Camden Property Trust (CPT) 2002 Q1 法說會逐字稿

Good day everyone and welcome to the Summit Properties first quarter 2002 earnings release conference call. This call is being recorded. At this time, I would like to turn the call over to the President and Chief Executive Officer, Mr. Steven R. LeBlanc. Please go ahead sir.

Thank you Diane. Good morning everyone and thank you for joining us today. I have Michael L. Schwarz, our Chief Operating Officer, and Gregg D. Adzema our Chief Financial Officer here with me. Before we begin our comments, you should know that during the call we would be making forward-looking statements based upon our beliefs and opinions. We want you to recognize that we may be wrong and the results may not be what we except. We ask you to please form your own opinions. We have organized this call as follows: I will lead off with the summary of our strategy, the current conditions in a market, and then a quick review of our results for the quarter. Michael will then provide a more detailed review of our operations, and Gregg will follow up with a review of our balance sheet and our capital markets activity for the quarter. I will then come back and provide an outlook for the remainder of 2002, and will turn the call back over to Diana to answer questions, to help field your questions. After the questions, I will conclude with some closing comments. Our strategy is to be the market-leading operator of class A apartments in seven core markets. We believe we create a competitive advantage, make much better capital decisions, and drive shareholder value by attacking these markets in depth with strong local paints. Since 1998 we pursued this strategy vigilantly. We sold our bottom core total assets in those non-core markets, and redeployed that capital into new development in our core markets, particularly Washington, Atlanta, and South Florida. Today, we have exited 11 non-core markets and sold over $0.5 billion in assets, over one-third of our balance sheet. We are very committed to completing our consolidation in these core markets by the end of 2003. During this sellers market we believe it is a great time to be selling communities at very low capital rates. We believe that over the long-term that this disciplined reallocation of capital into our core markets would drive shareholder value. Unfortunately, today our seven markets are currently some of the most challenged department markets in the country. Since our last call the Department of Labor has revised the job numbers for our core markets. In 2001, the Department of Labor reported that our core markets graded 252,000 jobs. Last month, this number was cut in half to 122,000 jobs, still positive though. But additionally in December they initially reported that we had job growth in our core market of 50,000 jobs. In fact, that number was revised down to a loss of 127,000 jobs. Then just this week, the March numbers were released. They show a loss of 95,000 jobs in our core markets. Keep in mind; we believe that every five to six jobs creates a demand for one apartment. If that statistic holds true, we will then see a reduction in demand of apartments in our seven core markets between 16,000 and 19, 000 units. We are also projecting 48,000 new units will be delivered this year, combined to upgrade an overhang of about 64,000-67,000 units. In addition to that, the low interest rate environment has encouraged our customers to leave our great customer service to buy their own homes. As you know, our core markets are experiencing high number of home purchases and home ownership. Finally, the low interest rates are still encouraging private developers to continue to start new apartments. Permits greatly exceed demand. Until we see the number of permits and starts reduced dramatically we will be faced with an extremely challenging and overbuilt market. There is hope that the transparency of these facts by the public companies will force the slowdown and the curtailment of new supply. I want to emphasize the actions we are taking to tackle this challenge. We pushed hard last year to drive occupancy, and will continue to manage with the highest achievable occupancy in our markets. As you might remember, we also reduced senior staffing last quarter. We are also staying very close to our customers by delivering phenomenal customer service. This is proven by a 4 CEL award for the best customer service in our industry. We believe this will pay dividends when the economy recovers and over the long term. Next, we will be very aggressive on cost control and expense reduction. We have rolled up our sleeves. We will continue to make the tough decisions required by this market. We are still committed to be the market-leading operator of class A apartments and to the safety and soundness of Summit Properties. For the quarter we earned $0.52 a share, in line with our expectations and street consensus. Same property operating income declined 3.9% over the last year, while occupancy was essentially flat at 93.6%. In spite of the continued economic weakness in our core markets I am encouraged by our ability to hit our $0.52 a share and maintain our occupancy. But overall, we have and will continue to adjust to this new operating environment. However, I believe we will remain in this current environment for the remainder of this year with improvement coming in 2003. With that quick overview let me turn the call over to Michael L. Schwarz, our COO, who will provide more specific details on our operations for the quarter. Mike?

