Post Properties, Inc. Q2 2008 Earnings Call Transcript

Post Properties, Inc. (PPS)

Q2 2008 Earnings Call Transcript

August 5, 2008 10:00 am ET

Executives

Dave Stockert – President and CEO

Tom Wilkes – EVP and President, Post Apartment Management

Tom Senkbeil – EVP and Chief Investment Officer

Analysts

Christina Kim – Deutsche Bank

Dustin Pizzo – Banc of America Securities

Sloan Bolling – Goldman Sachs

David Toody [ph] – Citigroup

Michael Billerman – Citigroup

Karin Ford – KeyBanc Capital Markets

Alex Goldfarb – UBS

Michael Salinsky – RBC Capital Markets

Matthew Demchick [ph] – Carlson Capital

Richard Paoli – APG Investments

Steward [ph] – KeyBanc Capital Markets

Presentation

Operator

Good day everyone and welcome to the Post Properties second quarter 2008 earnings conference call. This call is being recorded. (Operator instructions) At this time, I would like to turn the call over to Post Properties President and Chief Executive Officer, Mr. Dave Stockert for opening remarks and introductions. Please go ahead, sir.

Dave Stockert

Thank you and good morning. This Dave Stockert, I want you welcome to Post Properties second quarter conference call. With me today are Tom Wilkes, President of Post Apartment Management; Tom Senkbeil, our Chief Investment Officer, and Chris Papa, our Chief Financial Officer.

Before we begin the business of this call, I'll reference the Safe Harbor statement. Statements contained in this conference call regarding expected operating results, including expected same store revenues and other events are forward-looking statements that involve risk and uncertainties. Actual future events or results may differ materially from these statements. Such forward-looking statements are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 and are made based on management’s current expectations or beliefs as well as assumptions made by and information currently available to management.

A variety of factors could cause actual results to differ materially from those anticipated, including those discussed under the caption Risk Factors in our annual report on Form 10-K dated December 31, 2007. Post Properties undertakes no obligation to update any information discussed on this conference call. During this call, we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measures can be found in our earnings release and our supplemental financial data. Both documents will be available through the Investors Relations section of the Company's Web site at postproperties.com.

This call is now live on our Web site and will also be recorded and available for playback on our Web site. I'll now turn to the business of this call.

In the six weeks since we announced an end to the sale process, we've been executing on the strategies we had identified to preserve and enhance shareholder value. Through the five-month sale process, we encountered a progressive deterioration in the financing markets. This condition obviously persists today and we are acting accordingly. We've increased our assets held for sale to a total of $500 million, including well-located that older communities in Atlanta and Washington D.C. and our high-rise communities in Manhattan. While cap rates have certainly increased, we believe there is a meaningful arbitrage between the private market value of these assets and the evaluation implied by the price of our stock in the public markets.

We are year marking [ph] proceeds from assets sales for a combination of debt repayment, special dividends, share repurchases and other general corporate purposes. With the uncertainty in the transaction market today, we will close the asset sales in advance of committing the proceeds. During so, we will maintain the straying from liquidity of our balance sheet. In early July, we implemented cost cutting measures in all of the major corporate divisions of the Company, cost containment will be a continuing emphasis for us throughout the remainder of this year and as we budget for 2009.

We've evaluated our development pipeline, shelved the number of projected and dropped a land contract. We've evaluated the carrying value of our land positions in our condominium inventory and recognized impairment charges and other losses as a result. We've cut our pre-development pipeline by more than half. We'll incur greater expense interest in carrying cost as a result of these steps, but it is obviously prudent than we do in the current environment. We have moved one land development site to held for sale, but plan to hold on to the remainder of our land sites. They are well-located in sub-markets with long and difficult entitlement processes, which we have by and large completed.

We believe they will be attractive investment opportunities when future conditions improve [ph]. Our existing pipeline of construction projects listed on Page 14 of the supplement is smaller because of the lease-up and stabilization of our Hyde Park project and the cessation of our Citrus Park both located in Tampa. Leasing is on pace with Post Alexander and Buckhead, and in Post these sites in North Dallas our two lease-up properties only have contracted for more than $80 million of condominiums at our Four Seasons project in Austin, collecting more than $8 million in deposits. For the projects in pre-development, we are currently seeking joint venture equity and discrete construction loans as a requisite to future starts. If we are unable to obtain such financing, we will evaluate deferring additional projects until the conditions improve. Finally, as announced this morning, we have settled with Pentwater Capital Management in a way that adds additional multifamily experience to our Board of Directors and allows us all to remain focused entirely on the business.

