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Colonial Properties Trust (NYSE:CLP)

Q1 2008 Earnings Call

April 24, 2008 2:00 pm ET

Executives

Reynolds Thompson - Chief Executive Officer

Weston Andress - President and Chief Financial Officer

Paul Earle - Chief Operating Officer

Analysts

William Atkinson

Dustin Pizzo

Alex Goldfarb

Rick Anderson

Nap Overton

Craig Delcher

Operator

Good afternoon. My name is Wendy and I will be your conference operator today. At this time, I would like to welcome everyone to the Colonial Properties Trust first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Mr. Brewer, you may begin your conference.

Jerry Brewer

Thank you Wendy and welcome to everyone joining us today. We have released our earnings this morning via Business Wire. A copy of this earnings release may be found on our website at www.colonialprop.com. We are also webcasting this call and for your convenience, a replay 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, Chief Operating Officer. On the call they will present an overview of our business developments and operating highlights for the first quarter of 2008 and will discuss our financial results and review our guidance for 2008. After their comments, we will open the call up to take your questions.

Let me remind you that much of the information that we discuss 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 are of course are based on a number of assumptions if any of which if unrealized could adversely affect their accuracy.

Please see our latest SEC filings for the detailed explanations of risk. Any non-GAAP financial measures that we discuss today are reconciled to the closest GAAP financial measures and filings that can be found on our website.

I will now turn the call over to Reynolds.

Reynolds Thompson

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

First quarter highlights include the following: our multifamily management team produced same property net operating income growth of 3.7% compared to the first quarter of 2007. We ended the quarter with multifamily same property occupancy of 96.3%. We completed development of four multifamily properties consisting of over 800 apartment homes.

We continue to have leasing success at our office and retail developments. Of particular note is our mixed-use development Metropolitan in Charlotte where the office building will open over 90% leased this summer.

We repurchased $50 million of unsecured bonds at an average 12% discount and we improved our liquidity position by expanding our line of credit to $675 million.

As we look ahead, we recognize the challenges in the current economic environment. The credit markets, single-family housing and economic growth are all issues which affect our business. Job growth is the most important economic measure we track and the negative numbers from February and March are a concern.

To date, the traffic in our major markets has held up well which has allowed us to maintain occupancy levels and produce growth. The experience of our management team and the quality of our portfolio will allow us to compete very effectively in the current environment.

Last quarter, we outlined several objectives based on our view of the economy. Our objectives remain unchanged. First, the plan to reduce overhead cost is on track to meet our target of cost reductions of $4 million.

Second, our cautious stance on development remains and we further reduced our 2008 development spending. Third, our plan to de-lever the company through the sale of older multifamily assets remains unchanged and fourth, improving liquidity remains a priority. While this type of environment clearly presents challenges, they will also present opportunities. A strong balance sheet will position us to take advantage of these opportunities as they arise.

For the first quarter of 2008, we reported net income of $0.30 per share compared with $0.69 in the first quarter of 2007. FFO for the first quarter was $0.58 per share compared with $0.78 per share for the same period in 2007.

Paul will now provide additional details on our first quarter performance. Paul?

Paul Earle

Thank you Reynolds.

Another solid quarter for multifamily. In fact, that should be banner in all the research reports. Another solid quarter for multifamily.

Same property net operating income was up 3.7% as compared to the first quarter of 2007. Same properties revenues increased 3.3% and expenses increased only 2.5%. Physical occupancy for our same property portfolio closed at 96.3%, the fifth consecutive quarter of closing over 96%.

With respect to NOI growth in our major markets, RC continues a very strong performance track record increasing 12.7%. Huntsville was up 16%. Dallas Fort Worth, 7.6%. Raleigh at 10.4%. Richmond, 7.5%. Charlotte was up just under 1% and Orlando was down only 1.7%.

Traffic at our same store properties was equal to last year in most of our major markets. Internet traffic increased 16% and new leases from the Internet increased 18% sequentially. Turnover in the quarter decreased 320 basis points. Move-outs as a result of home purchases down to 19% for the quarter, that’s one of the lowest percentages in years.

At two of our development properties in Charlotte, Colonial Grand at Huntersville and Colonial Grand at Ayrsley, we have experienced tremendous traffic resulting in excellent leasing. At our Huntersville property, we had 225 pieces of traffic during the quarter and leased 66 apartments and at our Ayrsley, we had 360 pieces of traffic and leased 129 apartments in the quarter. These are just two examples of Colonial creating shareholder value.

