and generally we assume a long-term growth rate is in the 5 to 6% range. Take our dividend yield and then we multiply by 1.2 to come up with our hurdle rate as Eric was mentioning. That’s the way we do it.

Bi Kin Kim – Credit Suisse

Second question. You mentioned share buy backs. Any plans for that in [inaudible] in terms of volume?

H. Eric Bolton, Jr.

We have not dialed that into our forecast. It is something we look at but we are a net present value shop, if you will. Our decisions regarding capital deployment are driven by what do we think is going to create the highest net present value for our shareholders. There is a point obviously where out stock price could decline low enough that the debt becomes the best alternative and we look at it and discuss it with our board on a routine basis.

Bi Kin Kim – Credit Suisse

What’s your current authorization?

Thomas L. Grimes, Jr.

We have 4 million shares authorized and we’ve used I think, we bought back about $1.8 million. So we’ve got about $2.2 million still outstanding.

Operator

Our next question from Paula Poskon of Robert W. Baird. Your question please.

Paula Poskon – Robert W. Baird & Co.

Just to follow up. I think you said this earlier, but I missed it. Are you more focused in your acquisition opportunities on buying redevelopment opportunities, lease-up opportunities or more the fully position properties like you did at Cascade at Fall Creek?

H. Eric Bolton, Jr.

For the moment our focus primarily is with our acquisition fund where we’re looking for redevelopment opportunities. The numbers frankly just work better on those kinds of deals at the moment. So we’re very active in the market looking for both kinds of opportunities but the numbers are working better at the moment on the repositioned through our JV platform.

Thomas L. Grimes, Jr.

As a reminder when you have a one-third interest in the JV platform, and of course we get fees and so forth, so the IRRs just work for us better.

Paula Poskon – Robert W. Baird & Co.

Is there any friction when you come across an opportunity between putting it on your own balance sheet versus putting it in the Fund?

H. Eric Bolton, Jr.

No. That’s a good question and one of the things we were very clear about up front in establishing this fund and the relationship is the way it works, any property that we find that is seven years of age or older, we show it to our Fund and to our JV partner. If it’s less than seven years of age then we do not show it to the Fund. We’re primarily looking to add on to our own balance sheet newer properties but, over the years we’ve done a lot of value creation through repositioning properties but, we didn’t want to put a lot of the older product on our balance sheet. We wanted to limit our investment of those to our one third ownership to the JV. So, it’s a seven year cut off.

Paula Poskon – Robert W. Baird & Co.

That’s very helpful. Thanks. On the redevelopment program, how many units do you do at one time and roughly how long does that take?

H. Eric Bolton, Jr.

The way it works is that we really look at it on a community-by-community basis and if we think that a particular property has the potential for being repositioned through unit interiors then we will go in and start testing a few units at the property and see if we are in fact able to catch the higher rent bobs as a result of the repositioning effort. Then, we generally approach it as units turn. We don’t force turnover generally and so on a given property it may take a couple of years or so to get through all the units. But, our approach is to look at all the communities that we have, all the different properties in the portfolio and evaluate it and start testing it and then move forward. And, we’re very, very disciplined about it. We look at every specific unit, we make the renovation and then we rent it. If we’re able to get the rent that we felt like we had to get or to justify the investment then we continue. If it’s not working then we stop.

Paula Poskon – Robert W. Baird & Co.

Great. Thanks. A question on the move out, aside from home ownership, are you seeing any trends in some of the other reasons for move out?

Thomas L. Grimes, Jr.

The other two trends that were up other than buying homes were we saw an increase in rent increases as a reason for move out which frankly we sort of like to see. It means that we’re aggressively pushing rents. It wasn’t any large level. The other thing is on job transfers as people are moving around. It is important to realize we do separate job transfers and job loss, job loss is one that we actually saw go down about 8%.

Paula Poskon – Robert W. Baird & Co.

That’s very interesting.

Thomas L. Grimes, Jr.

Well, it’s very encouraging.

Paula Poskon – Robert W. Baird & Co.

One last question, on the Briar Creek project in Raliegh, it looks as though there has been no leasing progress made since last quarter. Can you just provide some color on what’s happening there? How’s traffic, etcetera?

Thomas L. Grimes, Jr.

Paula, you get the $100 beer certificate for catching our typo. What that is, is occupancy has stayed essentially flat there which we would expect at this time of year for two reasons. One, the property is reaching that 65 to 75% mark where we typically see turnover begin to occur. So, we saw some turnover occur there and then we also entered the weaker side of the leasing season so sort of winter slowed us down slightly. We’ve leased 158 units there total. We are currently 63.5 occupied and 70% leased. More important than that, on a year-to-date basis we’re about 21% ahead of pro forma on our revenues. Our occupancy is slightly behind pro forma but our rents, our effective rents are about 4.4% higher. We’re seeing a little bit of lull because of seasonality and turnover and then January we had a better leasing month in January than any of the prior months in the quarter.

Operator

(Operator Instructions) Our next question is from Carole Kemple of Hilliard Lyons. Your question please.

Carole L. Kemple – Hilliard Lyons

I was wondering what was the cap rate you all paid for the Milstead Village?

Thomas L. Grimes, Jr.

That was a redevelopment one.

H. Eric Bolton, Jr.

The NOI unit on that Carol was around 5.25 and 5.5 and I think its important here that is a redevelopment property that has a significant component that income you won’t justate for the first couple of years.

James Andrew Taylor

We can get you that specific number but my guess is once its stabilized after the repositioning you’re looking at an NOI yield of probably closer to 7, 6.75, 6.50 to 7.

Thomas L. Grimes, Jr.

I would 7% NOI once it stabilized.

James Andrew Taylor

Once it’s stabilized. Once we get the repositioning done.

Operator

Our next question is from Andy McCulloch from Green Street.

Andy McCulloch – Green Street Advisors

Most of my questions have been answered, I just have one small question. How much NOI did Briar Creek through off in 4Q.

Thomas L. Grimes, Jr.

In fourth quarter it was $299 thousand dollars. We expected it to do about $218 so it was about $80,000 ahead of pro forma.

Operator

At this time I’m showing no further questions from the audience.

H. Eric Bolton, Jr.

Thank you very much. If you’ve got any follow up questions feel free to give us a call. Thank you.

Operator

Ladies and gentlemen thank you for participating in today’s conference. This concludes the program. You may now disconnect. Good day.

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Source: Mid-America Apartment Communities Q4 2007 Earnings Call Transcript
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