Thanks Steve, and hello everybody. The difficult operating environment that began suddenly in the third quarter of 2001 accelerated in this quarter. As Steve mentioned, we got revised job loss numbers in March. In our seven core markets the preliminary number of an increase of 50,000 jobs. When comparing employment levels in December 2001 to December 2000 we revised downwards to a loss of 127,000 jobs. Jobs create apartment demand. In addition, low interest rates have created a red-hot for-sale housing market, and have provided low-cost short-term capital to merchant builders. Combined, we have one of the worse set of economic conditions the apartment business has seen in some time. Before I review for you our results by market, let me remind you that we update the composition of our same-store portfolio in the first quarter of each year. This year's changes increased the same-store pooled properties about 50%. Our same-store results now capture 88% of our operations, which is the highest percentage we have had since our early days of the public company. These additions to our same-store pool are all of newly developed units that have been completed and stabilized by January 1, 2001. Our portfolio remains the youngest portfolio owned by any public company. Collections from our same-store portfolio declined 1.7% from the quarter one year ago. As you recall, this is the same rate of decline relative to the year ago period that we experienced last quarter. Despite concessions picking up during the quarter these results were on plan as we offset these increased concessions with an occupancy pickup. It was our early look at April results combined with the trends-on concessions and the new job numbers that caused us to change our outlook for the remainder of the year. Let me cover performance of our same-store pool and the outlook for our three largest markets. In the Washington area the majority of our same-store pool is located in Northern Virginia. This is the market that has been hit hard by the economic slowdown and job losses. Our results for this quarter are indicative of this environment. For the quarter revenues declined 1.1% as we held occupancy, while rents declined 2.5%. In the last quarter's call I gave guidance for our assets in this market, up flat to up 3%. We then found out that the greater Washington area lost 21,000 jobs December over December. This fact clarifies for us why operating fundamentals in this market had been slipping. Concessions in this market have become pervasive, increasing 41% from the fourth quarter to the first. With the revised job numbers creating a worsening concessionary environment I now expect our Washington assets to be down some 3%-5% for the year. As an indication of how demand in this market is slowed, our traffic has declined by almost 20% this quarter versus the quarter one year ago. Our next leg of the market is South Florida, which makes up 15% of our same-store pool. This market also saw job growth come down dramatically, cutting 35,000 jobs off the numbers originally announced. Despite this jobs data traffic is up in this market and turnover is down. My estimate for operating income growth for our portfolio in this market was up from 1-3% using the old jobs data. I expect that we will come in at the lower end of that range. For the quarter collections increased almost 1%, despite an occupancy decline of 1.6%. This market is still reasonably healthy. Atlanta is our third largest market. As most of you know, Atlanta lost 62,000 jobs December over December, and the recent March jobs release has Atlanta losing 71,000 jobs March over March. Our last operating income forecast set Atlanta down 1% to up 1%. We were in this range in the first quarter, but it will get worse from here as new supply is added to the market with reduced demand due to significant loss of jobs. We are forecasting almost 12,000 new apartments will hit this market in the coming year. Atlanta may currently be one of the worst apartment markets in the country. Turning to the portfolio as a whole, the forecast we reviewed for you last quarter was supported by our assumption that same-store operating income would range between down 2.5% to up 0.5%. Since then demand has continued to decline, beyond what we thought. Concessions are now pervasive and significant, ranging anywhere from one to three months. We have never experienced this level of concessions in past cycles. We have very low interest rate driving both home buying, a major competitor, and very low cost short-term capital for merchant builders. With all that, despite hitting our budgets for the first quarter, I expect our same-store results to decline in the range of -3% to -8%. This is driven by the fact that we have residences that signed leases one year ago, virtually no concessions, that we are replacing with the ramps down anywhere from 4%-20% after considering the concession. Ironically, our disposition efforts have never gone better. We currently have over $80 million under contract itself, and we expect to receive a weighted average cap rate below 8% on assets with an average age of 12 years. This is the cap rate for full capital expenditures using our last 12 months of cash flow. Gregg will go over our capital plans in more detail. But the silver lining in all of this is that our disposition efforts continue to provide cost effective capital to the company. On the operation site of the business we are doing everything we can to outperform in these difficult times. That means we will be aggressive cost cutters. Our onsite personnel have become very creative in ways to cut costs that they control, and we will continue to extend those efforts not only onsite but to our regional incorporate offices as well. We have a team of committed and well-trained associates that are up to this challenge. Now let me turn the call over to Gregg so that he can give you an update on our financial strength.