We continue to see solid demand in our one and two bedroom apartments with occupancies from these two property types of over 96.5%. These apartments comprise over 90% of our portfolio and are priced at the point that does not directly compete with the overhang of single-family homes and condos.

As Reynolds mentioned, the most important economic measure we track is job growth. While the overall US economy has experienced negative job growth in the first quarter, our markets so far continue to hold their own. Year-over-year job growth has slowed considerably in our core markets. However, only market, Tampa, turned negative, and we only generate 2% of our multifamily NOI from this market.

We continue to like our Company’s geographic diversification. Relative to our peers, we had very little exposure to condos or the overheated housing markets such as South Florida, Las Vegas, and California and with very few three bedroom apartments that compete with single-family home within our young portfolio, in fact, is one of the youngest in the REIT sector, we will continue to produce positive results during this economic slowdown.

Our same store NOI guidance of 3.5% to 4.5% growth for the full year still appears very reasonable. New supply in our respective markets has been held in check and permits are down and new construction starts are reasonable.

As another example of our flexible business strategy at work, this quarter, we moved two of our for-sale residential properties, the on play in Charlotte and Cypress Village and Gulf Shores from our for-sale pipeline into our for-rent apartment category. We are in early stages of leasing and we are encouraged by our traffic count and our net leases.

Next, I would like to update you on one of our other income initiatives. As discussed last quarter, our bulk cable program which we market under the name Colonial Vision was rolled out in 2006. Currently, we have 50 properties participating in this program and we are projecting to produce over $2.4 million of net income in 2008. We will also launch an additional 52 properties this year, adding $700,000 of net income. Net income for 2009 will be approximately $5.88 million from this initiative.

Now onto our commercial business. Our commercial business had an excellent quarter. Our commercial joint ventures performed on budget and once again I would like to remind everyone that we saw the majority of these assets into joint ventures at the peak of the commercial real estate values and distributed the gains back to our shareholders in the form of a special distribution. As of March 31, our office and retail portfolio was approximately 92% occupied.

Leasing at our Metropolitan development in Charlotte is progressing extremely well and we are currently 91% pre-leased on the office portion of this mixed-use development. Having a mixed-use investment such as Metropolitan gives us a competitive advantage and has allowed us to achieve market leading rents.

Over the past few years, we have been able to capitalize on our mixed-use capabilities and beat the market as evidenced in the successful leasing of Colonial Center Brookwood in Birmingham and our award winning mixed-use development, Colonial TownPark in Orlando. We will continue to look for mixed-use opportunities where we can capitalize on our expertise to create shareholder value.

Weston will now provide more details on our investment strategy and our financing activities. Weston?

Weston Andress

Thank you Paul.

First our development activity. As of March 31, we had eight multifamily developments totaling 2,500 and 39 apartment homes underway. Total cost of $241 million including unfunded commitments remaining of $114 million. The multifamily development activity remains focused on key target markets such as Austin and Charlotte.

In the first quarter, we wrote off approximately $800,000 of abandoned pursuit costs primarily related to certain proposed multifamily developments located in the Southwest.

In commercial development, at quarter end, we had two Class A office properties in the pipeline totaling 338,000 square feet, five retail properties totaling 1.1 million square feet, seven properties in total representing an investment of approximately $224 million of which $72 million will have to be spent.

We are on track with three retail property openings in 2008. In the first quarter, we opened Colonial Promenade Smyrna, 93% leased and we are scheduled to open in the fourth quarter, Colonial Promenade Fultondale which is currently 98% leased and Colonial Promenade Tannehill which is 75% leased. Consistent with our strategy, we would to sell or joint venture the properties upon completion and recycle the capital.

Additionally, during the quarter, we began the construction of the phase III of Colonial Pinnacle Turkey Creek which is the 167,000 square foot expansion located in Knoxville, Tennessee and anchors for the phase will include expansion of the existing Duct Store and Best Buy both of which have signed leases. We are a 50% joint venture partner in this development and our total investment is expected to be $14.7 million.

As we discussed on the fourth quarter call, Colonial and our joint venture partner sold Colonial Grand at Canyon Creek, a newly developed apartment community in Austin for a total sales price of $38 million. The transaction was completed in January. We have written out $0.01 and we promote the net income and FFO in the first quarter. We have retained a 25% interest in the new joint venture. We will continue to manage and lease the property.