Turning now portfolio results, same store revenue growth moderated to 2.6% in line with other geographically similar REIT portfolios, notably Atlanta and Dallas were two of our better performers. We were able to raise physical occupancy to just over 95% at quarter end almost a 1.5% higher than at the end of last quarter. Our estimates for the balance of the year assume that we can hold occupancy but will have a difficult time raising rents in light of the weakening job market. As to expenses, we continue to have unfavorable comparison in year-over-year property taxes. This is our largest expense category and was up approximately 6% in the quarter. We also incurred a large expense increase of more than 20% for building repair and maintenance. As we have discussed on the past two earnings calls, we are painting more of our properties this year to shorten the repainting cycle. Although this decision is causing a material short-term increase in this expense category, we believe that it is right thing to do for the long run. Once we have established a new run rate for exterior painting in 2008, the increases in this category of expense should moderate in the future.

In other areas of our portfolio operations we are rolling out two technology enhancements in order to advance our Internet leasing capabilities and to introduce a resonant portal that should enhance resonant service. Finally, we have made it a priority to maintain a solid balance sheet, debt plus preferred stock to total undepreciated real estate assets was 43.6% at quarter end. And debt maturities through 2009 are quite manageable. Even assuming no asset sales proceeds and the completion of our projects in active construction, debt plus preferred stock to total undepreciated real estate assets will grow to not more than 50%.

Borrowing capacity at quarter end was nearly $500 million and we expect to have access agency debt in asset sales proceeds to preserve our liquidity finance debt maturities in fund construction in progress. Looking ahead the Company has considerable strengths in our portfolio, our people, our brand, and our balance sheet. By following through on the steps we outlined on June 25th, we acknowledge the reality of the current economic and financing environment, more important that we build on our strengths to create a leaner more focused Company, positioned and navigate the current cycle and realize the value of the business with that cycle turns.

I would now ask to operator to open up the phone line to Q&A.

Question-and-Answer Session

Operator

(Operator instructions) And we will take our first question from Christina Kim with Deutsche Bank. Please go ahead.

Christina Kim – Deutsche Bank

Hi, good morning. Could you just talk a little bit about your decision to sell the impairment assets now? It doesn't seem like you have any eminent needs for the capital in this – wondering whether you are just consolidate your markets or what the rationale may be.

Dave Stockert

Yes, that's a great question. It has to do partly with consolidating our markets. We do think that given the scarcity of high-quality impairment assets that we can achieve good pricing and if we can sell assets and achieve good pricing and use that reinvestment – say the stock through repurchases and our special dividends to shareholders' we think that that's a good thing to do.

Christina Kim – Deutsche Bank

Okay. And then could you comment a little bit on Tampa and Orlando, it seems like there is much greater evaluation and fundamentals there in Q2, then we saw some – some of the appears [ph], what are you seeing there now and what's your outlook there for the rest of the year?

Tom Wilkes

Good morning, Christina. This is Tom Wilkes speaking. I think to a certain extent, this is timing related. If you go back a few quarters, our revenues on a year-over-year basis held up a bit more. But now they are experiencing the same condition that all other assets experiencing there. We are not sure that we are bottomed out. We do believe that our year – sequential decline in effective rents is decelerating. The occupancy has settled into say mid-90s and we are doing our best to raise rents on renewals where we have the opportunity, but it's a very difficult pricing environment given the job market and the oversupply of both multifamily and condo in single family.

Christina Kim – Deutsche Bank

Okay. And my final question is just on the revenue growth guidance for the year. Based on what you guys had in the first half of the year, trying to guess for the full year, it seems like there's going to be a little bit of an acceleration on this in the second half? Could you just talk about where that's coming from?

Dave Stockert

Sure. Our first quarter revenues were up 3.1%. Our second quarter was up 2.6%. That was primarily driven by the growth in effective rents, is our effective rents were up 2.6% for the first half of the year. On a full year basis, we believe that our effective rents will be 2%. So, what we see a deterring ability to raise rents on a year-over-year basis. So, one can assume that we were up 2.6% for the first half and we are going to be 2% for the year, that we anticipate only being up around 1.5% on a year-over-year basis for the third and the fourth quarter. Occupancy should be higher in the third and fourth quarter than it was in the first and second quarter as we anticipate being able to remain at around 95%. But if you look on a year-over-year basis because of the first half of the year's lower occupancy, our occupancy for the full year should be around 94.5%, which would be on par with last year's 94.5%.

Christina Kim – Deutsche Bank

Okay. That's helpful. Thanks guys.

Operator

And we will take our next question from Dustin Pizzo with Banc of America Securities. Please go ahead.

Dustin Pizzo – Banc of America Securities

Hi, thanks. Good morning everyone. Tom, could you just touch on the revenue again first, so the full year guidance is 1.8 to 2.1, right?