Thanks Mike. From a capital markets prospective, the first quarter was on plan and uneventful. We did not issue or purchase any stock, nor did we have any debt maturities or new debt issuances. Overall, our capital plans remain very straightforward. Essentially, we continue to match fund our development efforts with sales proceeds. With no property sales in the first quarter we focussed on redeploying the proceeds from our $105 million sales during the fourth quarter. As Mike outlined earlier, the market for apartment communities, particularly our class A communities in institutional quality markets is red hot. Subsequent to quarter-end we saw the final community enrichment, a 16-year-old asset at an 8.1% cap rate based on turning 12-month numbers before cap ex. You will see more sales close over the next few months. In terms of our capital commitments we have approximately $70 million left to spend in our development pipeline, or roughly 5% of our balance sheet. With $105 million available on our line and almost $10 million sitting in electronics exchange escrow account, this development commitment is more than covered. By almost any measure our balance sheet remains firm and provides us with adequate financial flexibility. Debt and appreciated assets is a reasonable 50%. Variable rate debt represents only 23% of total debt. We have a very balanced maturity schedule, with only $41 million maturing in 2002 and nothing in excess of 10% of total debt until 2007. I would like to be clear by discussing our investment-grade debt ratings. We are absolutely committed to an unsecured strategy and maintaining our investment-grade unsecured ratings from SMP annuities. Everything we have done since obtaining these ratings in 1996 confirms this commitment, and we have no intention of wavering off this path in the future. With that let me turn the call back over to Steve.

Thanks Gregg. A lot has changed since we spoke to you last quarter. Our core markets have changed from a slowdown in job growth to a loss of 95,000 jobs. Low interest rates have continued to feel record home sales, and the permitting, starting, and delivery of new apartment homes. This is an unprecedented response in our recessionary economy. We have less customers walking in the front door due to job losses, and more customers walking up the back door to purchase a home due to these low interest rates. Those same low interest rates have allowed developers to avoid the pain of falling rents. That being said, I want to reaffirm our commitment to our strategic plan. We are very focused on being the market-leading provider of class A apartments in our core markets. These markets have in the past and will again in the future lead the country in job growth and household formation and apartment demand. Today they are suffering the job losses of the recession. If history repeats itself, they will lead the country out of the recession. Unfortunately, our foggy crystal ball doesn't show that occurring until 2003 or even later. This uncertainty, along with the increasing concession that we have seen in the last quarter, the reduced revenue we have experienced in April, and the job loss data that has recently come out, requires us to lower our guidance to $1.95-$2.15 for 2002. We remain committed to our plan, but we have got to stay flexible in order to respond to the market conditions as they change over time. With that, let me turn the call over to the operator to field your questions. Diana, we are ready to take the questions.

Thank you Steve. The question and answer session will be conducted electronically today. If you do have a question, please press the * key followed by the digit 1 on your touchtone telephone. We will proceed in the order that you signal us, and take as many questions as time permits. Once again, to ask a question please press the * key followed by the digit 1. And our first question comes from Dan [_____], Banc of America.

DAN _____]: It seem that you have $80 million under contract right now, and $70 million left to fund of development. Any thought that you would proceed with more asset sales and suffer some near-term dilution in order to accelerate the capital recycling?