Additionally during the quarter we disposed of our 10% interest in the joint venture with GPT for approximately $38.3 million. The net proceeds to Colonial were approximately $6 million. The sales efforts to reduce our interest in the Tennessee non-office assets in Huntsville, Alabama are progressing.

At the end of the quarter, we had successfully reduced our ownership percentage from 40% to 33%. We have seen strong interest in these investments and we continue to expect to reduce our ownership percentage down to 10%.

Lastly, we have eight active for-sale residential projects comprised of five condo and town house developments and three land developments. They are a total of 269 units for sale of which approximately 40% are committed. This represents a total book investment of $160 million including $20 million remaining to be spent which is less than 5% of the company’s assets.

Our first quarter interest coverage ratio was 2.3 times and fixed charge coverage ratio was 2.0 times. The ratio of net debt plus deferred to gross asset value was 57.5%. Our plan for 2008 still calls for continued lowering of our leverage which will primarily be achieved through asset sales. We are currently in the market with a portfolio of older multifamily assets and are in the early stages of marketing our retail developments that are nearing completion.

While the credit markets continue to remain in challenge, we believe we will be successful in disposing of these assets and reducing leverage.

As discussed on our last call, we increased our borrowing capacity under our line to $675 million, in which we had $82 million outstanding at March 31. The availability under the line combined with no significant bonds maturing until 2010 continues to provide us with substantial liquidity to fund our current developments and operations.

One item of note in the quarter was related to the purchase of $50 million in unsecured bonds. We have recognized $0.10 of gains in earnings per share and FFO which represents a 12% discount to the par value of the bond’s repurchase and 8.2% yield to mature. Given the current dislocations in the unsecured bond markets, we believe this is a good use of capital in the current environment.

In order to continue to capitalize on the current spreads, our Board has authorized the repurchase of an additional $200 million of unsecured bonds in open market transactions. We will continue to monitor the debt markets and repurchase of certain bonds that meet our required criteria as funds are available.

Our corporate G&A was $5.8 million for the quarter, which is in line with our expectation and is on track to achieve the $4 million of annualized additional savings we discussed on our last call. We continue to evaluate the opportunity to redeem our 8 1/8 Series D perpetual preferred stock that becomes redeemable this month.

While it would be attractive from an earnings perspective to redeem the security, the preferred represents an attractive source of capital and is redeemable at par any time should we determine that it is the optimal use of capital.

Finally, the Board has approved a dividend of $0.50 per share for the second quarter to be paid in early May. This represents an annual run rate of $2 per share which we anticipate will meet the required the payout on our earnings and gains from sales for the year in accordance with the redistribution requirements.

Now I would turn the call back over to Reynolds to discuss our 2008 guidance. Reynolds?

Reynolds Thompson

Thank you Weston.

As detailed in our earnings release this morning, we have affirmed our previously issued guidance for 2008. The guidance remains earnings per share of $1.20 to $1.50 and FFO of $2.15 to $2.25 per share. Our assumptions for this guidance are as follows:

We continue to expect multifamily same property net operating income growth of 3.5% to 4.5%. Development spending of $250 million to $300 million, which has been revised downward from the $350 million to $400 million previously expected. This move is reflective of our cautious view on development and our desire to maintain liquidity for opportunities.

We continue to target dispositions of $450 million to $500 million. The timing will be in the second half of 2008. These sales are the key to reaching our leverage objectives. Development gains of $0.15 to $0.25; as we have discussed, the majority of these development gains are projected to come from the sale of two retail developments which should deliver the low end of our guidance range. Additional gains will come from the sale of units at our Metropolitan mixed-use development that will be completed in the third quarter.

In the third quarter, we have recognized approximately $0.04 per share in development gains including the promote fee on Canyon Creek.

Corporate G&A expense is expected to be $21 million to $23 million and finally, land and outparcel sales will contribute $0.06 to $0.08. In the first quarter we recognized $0.01 per share from outparcel sales.

I would like to note that our forward guided range assumes we will redeem all of our Series D preferred stock in early May. While this remains an attractive alternative, we are no longer including this in our guidance to maintain the flexibility as Weston has mentioned. The impact of removing the redemption was approximately $0.05 per share compared to our original guidance.

In summary, our FFO per share guidance remains unchanged which reflects our cautious view on the remainder of the year. We remain confident in our same property projections. The dislocation in the debt market has resulted in an opportunity to repurchase our bonds at a discount but it has also created a difficult market to execute sales. To allow us moving forward, we have chosen to be cautious with the guidance.