Tom Wilkes

That's correct.

Dustin Pizzo – Banc of America Securities

Okay. So, outside of the Florida markets and Austin, it looks like you are expecting a fairly seeing a decline in top three markets to get there. Am I looking at there right, and can you just talk about given that all appear to have held up fairly well this quarter on a year-over-year and sequential basis? What is it just occupancy side of it or –?

Tom Wilkes

First of all, Dust I think you went to say Tampa and Orlando because Austin is the opposite end of the spectrum with respect to our ability to push rents. We have pricing – and the ability to push rents as shown in this sequential growth of Atlanta and Dallas, Houston and Austin. Our ability to push rents in D.C., Charlotte, and Florida are fairly marginal. We expect that for the rest of the year, our pricing power in Atlanta and Dallas and Houston will be flat to slightly down.

Dustin Pizzo – Banc of America Securities

Okay. And then just switching over to the asset sales, can you go into any detail on what the LTVs are in the 8 assets that you have held for sale, that (inaudible) in the fore sales process. And then could you also touch on your expectations for pricing the various markets where you are looking to sell the assets? Since last quarter you talked about 25-basis point rise year over year on like quality assets in your markets. Is that still consistent?

Tom Wilkes

I think cap rates (inaudible) condominium average cap rates moved 80 basis points, I think that's more in the range of what you are going to see since the transaction market has moved. As far as LTV, on these assets typically it's in the range of 65%. I think the coverage in the ratio has moved a little bit, it's about more on 125 –.

Dustin Pizzo – Banc of America Securities

Okay. And then just lastly, what are your thoughts on the current dividend. At least on our numbers given the resizing of the Company, it's not sustainable to current level. So, is it something that you are going to reevaluate going forward upon the completion of the asset sales and long side of potential special dividend?

Tom Wilkes

I think if we pay the large special dividend we will look at that. Special dividend is going to require or is going to dependant on the timing of asset sales which tax years they might occur in, how much is capital gains we can tell this is normal dividend, but the special dividend of size several dollars a share, we would look at that because obviously that's capital returned to shareholders' and out of the business.

Dustin Pizzo – Banc of America Securities

Okay. And then just lastly, since you mentioned, is there any estimate for the timing of the asset sales?

Tom Wilkes

No. We are just now starting the process and my expectation is this is going to take some period of time. Obviously, we are not – we don't a gun to our heads on this, and we don't have our backs to the wall. We want to get good prices and I think we are in the transaction market where the experiences you may go through a bitter and then another bitter to get deals done.

Dustin Pizzo – Banc of America Securities

Okay. Thank you.

Operator

We will take our next question from Sloan Bolling with Goldman Sachs. Please go ahead.

Sloan Bolling – Goldman Sachs

Good morning guys. First question, could you give a break down of the $28.9 million charge? Was the majority of that tied to the Citrus Park Village development?

Dave Stockert

Yes. It was generally spread amongst the poor projects. We had some impairment at Citrus Park that the basis on that asset was about $8.6 million before the charge. The derivative was spread amongst Soho, Baldwin Park, and Allen Plaza, that's where the majority of the charge was spread between those three projects.

Sloan Bolling – Goldman Sachs

Okay.

Dave Stockert

As well as some other pursuit costs.

Sloan Bolling – Goldman Sachs

Okay. And then along with Citrus Park, could you give us an idea what the potential buyer for that development may be?

Tom Senkbeil

This is Tom Senkbeil. There are a number of multifamily developers in that market that we are having discussions about, and again like Dave said, we will sell it if we get a reasonable price from what it is. And we are not under any pressure to sell that at a price that we don't think reflects the ultimate value.

Sloan Bolling – Goldman Sachs

Okay. And then last question, could you guys give us an idea what the stabilized yield on the recently completed assets and their development capital is?

Dave Stockert

That was under in – at low 6.

Sloan Bolling – Goldman Sachs

Okay. Thank you very much.

Operator

We will take our next question from Michael Billerman with Citigroup. Please go ahead.

David Toody – Citigroup

Good morning. This is David Toody [ph] here with Michael. Just a couple of more questions around the development pipeline. Does you team feel comfortable that the cutbacks in the second quarter were the end of the right sizing process?

Dave Stockert

As I said, we've still got half a dozen projects in pre-development and we are out there in the market today to talk with folks of that private equity and construction loans. We'll see how that goes. But if, as I said in remarks if we are unable to secure that financing we would still look at those pre-development project.

David Toody – Citigroup

Okay. And then you guys seem to have a slightly more dire tone relative to development in the current environment. Can you just provide some color on your perspective of the potential for these projects? Is it metro-specific or is it a more universal demand issue?