Dan, this is Steve. I think that is a great question. We are committed to exiting the non-core markets and getting into our seven core markets. We are committed to taking advantage of the red-hot asset sales. So that is an alternative. In this economic uncertainty we are going to do what we think is best during the year. So we are committed to the plan we have told you, and we will consider accelerating if we thought that that's in the best interest of the shareholders. DAN [______]: How much is incorporated into the current guidance? Is there any dilution incorporated right now or it is all just the revision in the same-store guidance?

Dan, this is Gregg. We have made no changes to our sources and uses schedule from previous guidance. The adjustment we have made is from property operations, same-store and otherwise. DAN [______]: Okay, great. One final question; I am just wondering if you could quantify some of the trends that you are seeing in April in terms of the greater concessions and traffic levels.

Thanks Dan. I would say that the markets that we are having the most trouble with are the Washington market, Raleigh, Austin, and Atlanta. If we were to quantify; where the previous guidance was 2.5-0.5, the biggest delta would be the Washington market, both the delta in that guidance but also the significance that Washington has to our portfolio. DAN [______]: Okay. Thanks very much.

We will continue on with Rob Stevenson of Morgan Stanley.

Hi. Good morning guys. In terms of the annual guidance for 2002, are you looking at the second quarter being the lowest of the earnings progression? Are you likely to step down significantly further and hold that? Or as you are sort of thinking about it right now, where is the sort of trend for earnings throughout the year? When do they start picking back up, and where does it hit its low point?

We believe that you will likely see a decline in FFO in the second quarter, that kind of gets maintained in the third quarter, and then maybe a slow gradual increase in the fourth quarter.

Okay.

A lot of that is going to be dependent upon what this economy does. We believe there is still uncertainty. We are in the classic jobless recovery phase, and how long that lasts.

Okay. What is the delta between the $1.95 and the $2.15? You said it is basically that the revisions are basically property operations, and not external growth earnings or like that. What are you looking at in terms of same-store annual growth? Do they get you to $1.95, and what are you looking at the $2.15 level?

Thanks Rob. Let me just go through that. This is Mike. Our previous guidance was 220-230. That ranged between -2.5 on same-store to +0.5. Lets take the best-case scenario. That 0.5 now in our view changes to -3. That costs us about $3.7 million or 12 pennies. So, that 230 becomes 218. Then the difference between the 218 and the 215 is lost in our lease-up properties. So that is on the high side. On the low side, the 220 was at -2.5% same-store. That goes to -8. That cost us almost $7 million. That's $0.22 or $1.98. That $1.98 goes to $1.95 with loss to lease on the lease-ups. So the range of same-store, again that is 88% of our operations, now is -3 to -8.

Okay. What did you guys see in terms of the first quarter, in terms of delinquencies? Have you see any acceleration thus far in the second quarter?

Delinquencies, I believe Rob, are down year over year. So delinquencies have really never ben an issue with Summit Properties ever since I got here. So I don't ever recall delinquencies being above 1% point in Summit's public history.

Okay. What about unit turnover? Where was it in the first quarter and where is it running right now?

Unit turnover is actually slightly down. Unit turnover for the first quarter was at 51.6%, down from 53% in the first quarter of last year. Reported the data in April; I am kind of reluctant to give this number, let us just say that the turnover is down again in April versus April a year ago.

Okay. Then one last question; what have you guys been seeing in terms of month-to-month leases? Has that demand in your portfolio increased in the past couple of quarters?

No. We have got very modest exposure to both month and month and corporate units.

Okay. Thanks guys.

Thank you.

Once again, if you do have a question please press the * key followed by the digit 1. Our next question comes from Bryan Lake of Merrill Lynch.

Hi guys. Can you just give us a sense for where the concessions per unit have gone from, using sort of a year-over-year comparison also sequentially versus fourth quarter? Also, can you just give us a sense for what kind of concession package you are offering to visiting tenants? Does this sort of close this backdoor?

Thanks Bryan. Concessions per unit in the first quarter of 2001 averaged $44. Concessions per unit in the first quarter of 2002 averaged $95. Concessions in the fourth quarter of 2001 were at $80. So, we saw significant increase between the fourth quarter and first quarter as well.