Operator, we will now open up the call for questions.

Question-and-Answer Session

Operator

Yes, sir. (OPERATOR INSTRUCTIONS) Your first question comes from the line of William Atkinson.

William Atkinson

Thank you. Guys, could you give us a little bit more detail on page 16 of the supplemental there is over, first solve the prior development costs of $1.7 million or $0.03 per share. What do that relate to?

Reynolds Thompson

Bill, when we closed those transactions in 2007, we made certain estimates with regard to cost to complete. When those estimates were trued up, we have been conservative in our estimates and actually had more gains there then we had originally recognized and it simply represents the true-up of actual cost.

William Atkinson

Okay. And then -- is that $0.03 figure -- first of all, was it in your guidance for development activities and is it now included in the $0.15 to $0.25 total development activities gains that you are projecting for this year?

Reynolds Thompson

Yes but --

William Atkinson

Okay, but it wasn’t in there previously.

Reynolds Thompson

We expected to have some pick-up from those transactions and so, yes it was in our $0.15 to $0.25.

William Atkinson

Okay. And then also on guidance; the $0.10 in debt repurchases gains, was that previously in guidance?

Reynolds Thompson

It was not, but as I mentioned, we did include the redemption of the preferred which was approximately a $0.05 pick-up in our plan. If you net those two, we are probably $0.05 ahead and we haven’t changed guidance just as I mentioned -- just taken a little bit more conservative view of where the rest of the year can take us. We still got a lot of sales to execute and that’s just our view on being conservative with regard to the projections.

William Atkinson

Okay. And then the new apartment properties in lease off especially Cyprus Village, the former townhomes. What sort of rent rates are you looking to charge there and what sort of interest are you getting?

Paul Earle

This fall, we just opened the doors about 10 days ago. We have had over 25 traffic, we have had five leases. We are renting for $1.25 to $1.30 per square foot. So townhouse product which is usual to provide that kind of product at the beach and so far it being extremely well received in the market and there is a shortage of long-term for-rent product at this location. There is a lot of seasonal rental product but not long-term one-year rental product and so we feel very bullish that this property will do very well.

William Atkinson

And then finally on Orlando; not surprisingly, you weren’t able to push rents there but you did get a fairly decent pick-up on occupancy of 80 basis points. What’s your nearer-term outlook for that market?

Paul Earle

We think we are going to end up this year slightly positive in the NOI line. We have worked through most of the overhang of the condo reversions, the thing that hurt us last year through the second, third, and into the fourth quarter was the condo properties that elected to go back to 100% into the rental pool. We worked through most of that product. There is a little bit of a slowing down of job growth. So we don’t expect a huge amount of rent increases in Orlando but we expect the hold-around to be slightly positive and bullish on ’09.

William Atkinson

Okay. Thank you gentlemen.

Reynolds Thompson

Thank you.

Operator

Your next question comes from the line of Dustin Pizzo.

Dustin Pizzo

Hi good afternoon guys.

Reynolds Thompson

Good afternoon.

Dustin Pizzo

Weston, could you just talk a bit more about the debt repurchase activity and I guess the first -- which specific bonds did you guys buy back and what was the coupon on those bonds?

Weston Andress

We’ve been looking primarily at the bonds with a 6% coupon or above but I think going forward, we are likely to take a broader look at them in that we are looking at yield maturity, not just the coupon associated with the bonds. But specifically we have been buying back to date those bonds would have got the securities would have got a coupon of 6% or above.

Dustin Pizzo

Okay. So I guess in an environment kind of where capital is king, if you have call at may I guess with this 6% coupons, I mean it looks like to me those like the 2016 but if you have sort of a ten year debt at a reasonably priced coupon, do you think the near-term accretion is worth it when the capital is relatively scarce and you may potentially have to reissue down the road at call at 7% to 7.5% plus?