Dave Stockert

We are not negative on development. We are just looking at the reality of the financing market today. And both the equity for financing in the debt markets have obviously changed very dramatically. So, if we are (inaudible) is less than optimistic but the development has to do with financing. I think actually supply and demand in multifamily is going to be relatively imbalanced for the next few years. And I think some of the projects that get build in this timeframe are going to deliver in to a much more healthy environment. So, it's just a question of financing, but clearly financing has more challenge today and we just want to be realistic about that financing environment and make sure that our balance sheet is sacrosanct.

David Toody – Citigroup

Okay. And then just along those lines, my last question is relative to the write offs in the condominiums. Could you provide a little bit of detail on the accounting decisions behind that process?

Tom Wilkes

As we do every quarter, we go through and look at our projected revenues and our costs through the projected sell out of those projects. And what we are doing is on a relative sales value method allocating costs to each of the sales dollars as we close those units. As we true up those estimates each quarter we actually true up the project to date. So, any previous profits that were recorded we will true those margins up to our current expectations, so we make essentially an adjustment to bring those forward. We've don this along the way, so this not something that you do but we did take another look at it this quarter as we only do and try to adjust again to the realities of the market anywhere we think both revenues and costs are going to be through the sell out.

Michael Billerman – Citigroup

Hi, this is Michael Billerman speaking. Can you talk a little bit more about the sales process? I know you had not plumed on before, but now it was there and now that has ended, you talked about there being no definitive proposals. How far Park deferred in the bidders in terms of the indicative proposals and not bringing those over the goal line, and just talk a little bit about the Company's expectations and the market not meeting that?

Tom Wilkes

I wouldn't want to get into price discussions. But I guess what I would say more important than that is the availability of equity for a deal of this size was very limited. As was the cost of debt financing, which was changing all the time and the financing markets essentially deteriorated through the five-month sale process and it shouldn't be surprising that we would say that given the fact that in the four or five weeks since we ended the process, we've had a government legislation rush through Congress and signed by the President to buttress the mortgage market and specifically Fanny and Freddie. So, things were moving quite dramatically and the fact that there was no transaction at the end is reflective of what's going on out there in the financing market. So, it's not really a question of someone had to deal with 'x' that was poorly financed and we just didn’t like the price. The just – the financing markets were just very, very difficult and they remain difficult today.

Dave Stockert

And so it was more so that the bidders did not want to proceed rather than the Board saying, ' if you are going to be at price, there's no reason to even move to a purchase and sale and in turn to definitive proposal'

Tom Wilkes

Yes. It's a complicated mix. It's not quite that simple but it's a complicated mix you are talking about. But it has a lot to do with the financing markets.

Michael Billerman – Citigroup

And then you mentioned some of the assets held for sale. So, they are $500 million of gross proceeds relative to the assets held for sale on a balance sheet that $260 million?

Tom Senkbeil

Right.

Michael Billerman – Citigroup

So, about $240 million of potentially gain, is that similar to the tax gain or how different are they?

Tom Wilkes

That's similar. I think the tax gain is in that same – about half of the gross proceeds.

Michael Billerman – Citigroup

And so how much do you think, if let's say all the sales were done in this calendar year, what sort of – how have you laid out in terms of special dividend and potential reduction in the common, what sort of the level that we need to be mindful of? You can absorb $100 million again this year, but if you get to the full $240 million then the common dividend goes in half. I'm just trying to –

Tom Wilkes

We – the common dividend wouldn't go in half. To take the math, we can accommodate something on the order of $60 million to $70 million roughly of gains in the year. And so, if all of them were done then we would have an incremental – we could have an incremental special dividend that could be $4 a share or something like that, may be more than that if it was all done this year. I would be surprised frankly if that happens. Maybe all of them could get done this year, but I really don't think it's going to be that quick. And if it's not that quick then it could be much smaller in terms of special dividend. So, we'll just have to take it from there.

Michael Billerman – Citigroup

What's the NOI related to that $500 million?

Tom Senkbeil

It depends on the cap rates. Obviously you've got 5 Atlanta assets and the Washington D.C. assets and two New York assets. So, obviously a little bit higher on the gardens – more garden style Atlanta and Washington D.C. assets and lower on the New York assets.

Michael Billerman – Citigroup

Okay. Thank you very much.

Operator

We will take our next question from Karin Ford with KeyBanc Capital Markets. Please go ahead.

Karin Ford – KeyBanc Capital Markets

Hi, good morning. What happens to your condo business within the strategic, the new strategic plans of the Company?