Just in general, what type of concession package are you offering? Have you changed; were you not offering concessions to existing tenants as their leases roll over? Now you are having offer concessions? What is that typical package now?

That's actually a very good question. Concessions in the marketplace range is again by unit type and its very customized, but its anywhere from one to three months. But typically in past cycles we have not had to offer concessions on renewal, and we have not to-date had to do much of that. That is what actually we are concerned about, because that's what started creeping into April's numbers. I expect that that will continue, that concessions on renewal will become more than norm than they are today and have been in past cycles.

Is this going to be just one month at the high end or is this up to three months in some of these markets for renewals?

Yes, its painful. I would be surprised it would go to three months, but it is certainly something we are watching. The fact that our turnover is down, I think, is a testament to our people providing the customer service they provide, but also the communities that we build.

Okay. Just further along this note, what markets are the three-month variety and what are in the one-month variety?

I would break that down by subcutaneous markets, and also lease-ups. It appears that our merchant builder competitors, because of the low cost of the construction financing, are going to any measure to get their apartments full. Therefore, its not unusual to see three months on lease-ups in virtually every market we are in. On stabilized property, that's much more unusual than would be on targeted poor plans that aren't moving very quickly. So we are seeing three months on lease-ups. I can't think of a market; except for the some that are filled up we are now in lease-up that are offering that kind of concession. I can't single out any one market that is more concessionary than another. Just Washington's change has been impactful.

Okay. Would markets in Atlanta and Austin be the worst, for stabilizing? Would they be the sort of three-monthly ones?

I would say that Atlanta and Austin are among the worst.

Okay. Given that you are offering three months of concessions on development, what does this do to your development yields? The lease-up of your developments are not exactly overlooked better versus the fourth quarter, but the lease-up is still really slow on your development.

I would say that in Delta when I talked about that, 218-198, we split between those numbers because of the lease-ups, and again that's the concessionary environment therein. We actually had some encouraging news during the quarter on Crest Overlook and Peachtree City, which are the most impactful in earnings in 2002, where we had net leases pretty slow in January and February but topped to 23 at Crest and 42 at Outlook. In Peachtree City we averaged 16 leases a month during the quarter, but we are in the two to three month off in those markets. I would say that yields on those developments that are in lease-up today, our outlook has changed from the 91/4 we talked about to 83/4, if this concessionary environment continues.

50 basis points is all you get for three months of free rents?

Yes. But remember that we had factored in the 91/4 as down from the original underwritten yields, Bryan. So it is just the delta. So going from a month and a half adding another month is really what we are talking about.

Okay. Your Summit Crest; the others looked like they perked up a bit. In Peachtree and Overlook you had 22 versus 13 in the fourth quarter for Overlook and Peachtree of 16 versus 8. But your Summit Crest actually fell to 7 per month versus 10 in the fourth quarter. What's going on in the Summit Crest?

Crest is an asset in North Raleigh. We did 23 net leases in March. We are having a big April. I think Crest and Overlook will be stabilized really at the same time, which will be late this quarter or late the second quarter.

_____]: Is it because of this concession package that you are having so much to manage? It seems kind of contrary to what you are saying that April is really a pretty miserable month so far, but it sounds like your development lease-ups sounds like it is a pretty good month. What's going on there?

We are being competitive on price as this is a very competitive business. We are attracting more than our fair share of the traffic, enclosing more than our fair share of the customers.

_____]: Okay. Sorry, the last couple of questions. You have your physical occupancy the same, 93.6% basically flat, and that is up from the fourth quarter. Can you give us a sense of what the economic occupancy would be?

Yes I can, Bryan. Let me go on to the next question and I will go back with you in a minute.

Our next question comes from Stephen Swett with Wachovia Securities.

Good morning. Most of my questions have been answered guys, but let me just ask a couple. First on the G&A. You have commented a little bit on cost cutting and some of your senior management changes. Is that a reasonable run rate using Q1 for the rest of the year?