Weston Andress

We are not really looking at that. We didn’t do this to generate -- the $0.10 is a great one-time gain but that was not the purpose in buying the bonds back. What we are looking at is the 8.2% yield for maturity in comparing that to our core business which is multifamily development or acquisitions and you can’t get anywhere close to that and we started this with when we had cash on our balance sheet. We don’t have that anymore but we still think that there is some room you wouldn’t want to do this with your entire balance sheet. But there is some room in our sort of liability structure to put some them additional floating rate debt, meaning our line of credit and to buy back these bonds on an opportunistic basis at those kinds of yields. Even with these buybacks with our current business model we don’t show an issuance until 2010. I mean who knows what the debt markets, the unsecured markets will look like at that point in time? I agree that there is some risk out there but we think that their yield and the sort of dislocation in the markets have given us an opportunity to buy at levels that just don’t reflect the risk associated with it.

Dustin Pizzo

All right, fair enough. And then Paul, just going back to the question on Orlando, was the deterioration of revenue growth there just largely due to trying to pick up occupancy?

Paul Earle

There was some pressure to make sure that we generated all the leases that we need to maintain and manage the 96% occupancies. So a little bit of pressure on rents but just to remind everybody, our portfolio in Orlando is primarily in the northern suburb of Heathrow within a mixed-use format and so we have been able to perform for the last 24 months way ahead of our peers because of the dynamics that we create with our retail and office multifamily environment. It’s truly a live workshop environment and so there has been some pressure on our rents but for the very modest adjustment to deal with and maintain above 96% occupancy through this entire cycle of managing condo reversion properties where coming in the market and so -- we are confident that we have the right platform in Orlando to be successful going forward.

Dustin Pizzo

Okay, and then just looking at the broader portfolio, as you look out at the rest of the year, what changes really in your view that causes revenue growth to accelerate from here to help you guys get to the midpoint of what I'm assuming are still the same store revenue growth ranges, 3.75% to 4.00%, just given tougher comps as we go forward to slow equal on it on the climate, etcetera?

Paul Earle

There is a whole host of things. You have to look across. We are the – our geographic diversity is spectacular. We don’t really have much more than 10% coming from any one market. If you look at the job stats coming from across our markets, they are all so positive except for Tampa which is a very small market to us. May be if you go out and look at Texas, the State of Texas is on fire with growth. Every city in Texas is doing extremely well. Its an island down to itself but we are expecting big numbers out of Texas. If you look back across the Carolina portfolio, remember where that product came from, it came from the Cornerstone transaction where we were able to go in and improve the properties with capital spending and we expected two to three years of positive growth from the older properties that we brought into our portfolio and that’s exactly what is playing out. The unknown truly is the job growth. Our job growth has slowed down considerably, but still positive and if you go substantially negative on job growth, then our range is going to be at risk but we currently feel like there is an economic slowdown but it’s going to be a modest ole and we’ll be able to manage through this and perform well. We got a lot of increased opportunities on renewal because of the quality of the properties that we now deliver to the customer.

Dustin Pizzo

All right. I guess just more specifically, I mean are there specific markets that you are anticipating to accelerate from here, to help you to that range?

Paul Earle

Richmond, Raleigh, Austin, Dallas, Fort Worth --

Unidentified Company Participant

Atlanta, we will probably perform very well, the last half of this year. We are anxious about Charlotte. There is a lot of financial jobs in Charlotte and there is pressure on the banks as we all know. So we are realistic in Charlotte and we are paying attention to the banking consolidation but if you look at our properties, where they are located, most of them look like they are going to perform very well. So Charlotte is one that we would pay attention to.

Dustin Pizzo

All right. Thanks guys.

Reynolds Thompson

Thanks Dustin.

Operator

Your next question comes from the line of Alex Goldfarb.

Alex Goldfarb

Good afternoon.

Reynolds Thompson

Hello Alex.

Alex Goldfarb

Going on to bonds for a minute, can you just remind us what the governance are like on these bonds?

Reynolds Thompson

I mean the governance essentially done on a book value basis allow the bonds total leverage but debt only to get above 60% of book value.

Alex Goldfarb

And that’s on depreciated or?

Reynolds Thompson

It’s not depreciated book.

Alex Goldfarb

Its on depreciated book?

Reynolds Thompson

Non-depreciated book.

Alex Goldfarb

Non-depreciated book, okay so 60% okay and just over all how many bonds again are outstanding what is the gross value and how many would fall into that north of 6% coupon range.

Reynolds Thompson

1.5 billion in total the north of 6 is 800.

Alex Goldfarb

Okay 800 okay, next question is can you just walk back through again you said the numbers sort of quickly on the table; what you expect the incremental this year and how we should expect it to wrap up throughout the year and then what is the net incremental for 2009 from the cable?