Dave Stockert

Obviously, the condo market is rough out there and we don't have anything in the pre-development pipeline. In terms of condominiums, we've got a couple of condominiums project under construction and we are very focused on making those as successful as we can. And in particular in Seasons where we are in marketing we haven't – we continue to revive contracts and have good success at the four projects that are in an active sale. Two of them are getting much closer to sell out at Coral Island, Mercer Square has accelerated in terms of the sales pace and I think we've seen a big tick in Houston at RISE, the one that is the most challenging for us at the moment is Harbor Island in Tampa where we've got roughly 45 or units remaining, 43 is remaining in the sales pace and Tampa has been very slow. And that was a conversion of apartment community, so we have not done this today but the fallback there is to re-lease those units and basically sit on it for a better time in the market.

Karin Ford – KeyBanc Capital Markets

So, we should likely not expect to see you guys start any more condo projects?

Dave Stockert

No. We won't.

Karin Ford – KeyBanc Capital Markets

Any more. Okay. The land sites you kept versus the ones that you are selling, can you just talk about what the differential was in the hurdle rates between the two?

Dave Stockert

It's more to do with the locations. If you look at the land where we have the impairments, two of those – one of those is in Orlando in a community called Baldwin Park, which is a mixed use community close to downtown. It's a great location. There's just not going to be land similarly situated land and ultimately that will be a good development site as is the case with the Soho project, which is in Hyde Park, which is the highest in the neighborhood in Tampa. The Citrus Park development which we have moved to held for sale is in a more suburban location and so really has to do with location at the land sites.

Karin Ford – KeyBanc Capital Markets

Okay.

Dave Stockert

And are long-term attractiveness

Karin Ford – KeyBanc Capital Markets

What is your current development hurdle yield?

Dave Stockert

It's moved up. It's moved up and a lot of it is predicated on what private equity is looking for.

Karin Ford – KeyBanc Capital Markets

Okay. Are you able to offer a potential buyer of your $500 million of assets for sale, agency financing are they still standing by post –?

Dave Stockert

Yes, the agencies have certainly underwritten these assets. So, it will probably speed the process for somebody. But a buyer would – they would have their own structure that they might be interested in and things like that. So, would engage in a conversation. Yes, we've underwritten all these assets, so the agencies are very familiar with all the assets.

Karin Ford – KeyBanc Capital Markets

Okay. Finally question, can you just talk about what the role of the Crocker will be on the Board?

Dave Stockert

Doug has been for sometime now our Chair of our Strategic Planning and Investment Committee, and we take all of our investment decisions to that committee as we do with our business plan conversations. And so Doug will continue to have – he's been in a leadership role in that way and as Vice Chairman in a little elevate that role will continue to have great leadership from Bob Goddard and then we are excited to – very exited to add David Schwartz. I think he's going to be a perfect Board member. He's been in the multifamily business for a long time, and I think he'll bring a great perspective.

Karin Ford – KeyBanc Capital Markets

Great. Thanks very much.

Operator

We will take our next question from Alex Goldfarb with UBS. Please go ahead.

Alex Goldfarb – UBS

Good morning.

Dave Stockert

Hi, Alex.

Alex Goldfarb – UBS

Just first question is just on the expense line as you move from capitalizing – I think you are going to capitalize expense more. Just want to get a sense of impact to the different line items that we should expect?

Tom Senkbeil

I think you talk about capitalized interest on the four projects?

Alex Goldfarb – UBS

Yes. And also anything that would flow into G&A or other line items there?

Tom Wilkes

Yes. I think what you are probably looking at – it took this quarter – the impact this quarter is roughly about $0.015 impact we did store to expend some of those costs away in the quarter as we made the decision to pull back those projects. If at the run rate I think I referred on the quarterly basis is around $0.03 a share on a quarterly basis both related to those four projects.

Alex Goldfarb – UBS

(inaudible) a share just in the interest line or at the interest –?

Tom Wilkes

Every line [ph] you are carrying costs.

Alex Goldfarb – UBS

Okay.

Tom Senkbeil

Cap interest, real estate tax, mainly cap interest.

Alex Goldfarb – UBS

Okay. And what about on the G&A, any adjustment or the head count reduction offsets that?

Tom Wilkes

Not so much. We are not really capitalizing on the G&A line. The line item you see on the cost, development cots is all related investment cost, that's line item that essentially will cap incremental development overhead the projects but we do not store actually capitalizing two projects until they are actually approved then we start the development. So, there was no cap with the exception of some minor amount of cap on Citrus. The other projects had not stored cap yet. So, they really won't be any impact per se on those projects by pulling that back other than the fact that in the future we would have started to capitalize some of those costs as we started those projects, obviously that would – the amount of cap would be reduced on a go-forward basis because we would not move to capitalize those quickly. So, that will be impacting the P&L. But you take the two cost, the one we've report on the P&L and what we report in the back of the supplement as cap, you can get to the run rate on a gross basis of what we are looking at and the will be cap going forward will largely depend on when we start new projects.