Hi Steve, its Gregg. I think a more reasonable run rate for the balance of the year would be $1.5 million quarterly. What pops up the first quarter above that run rate slightly were two major things. One, we increased our accounting costs for professional services from our accountants. Both audit and elsewhere have gone up, and we increased our accrual during the first quarter for that reason. We also had some stock grants that we began accruing for. That increased it higher than you will see going forward a little bit. So I would say the run rate going forward, Steve, will be about $1.5 million.

Okay. The second thing I want to ask is, in going through Europe your discussion about what's changed in your view, it struck me a little bit that a lot of what you commented on was sort of rearview mirror. They made some adjustments to historic job changes, and therefore you are changing your outlook. You seem to me that you guys are in the market everyday. Is it just that the tone of your conversation is referring back to some of those changes or are some of those job change restatements really what is driving your changed outlook? Could you just talk a little bit more about what you are seeing in the market versus what some job change numbers have been?

Steve, that's a great question. What we are seeing in the market in the fourth quarter was a dramatic slowdown, and we made a decision to drive occupancy, which I believe was the right decision to do. But we are also seeing positive job growth numbers. So we assume that the shallow recession might come out and we might have better job growth numbers. We have even got the revised numbers just recently showing dramatic job losses in our market. So we are starting at a much lower floor with the number of people that are employed in the demand for apartments. So we have got an overhang of supply that's not only just the new units being delivered into the market but the reduction of demand from the number of people that have lost their jobs. Starting from that lower floor that's what changes our outlook for the other three quarters. We anticipated this coming in the first quarter. That's why we are able to hit our 52-cent number.

Okay. But are the new forecasts that you've got are now based on what you are seeing in the markets today?

Both what we are seeing in the market and these revised job loss numbers.

Okay. Just one last question Mike, and your comments about the weakest markets. I didn't hear Charlotte. Is that an oversight or is Charlotte actually doing better than you thought?

That was an oversight. Steven, someone asked me what our weakest markets are. We don't have a strong market. We may have a few strong submarkets, but we got weak across the board here.

Okay. Thanks a lot.

We will continue on with [Richard Payole] with ABP Investments.

RICHARD PAYOLE]: My questions have been answered.

Thanks Rich.

We will continue on with Tom Lawson from Wachovia Securities.

Hi. A couple of quick questions; most of them have been answered. Number one, what was your capitalized for the quarter? Number two, your performance in DC, is that still being primarily driven by the Resting community?

Tom, its Gregg. I'll answer the first question. Capitalized interest was $2.5 million for the quarter. Mike is going to answer your second question.

Well, you circle back to Bryan's question on economic occupancy. Economic occupancy in the first quarter of last year was 86%. Economic occupancy in the first quarter of this year was 83%. To answer the question on Northern Virginia; we added a number of properties to the same-store pool in this first quarter, as I mentioned. Resting actually performed better during the quarter. Occupancy was up and collections were up. So the answer to that question is no. Resting was actually a contributor to improved results that was taken away by other assets generally in the area.

Okay. Thanks.

Our next question comes from Steve Sakwa with Merrill Lynch.

Good morning. I am looking at the development stagger. You talked about five projects that you said are in Atlanta, which you guys have obviously characterized as perhaps as the weakest or one of the weakest. I guess I am trying to understand what the philosophy was behind starting this last project summit. What is the chance that you just kind of mothball that situation at this point if the market improves? I guess, what is sort of your philosophy about developing going forward? Is it likely that in a year from now we will see virtually nothing under construction?

Steve, our philosophy on development is that we have got to be forward looking. If we make a decision today to allocate capital, its based upon what we think these markets will be three to four years from today. Because that's about how long it takes for us to receive the permits to build the building, start the building, deliver the first units and get stabilized. So when we made the decisions on the developments you have today, they are things that we made two and three and four years ago. Two, I will tell you I have multiplied buildings before in the late 80s in Texas and it was not a good thing. The assets deteriorate with the work in place. You are more than likely better off taking advantage of lower construction costs, building it if you have a good location. In the long term if the difficulty returns, you have the short term going forward. Three, I would say that the chance of us having no development starts a year from today is a possibility. The people are talking about a recovery. I think we are just in this jobless phase of the recovery. If you look out, look forward more than three or four years, I am a big believer in this country. We will do great and the economy is going to come back. Our markets are going to lead the country as they always have coming out of a recession. The demographics are moving in our favor. All that said, we are not emphasizing that today because that would sort of put a spin on a bad news, and there is no spin here. We are trying to tell you exactly what's going on in the markets today, and our outlook as far as we can see for operations. But when it comes to development we have got to be much more forward looking.