Reynolds Thompson

We are going to add $700,000.00 this year and its very much back loaded its late third fourth quarter and 2009 incremental is another $2.7 million in 2009.

Alex Goldfarb

$2.7 million and that would be on top of so for using fourth quarter as a run rate it will be 2.7 on top of whatever the quarterly of the 700,000 is?

Reynolds Thompson

Yes on top of 3.1 that’s right.

Alex Goldfarb

Okay, but the 3.1 includes the 700 this year?

Reynolds Thompson

It does.

Alex Goldfarb

Okay, and then just going to the fore sale product the number of the other in the other outside of apartment have commented about the difficulty of merchant sale business apartment seem to have direct line to Washington but some of the other property types hearing some mix things the risk financing is available on one hand and then on the other hand, some of these deals seem not to happen; how comfortable are you with the (Inaudible) occurring and what do you think if you would depend the likelihood you would fill those versus you may just end up keeping up?

Reynolds Thompson

Well first of all its Reynolds mission we are going to do what makes sense from a real state stand point we are not going to sell these assets at crazy prices we could just wait if need but that being said there are still buyers out there. We feel like that there is financing available on a conservative basis not the CMBS market but from regional banks and light companies and so the pricing is not going to be what we might have got at this time last year may be its 50 or 75 basis points bit the you could compare sort of that 7.5 yield or cap rate to the somewhere between 9.5 and 11 that we have achieved on most of these developments our development profit still look to limit so that’s the business that we expect to continue and at this point we we are being cautious but we fully expect to execute our plan a originally laid out.

Alex Goldfarb

So you mean those cap rates are backed up the gains that you are anticipating today based on where evaluations are today you are still comfortable with those gains relative to the beginning of the year or have the gains come in a bit on each of these deals.

Reynolds Thompson

Relative to what we are comfortable with the gains relative to sort of what we laid out on the last call in just of the clear we had expected that type of a pricing range when we first laid out guidance back in January.

Alex Goldfarb

Okay thank you.

Operator

Your next question comes from the line of Rick Anderson.

Rick Anderson

Hi good afternoon everyone.

Reynolds Thompson

Good afternoon.

Rick Anderson

Now I just wanted to get back on the debt repurchase program you said that it’s not about getting gains and you said 6% plus all that but are you saying that acquisitions now are below 6% in your market?

Reynolds Thompson

I am saying they are below 8%, 8.2% which is the yield we have been getting on these bonds.

Rick Anderson

What was the 6% number that you were referring to them?

Reynolds Thompson

The 6% number is Q point on the bonds.

Rick Anderson

Okay.

Reynolds Thompson

8% number reflects the discount.

Rick Anderson

Okay, thank you for clarifying this now I guess a question on the dividend you said you kept at $0.50 have you ever considering the effect that you are not covering your dividend on AFFO at least by Bio Metric have you ever considered a special dividend and then reduce thing that recurring dividend had that ever sort of cross the table on the board?

Reynolds Thompson

Rick, our current plan our board our management team we are all very well aware of what the current dividend payout ratio is and we have no point as to change our policy what you will see is earn our way to improved coverage ratios. In the mean time we were going to continue to execute the strategy of being an active recyclers of capital which has kept our portfolio young and competitive and it’s also had the byproduct to creating investment gains in excessive $300 million over the last couple of years that have not been included in earnings per share and that’s the point we were going to execute.

Rick Anderson

Okay one more on the fact of the debt repurchase program how do you balance that with stock by back how attempting was that for you?

Reynolds Thompson

Well stock by back is a current level is obviously very tempting unfortunately we did not have the balance sheet present to do that we would love as a management team to be asking our board for the ability to buy back several $100 million worth of stock that’s not the cards today you can do because of the last existing leverage but we can do the buying backs which is the next best thing on a leverage neutral basis our quality is still to improve our overall leverage through these asset sale and until we get to the leverage overall leverage level that we want we believe that the bonds are the best way to take advantage of what’s going on in the market.

Rick Anderson

Okay, one question from Earnest.

Earnest

Real quick guys currently on your guidance you have at the development gains to be a range of $0.15 to $0.25 where do you project as to be those for sale gains to be on 2009 and a follow up and a follow up is that currently 9% you see a decreasing and if so how will it decrease with a nominal range decrease like down to $0.10 to $0.15 or will it decrease because of total FFO increasing?