Alex Goldfarb – UBS

Okay. And then circling back to David Toody's question on the potential for more (inaudible). Is there any indication or any sense there could be write-down’s on fields that are already under development, and then also if you can just quantify potential for write-down’s of existing condos as you true up the line faced on later sales. Is there a sense of we could just see a write-down of condo projects?

Dave Stockert

In the condo projects we've looked at them. So, we think we've looked at them taking into account the market that we expect. On the existing construction projects, no don't see any impairments on those, where you've got some pre-development costs on some of the pre-development projects that's probably the area where you could have something in the future if we were to be unable to secure the financing and decide to defer for an indefinite period of time those projects.

Alex Goldfarb – UBS

Okay. And just my final question is, if you can just discuss the changes that you guys have taken as far as the accrual process for deals from before when these fields that were written off or approved in going forward have the underwriting process in investment process may have changed?

Dave Stockert

We've always had a very thorough underwriting process and we take all our deals to the Strategic Planning Investment Committee of Board of Directors. The reality is over the 2006 and 2007, we were net sellers of assets. But if you bought something in 2007, that was obviously in high side that was at the peak of the market. And so, you are looking backwards now and you are just trying to say take a realistic look at this land and make sure that we've got it recorded on the balance sheet at the right number. The process is always been thorough. We just all get to look at the process in the way – we are view mirror at the moment.

Alex Goldfarb – UBS

Okay. So, the filtering process and the yields, all that stuff is same as it was before or –?

Dave Stockert

No. The yield requirement as we said earlier, the yield requirement is going to go up.

Alex Goldfarb – UBS

By how much?

Dave Stockert

It depends on the project, but we've always tried to have a spread between development yields and dispositioning cap rates. We are all in a bit of a price discovery at the moment disposition cap rates are.

Alex Goldfarb – UBS

Okay. And you guys –?

Dave Stockert

I think it's evolved to be honest with that.

Alex Goldfarb – UBS

Okay. And you guys trend or use current yields?

Dave Stockert

We try to use current.

Alex Goldfarb – UBS

Thank you.

Operator

We will take our final question from Michael Salinsky with RBC Capital Markets. Please go ahead.

Michael Salinsky – RBC Capital Markets

Good morning. Of the remaining development projects which you have, do you still have in the pipeline there? How many of those are you mandated either by the municipality or other function as a development move forward with?

Tom Wilkes

None of them though.

Michael Salinsky – RBC Capital Markets

So, there's no agreements with any of the cities or municipalities anything that you have to move forward those in certain days so those can be delayed in that –?

Dave Stockert

Yes.

Michael Salinsky – RBC Capital Markets

Okay. Secondly, several of your piers has mentioned that traffic patterns in June in particular head slowing down considerably but July had picked back up. Are you seeing some more trends across your portfolio?

Dave Stockert

We are seeing great occupancy in July, just tracking really from the period of April where we bottomed, did an occupancy of 93.2%, we've been ascending since then. May averaged 93.9%, June 94.6% and July 94.9%. Today we are beginning August at a very – 94.9%. So, we feel good about averaging 95% plus for the third quarter. So, yes, we are experiencing a nice surge in traffic. But from the pricing standpoint it's still a difficult environment and I think that's a similar referring from our competitors.

Michael Salinsky – RBC Capital Markets

Okay. That's helpful. Third, the $3 million of cost saving as you mentioned in the press release there from severance and other things, how much that is it property level versus how much that is going to be at the corporate level?

Tom Wilkes

Let's the majority of those costs are at the property –

Dave Stockert

No, at the corporate level.

Tom Wilkes

At the corporate level. But the property management could save a vast –

Michael Salinsky – RBC Capital Markets

Okay. And then finally, you've announced that this is more of bigger picture question. You've announced plans to sell further assets. You've announced plans to exit New York. Should we expect further big announcements in the coming months, may be exiting the condo platform all together, may be downsizing markets or do you fell pretty confident where you are at right now?

Dave Stockert

I think we've got enough on our plate right now. We’ll continue to look at our costs and focus on financing the development pipeline, the pre-development pipeline. But in terms of big major exiting markets and things that we see at the moment but we'll continue to assess the market and make sure that we are positioned to get through the cycle successfully and be a stronger Company coming at the other end.

Michael Salinsky – RBC Capital Markets

Okay. Thanks guys.

Operator

Ladies and gentlemen upon receiving some additional questions in the queue, we will allot some time for these questions, and we will take our next question from Matthew Demchick [ph] with Carlson Capital. Please go ahead.