Okay. Thanks.

Our next question comes from [John Posik] with Reese.

JOHN POSIK]: I guess its just a followup to Steve's question on the $48 million of other construction, land, and others. None of the other projects are in risk of being with a whole bidder, and therefore I guess you quit capitalizing on your units?

Not today.

JOHN POSIK]: Okay. Thanks.

You are welcome.

I would like to remind the phone audience, if you do have a question please press the * key followed by the digit 1. We do have a followup question from Bryan Lake of Merrill Lynch.

I just want to ask a question about operating expenses, if they fell sequentially versus the first quarter of 2001. What caused that?

Operating expenses were up versus the first quarter.

I'm just looking at the first quarter operating expenses.

That's really a result of our disposition program, Bryan. So it is less stabilized units.

That's fine. Why was Atlanta and Raleigh only down 0.5%?

We hope its all performance of the market. We hope we have got a great team that actually believed that we have made the decisions to drive occupancy in the market. We think Atlanta is going to get worse. But we are going to do everything we can. Our whole job now is to outperform. We are in a bad market, a difficult market. The whole country is in a recession. This is going to happen the rest of the year. We are committed to outperforming, and we hope that that's what we've done in Atlanta.

Okay. Fair enough. Thank you.

We do have an additional followup question from [Richard Payole], ABP Investments.

RICHARD PAYOLE]: How does the current revision in your FFO outlook impact your dividend policy? Where are you on lay FFO payout ratio? What does this mean for your dividend growth?

We are committed to our dividend for this year. We are fine on our payout ratio. The future is the future. We are committed to long term having a dividend and increasing our dividend to the extent we have cash flow to do that.

RICHARD PAYOLE]: Your annualized rate is at 190. Is that correct?

Actually for this year its about $88.75, because the first quarter we pay last year's dividend.

RICHARD PAYOLE]: Okay. You had two drastic reductions right now consecutively on quarter to quarter. Honestly, that doesn't instill a lot of confidence in your, I guess, in your AFFO where that is coming in. What do you estimate that to be?

We are budgeting, Rich, about $4.2 million from the current cap ex this year.

RICHARD PAYOLE]: So what does that do? Where are you on a per share basis?

The net worth is about $0.13 per share.

2.01 to $2.02.

2.01 to $2.02.

RICHARD PAYOLE]: Okay. I am just a little concerned because it seems like there is a big moving target out there in apartment land, and you are sort of bumping up. In terms of your capital plans where are you on your lines, and what is your capital budget with respect to dispositions? What do have left to spend on development?

Rich, its Gregg again. We have a $225 million unsecured line. We had a $120 million outstanding at the end of the quarter. That left us with $105 million available there. We also had about $10 million sitting in QY from previous sales proceeds. So there is $115 million in total in just cash in line availability. At quarter end we have $70 million left to spend on our development commitments. So, 1.7 times our development commitments in terms of capital availability.

In addition to that we have $80 million of apartment communities under contract.

Its just something we watch very closely. We never want to get extended. We have been a developer for a long time, and its something we have always watched closely. We are not going to overextend ourselves here.

RICHARD PAYOLE]: Okay. Thanks.

Thanks Rich.

There are no further questions at this time. I will turn the conference back over to Steve for any additional or closing remarks.

Thanks for joining us today. I want to remind you that our strategy for marketing is to be the market-leading operator of class A apartments in seven core markets. Although our markets experienced significant job losses over the last few months, we are still committed to their resiliency and their ability to lead the country out of the recession. We are also committed to our capital-recycling plan. This is a key driver of shareholder value. We are all committed to Summer Properties, and we thank you for your support.