Reynolds Thompson

In ’09 I would expect our total gains to be in the same general range. I would also expect that it would be slightly lower on a percentage of our overall number because of FFO growth. I think that’s what you were asking, if its not please re-ask the question; we’ll make sure that we can clarify.

Earnest

No that’s exactly, that’s what I was asking, thanks.

Operator

Your next question comes from the line of Nap Overton.

Nap Overton

Good afternoon. Couple of things, mostly clarifying questions. The total gains in the first quarter funds from operation per share, could you just -- could you identify them for me including the now partial sales and development profits? What was the total number?

Reynolds Thompson

4 pennies and what we call development gains. That included the prepotency on a can increase sale which actually didn’t get booked there but that was a way it got booked. That was thing that we didn’t expect to earn in our development gains. 1 penny from land, so you are up to 5 and then you could put the bonds in a separate category which is the $0.10 that we discussed.

Nap Overton

Right, okay. So a nicely total.

Reynolds Thompson

A nickel total

Nap Overton

And where did -- where does that promote the show up in your financial statements.

Weston Andress

It shows up in the other non-property related revenue.

Nap Overton

Okay and then total development capital speeding in the fourth -- in the first quarter was how much?

Reynolds Thompson

It had roughly $82 million of development spending and we got on page 15 account from our retail joint venture percentages and then in our multi family CapEx as detailed out on page 9 there. Roughly $4.3 million.

Nap Overton

Okay and I’m not asking you to give ’09 guidance but what were the reasonable person -- your down to $250 to $300 million development in CapEx estimated for 2008; what would a reasonable guess say that would be in 2009. Remain about flat drop a little further just based on our gut feeling; I know a lot can change between now and then.

Reynolds Thompson

Now if I would, that is a very hard question to answer because of the economy and I am a big caviar -- that would be, we have a fairly active pipe like which could be accelerated if we saw an opportunity to do so in the market. From where we sit today I’d say that the range might be 250 to 300 very much like we’ve given this year, but that could change if we felt like we were in an environment where we wanted to be delivering more product to the market.

Weston Andress

And we do have a number of developments and if we cut back on our developments mainly one of the ways that we’ve done that is to put on hold primarily apartment developments and so we have that sort of there inventory and we could start those projects sooner rather that later of the economy picked up and there was some visible job growth.

Nap Overton

Okay and then just to make clear your guidance now does include the $0.10 gain on the repurchase of the barns in the first quarter but it doesn’t include the $0.05 of income that you had in as part of your guidance from the preferred stock redemption which you don’t have in your guidance now and so that nickel really is a safeguard and what I hear you saying is the most multi family business is very good, very strong, no change in expectations at all fundamentally for the core business and so that nickel is kind of cushion for you on the gains that you expect from the retail sales later this year. Is that accurate?

Reynolds Thompson

That is accurate, you got it.

Nap Overton

Okay thank you.

Operator

Your next question comes from the line of Richard Paley.

Richard Paley

Hi guys a whole host of follow up questions and I think I will just start off with a follow up from that last question. I am getting confused but you now say that you do not include the charges for the preferred redemption but in prior guidance you did include that charge for preferred charges.

Reynolds Thompson

Those charges have never been included in.

Richard Paley

Okay, because I am looking on the fourth quarter earnings release and there is foot note one in the next and it says “The Company has the option redeem its outstanding $125 million then it pursue these in late April. The Company if they redeem all the outstanding deeds they would expect to record a non-cash charge of $0.08 per diluted share” and I am going to jump in the sentence it says “the 2008 FFO per share guidance does not include the impact of such redemption.”

Reynolds Thompson

Correct.

Richard Paley

So, what you are saying but I thought you said before it did included and now it doesn’t include it.

Weston Andress

I wanted to try say this again. We did not include any redemption charges in the guidance. Our guidance range did include the positive impact of redeeming that two different things going on there; $0.08 and redemption in non-cash charges was not included. We had included $0.05 and pick up from paying off the preferred.

Richard Paley

Okay alright that’s why I thought I was concerned like within. Talking $0.08 to $0.05 that’s why I said when I set off that I am very confused.

Reynolds Thompson

Two different issues.

Richard Paley

Right okay that’s why I just want because I thought now you are saying -- and that it’s now included.

Reynolds Thompson

The other charges still out there. If we chose to do that we are going to have that non-cash extraordinary item.

Richard Paley

Okay. So the other one was set in guidance just to net I guess carry cost if we want to call that. The next one is and perhaps I missed it on the retail projects that are likely to be or intend to be sold what’s the lease up date at the end of the quarter.