Matthew Demchick – Carlson Capital

Hi, looking at page 22 in the supplement, there's a line called held for sale operating properties, is that the NOI from the eight properties you are selling?

Tom Wilkes

That is – yes, essentially what we are doing is adding back because the held for sale properties are – the held for sales properties included in discontinued operations. So, essentially adding back the NOI there to go into the top side NOI that you see on page 21.

Matthew Demchick – Carlson Capital

Okay. So, if you annualize I guess those numbers there you get to about 6 cap for the sale assets? And then I guess the implied portfolio of cap rate is 8.1 on the same page. So, in light of that significant arbitrage, just curious how aggressive you might be once you have sale proceeds with the share repurchase?

Dave Stockert

We'll see how we go. As I said, first thing we are going to do is close the sales. Unlike through the balance sheets an order closes sales and then we'll look at what we are do with the proceed. The other thing as we talked about in a question earlier, we got to figure out depending on the timing obviously to what degree we've got special dividends.

Tom Wilkes

And the report on net adjustment, one thing lumen area in New York is 68% owned by Post [ph], it's a consolidated subsidiary but the adjustment for that property reflects 68% of Post share.

Matthew Demchick – Carlson Capital

Okay. All right, thank you.

Dave Stockert

Thank you.

Operator

We will take our next question from Richard Paoli with APG Investments. Please go ahead.

Richard Paoli – APG Investments

Hello.

Tom Wilkes

Hi, good morning.

Richard Paoli – APG Investments

I jumped on the call a little late. So, excuse me if this is addressed. One, I think New York came out of the same store pools, why did that happen and what was the NOI growth in New York for the quarter and then I have two follow-ups?

Tom Senkbeil

The New York assets came out of the same store pool, Rich because they are held for sale. We are expecting to market those shortly for sale. And Tom if you got the numbers of the same store number for New York.

Tom Wilkes

So, everything that's held for sale has been pulled out of the regions.

Dave Stockert

That's correct. Everything there, Rich, goes down to discontinued operations.

Richard Paoli – APG Investments

Okay. Could you just give me a sense on – I imagined a sensitivity in one of the reports in individual markets than did you sell in both of the assets but what was the growth rate on the stuff that pool of assets that are being sold relative to the total same store, I don't know if you have that handy?

Tom Wilkes

Again for Atlanta, for the Atlanta and Washington D.C. I doubt it's much different than what's reflected in the rest of the same store. Then New York would be different – would be the one varying.

Richard Paoli – APG Investments

Okay

Tom Wilkes

For Lumin area [ph], our revenues were up 4.3%, at Tiskana [ph] revenues were up 1.3% for the quarter on a year-over-year basis.

Richard Paoli – APG Investments

And NOI?

Tom Wilkes

NOI was down and that was at around 5% cumulative between the two. Part of that is some of preparations for the sale as well as the property tax escalation on the 421A projects.

Richard Paoli – APG Investments

Right. Okay. My next question is more of a bigger picture. Good to see that you guys have the plans to move forward with asset sales and so to call it like you see it on the land development parcels, but this is not the first time that Post has had a footfall, I will call it on the development side operationally things have been bouncing around I realize you have been distracted but one, how we would have confidence that you guys are going to be able to execute both on the operations front and further with respect to future development. You talk about the process yet, I don't recall many other companies at this point, impairments on projects that are just about ready to go on development. I can understand on land-owned and things change but it seem like you are pretty close on lease land project and all of a sudden I've got to take an impairment. And then secondarily, could you just remind me of how the executive are compensated, what the benchmark are? And what are the – what's the Board's thought here with respect to the job that you guys are doing for shareholders'?

Dave Stockert

So, you've got a lot of questions wrapped up in there?

Richard Paoli – APG Investments

Yes. I guess you get the general sense, one, how we have confidence that we are not going to have another footfall? And two, –

