From Seeking Alpha's Colonial Properties Trust Q2 2008 Earnings Call Transcript:
On how different markets are faring:
Paul F. Earle, COO: “Good occupancy, good renewal growth… Atlanta’s performing very well… We have found a bottom in Orlando starting late last year and Q1’08 and we are seeing some acceleration of pricing power, which I think will lead to a very positive 2009 so we have weathered the worst of the storm in Orlando. Dallas-Fort Worth just continues to perform on all fronts, good job growth. All of Texas is really doing very well compared to the U.S. economy and the supply coming into Dallas-Fort Worth and our sub markets is not a factor at all.”
Weston M. Andress, President, CFO: “The four assets that we sold out in Texas, we did not provide seller financing. The only one that we provided seller financing for was our Shelby Farms asset in Memphis and… that was really a timing issue that invariably was a 1031 buyer. They had the equity ready to go and it was a 70% loan undervalue or loan to purchase price loan. We felt very comfortable with it and feel very confident that will be taken out 90 days from now but I think that to have sat around and waited for Freddie Mac and Fannie Mae, they would eventually show up to close the loan but the buyer had equity ready to go.”
Dustin Pizzo – Bank of America: “[With] Freddie in standing, given everything that’s going on have you seen any indications that the appetite there… is waning at all to provide lending on the multifamily side? WA: They’re still there. There’s no question about that. The line at [Freddie’s] front door is very long as they essentially are the only permanent financial provider in the market today, or at least the only competitive one and so it just takes a lot longer to get things done. Rich Anderson – BMO Capital Markets: “What’s the interest rate on seller refinancing? WA: 6%.”
On macro effects like renting and turnover:
PE: “Well, our turnover is down but we’re very sensitive to the fact that we are experiencing slower job growth and so we are managing through our renewals very cautiously so we don’t aggravate our turnover unnecessarily and then create a need to backfill, which will increase our advertising, increase our marketing, increase our turnover cost so we… turn our attention to managing renewals and being very sensitive to what a current resident will tolerate in a way of a rent increase… We will go city by city and then submarket by submarket… For example, Charlotte is a big banking community. There’s a lot of pressure on the banks, there’s some job losses occurring in Charlotte so inside our portfolio we’ll be very careful in Charlotte, but then you may go to a Dallas-Fort Worth where there’s an economic expansion and we’ll treat renewals a little differently.”
On retail office space and cap rates:
WA: I think that the multifamily sales that we closed are pretty… good indicators of where cap rates are. You had some 23 year old assets in Texas that sold at a 6.5% cap and a 7 year-old asset with a brand new Phase II in Memphis that sold at a 5.9% cap rate. Clearly there’s pressure on those cap rates. There are less buyers in the market but there are… investors that are making use of Fannie Mae and Freddie Mac debt and are willing to go through the cumbersome process of getting their hands on that debt, so there’s pressure but you can still make those transactions happen at an attractive rate.
On the retail side, there’s clearly a flood of retail centers in the market out there today and there’s probably, from where we were 12 months ago, maybe 100 plus basis points of pressure and we’ve said that we think our centers will trade in 7.5 or 8 or so, and these are brand new Target and Wal-Mart anchored centers that we’re talking about so that would be, there are buyers. It’s a much thinner market than it has been… It’s not the core institutional money that’s running around buying these assets today… core institutional money is sitting on the sidelines… Maybe it’s a 1031 buyer or a syndicator or a tenant-in-common buyer or something like that but you can still get transactions done.”
On rental stats and employment trends:
PE: We anticipate the Sunbelt markets that we’re operating in will be flat on the job growth front so just simply not a big decline in job growth in any one market, just basically a flat job picture. Philip Martin – Cantor Fitzgerald: Anecdotally… what are your people hearing from the tenants when they go in to renew their leases in terms of their employment situation, is that I give a higher percentage of unemployed in your properties, etc.? PE: Typically, here’s a good stat, typically we will turn over, about 25% of our move outs relate to employment or jobs. Last year through June it was at 26.9%. This year through June it’s at 25.2%, so it’s in a very tight dangerous, down slightly, but it’s in a very tight band so we’re not seeing any unusual activity because of job or job related move outs. A lot of people that are coming in to our rental office where we’re talking about the cost of the commute to work… and there’s less talk about moving out to buy a home, not only because they’re financially stressed but also because of the fear that home prices may decline further, and so our home move outs are down below 19% and if you look way back in time our old run rate on home move outs was 15% and it’s below 19% now, so this current economic time is going to turn out to be favorable for apartments as long as we don’t see a huge job loss factor in our markets.”
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