Reynolds Thompson

Status in the leasing, we’ll you give you some color on that and some of that is currently 93%.

Richard Paley

And you said Poulten Baird was 90%?

Reynolds Thompson

98%, it’s found as 93%.

Richard Paley

Okay

Reynolds Thompson

Now these projects are well positioned from a leasing stand point to go to the market.

Richard Paley

Okay good.

Reynolds Thompson

And we have said it’s likely that these transactions would close late third quarter, fourth quarter this year.

Richard Paley

And then, this is the last actually two questions, but second last question. Multifamily assets sale you’re still holding the guidance unchanged. What is the sounds like its back and loaded though what’s going on there with respect to the process?

Weston Andress

We have got a portfolio sale that includes 18 assets approaching 5000 years that we have divided up amongst three different brokers and these investors are going to be given the opportunity to invest in the entire portfolio or in small approvals or in individual assets. We do have four assets in Texas representing about $40 million which are -- we currently have a depositor -- an investor that is hard on those and so we have made some headway there but the transaction is expected to be North of approaching $300 million and in the timing would be late third early fourth quarter and these are older assets with an average age of 21 years primarily will locate it around our flip trend but with preponderance in Carolina’s and in Texas.

Richard Paley

Okay and then the last question on the CapEx I noticed in the same store portfolio that CapEx year-on-year first quarter of ‘08 first quarter of ‘07 was up about 40 a little less than 40% and I know its sort of early in the year but what is the what’s the trend there is there anything specific with that? Do they I know this last year CapEx was up for the same store portfolio also and I think there was an answer for that and I can’t recall.

Weston Andress

No it is just timing and preparing the property so we can have a fantastic spring level season and doing all the work; subject to whether doing all the work as early as possible if you look at our history on CapEx we were on pretty consistent. It’s one of the most completive with the numbers out there we are got the newest portfolios. If you look at the run rate for the first quarter we will just be a little bit $500 per unit run rate so that’s not unusual going that at all. Just a little bit it also carried over from the fourth quarter so that’s going to be the -- that will be and the run rate slightly down to the year.

Richard Paley

Okay thanks.

Operator

Sure, next question continue on is Craig Delcher

Craig Delcher

As I am here with the Michael Done as well. The selling up on the dispositions was that early to find yourself late in the year and also as you just comment on the capital raise you’re expecting on the portfolio itself?

Weston Andress

But we have had plan its planned our self this many years and in a larger portfolio sort of all along in I guess we had it broken up into an one transaction earlier this year and then one later in the year and we sort of combined it all at this point and so yes this is generally it’s been part of plans and so since day one. I think that we believe the capital raised on this portfolio is still will be somewhere around 6.5 and 6.75.

Craig Delcher

Is that an economic cap raise?

Weston Andress

That’s a market cap raise.

Craig Delcher

Okay so it’s that typical 250, the (inaudible) CapEx in the management fee emergency?

Weston Andress

Correct our CapEx amounts to be a little higher than that though in this on a portfolio with an average age is as discussed.

Weston Andress

Yes if you remember correct this has got an average age of 21 years so.

Craig Delcher

Okay and on this sort of the retail assets that they interest in those assets that smallest what’s the what was the process in that and who wanted to do that and then also what is the potential for it transactional got on the some of the office and retail JVs you did last year for your interest to the economy?

Weston Andress

Those are just now entering the market, so we don’t have a buyer we have listed if it with the brokers and are you talking about the GPT transactions.

Craig Delcher

The GPT.

Weston Andress

Our GPT the GPT Beth Cock and Brown group have brought some other malls with a private developer they wanted to be in the mall business. So as opposed to colonial who respectively exists in the mall business and so they moved the management of that of our joint venture over to this other MT and as a result of that we required to buy colonial wealth. They bought us out at the same price that they brought the malls for -- I guess it was 2 or 3 years ago when we originally entered into the GPT Beth, Cock and Brown venture so because that effectively results in our not being in the mall business at all anymore.

Craig Delcher

Okay thank you.

Operator

And there are no further questions at this time.

Weston Andress

Well thank you everyone for joining us today. We appreciate your time. Look forward to talking with you next quarter. Have a good day.

Operator

This concludes today’s conference call you may now disconnect.

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Source: Colonial Properties Trust Q1 2008 Earnings Call Transcript
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