Dave Stockert

Let me – I'll say a few things. Operationally we talk about distractions and that sort of thing. I would disagree. To some degree I think that Tom and the Property Management Group are very focused on making leases and drive in the inner way. On the expense – on the revenue side of NOI for the same store portfolio is very much – we are seeing the same patterns that everybody is seeing on the revenue side. And if you look at the count ups, the other apartment REIT who have reported whose properties are geographically similar, I think our revenues are holding up just fine. On the expense side, we got two issues, one is we've got property taxes particularly in Atlanta where they did a big revaluation of all the commercial real estate in Atlanta and we are going to hit on that. We have a very aggressive program of going after those property tax increases and the story has not concluded yet, but when we see these increases in taxes we go ahead and make accrual adjustments to reflect and then we work to see if we can get those tax increases down. The other thing we did on expenses and this was intentional. We talked about that before when we did the – coming into this year we talked about our last quarter and this quarter is we are shortening the painting cycle and we expense property paints and it's painful to do that in 2008 because it creates a big variance in building repair and maintenance expenses but it's the right thing to do to get us on a shorter painting cycle in terms of the long-term value of the assets and the attractiveness of the assets as we sell them. And we are going to have to write that out of 2008. We are going to get a different sort of base line for that, and then on a go forward we shouldn't have a similar increase. As it relates to development, the development projects in the pipeline are coming along well and particularly on the rental apartment side, I feel very good about that and the execution and the quality of the projects, the construction, the timing and things like that. With respect to the land, we bought some land in Florida over the past few years and having come through the process as we did, other retail [ph] had a five-months sale process and experienced what we did in the sale process. We came out of that. Obviously there wasn't a transaction and we had gone into the sale process expecting that there would be a transaction, there wasn't. So, we moved to an alternate set of objectives and we are moving on those, and as it relates to impairments, it's not something that the accountants force you to do. It's something we are doing. We take the initiative on this, but we just say, 'look if we are doing all this, let's take a hard look at everything', and we are. So, the – how the Board – we've got this part of the Board and we continue to move forward and that's all we can do.

Richard Paoli – APG Investments

Okay. I appreciate.

Tom Senkbeil

Rich, this is Tom Senkbeil. I would add one thing. I think what we've done and I think some other people probably haven't done is taking a hard look at our land positions and value those in accordance with what it takes to finance a deal in this current market. Yield requirements and IRR requirements have gone up and if you – construction cost are what they are that really makes land a residual evaluation and that is dropped from what it was. If we are going from say 18 months ago what people were looking to get a 6 to 6.5 yield and today they are looking a lot closer to 7 yield. Obviously that has a negative impact. That's what you are seeing. It's anything other than that.

Richard Paoli – APG Investments

Okay. I appreciate you guys answering some tough questions. Thanks.

Tom Senkbeil

Thanks Richard.

Operator

We will take a follow up question from Michael Billerman with Citigroup. Please go ahead.

David Toody – Citigroup

Hi, this is David Toody again. Forgive me if I missed this. But did you talk about pre-leasing in your current developments under construction?

Dave Stockert

Sure in Post Alexander. Are you referring to the ones that on page 14?

David Toody – Citigroup

Yes.

Dave Stockert

It's the conclusion of last quarter, we showed 32. So, we've been moving at Post Alexander at 22 per month. Our lease rate is about $1.60 per foot. An on Post East side, on the last quarter we showed 18, so we've been moving about 18 per month there. We began moving people in only in the last 65 days and only recently took occupancy of a temporary leasing office. So, we've been doing about 18 per month there. And on the remaining communities we have not begun leasing. The one project that's no longer on this page is Hyde Park. Then we stabilized that as at end of July.

David Toody – Citigroup

Great. Thank you.

Dave Stockert

Sure.

Operator

And we will take our last question, which is a follow up from Karin Ford with KeyBanc Capital Markets. Please go ahead.

Steward – KeyBanc Capital Markets

Hi, guys, it's Steward [ph] here with Karin. I wanted a follow up on Rich's last question. Is there any plan to undergo a corporate level sold selection and restructuring? I hear what you guys are saying but I think – not only – entirely your recognition went full bore at condo development and the acquisition of land which is causing write-down’s today in the destruction of shareholder value. And when others weren't necessarily nearly as aggressive and I don't necessarily hear and acknowledge them, I know that you are guys are laying off some of the personnel that were involved within some of these divisions, but I don't necessarily hear an acknowledgement at the corporate level that there's going to be some downsizing or restructuring related to any of the decisions that were made really put you guys in a bad way?

Dave Stockert

Look I'll just say this. I think responsibility for every decision we've made, did that help you? And I live and I understand it fully and what we are focused on right now is marching forward as a Board and as a management team because all we can do from looking back over history is learn from that and I believe we have and we take that forward, but that's the game plan.

Steward – KeyBanc Capital Markets

But there's not a more intentive [ph] internals sort of restructuring effort at the senior level that's likely to go on at this point.

Dave Stockert

I think we've got the team to execute this plan.

Steward – KeyBanc Capital Markets

Okay. Thank you.

Operator

Ladies and gentlemen, this will conclude the question-and-answer session. Mr. Stockert, I'll turn the conference back over to you for closing comments.

Dave Stockert

I just appreciate you all joining the call and we'll talk again in three months.

Operator

And this will conclude today's Post Properties second quarter 2008 earnings conference call. We thank you for your participation and you may disconnect at this time.

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