Mid-America Apartment Communities Inc (MAA) 2002 Q4 法說會逐字稿

Good day. All lines are now online in a listen-only mode. I would like to now turn the call over to Mr. Eric Bolton, CEO of Mid-America Apartment Communities. Please go ahead, sir.

Thanks, Christie. Good morning, this is Eric Bolton, CEO of Mid-America Apartment Communities. With me this morning are Simon Wadsworth our Chief Financial Officer; Al Campbell, Vice President of Financial Planning and Tom Grimes, Vice President of Operations, Director and our Property Management Group.

Before we start, I need to remind you that as part of our discussion this morning we will make forward-looking statements. Please refer to the Safe Harbor language included in our press release and our 34 ACT filings with the SEC which describe risk factors that may impact future results. This call is being recorded and the press may be participating. We will post a copy of the transcript of that call on our website at www.maac.net. You may also access an audio copy at our website. In our prepared comments this morning, we will provide additional insights on fourth quarter results.

Tom will review property management operations for the quarter. Al will recap portfolio performance by market and provide insights from what we expect on our major markets for the remainer of the year and Simon will discuss our balance sheets and forecasts for 2003. We'll open the lines then for any questions you may have and our prepared comments will last about 22 minutes.

Let me start by providing you with general insights on our fourth quarter results as well as a recap on the progress made to date on the business strategy we laid out for you early last year. As you know, the apartment sector has been under some fairly significant operating pressure for the last several quarters and while there seems to be general consensus that 2003 will be another tough operating year, we expect that Mid-America's portfolio of properties will continue to outperform our peers in the apartment sector. It's worth noting that for the quarter just ended, as well as for all of 2002, Mid-America's same store NOI performance exceeded our apartment REIT peer group and in addition Mid-America's total shareholder return for all of 2002 just like it was for 2001, exceeded the investment returns of our peer group companies.

Despite the well publicized pressures that converged throughout 2002, to create the weakness in apartment operating fundamentals, Mid-America was able to generate earnings results for the year that were within one cent per year of the range we gave you early last year. As you will note, our FFO earnings for 2002 were down only 1.4 percent for the year as compared to 2001. This is clearly one of the best performances of the apartment REIT sector. There is no question that our operation and portfolio, just like all other apartment REITs, has been put to the test over the last few quarters. But our approach to the business has some unique characteristics to it that I believe offer the opportunity for higher, risk adjusted investment returns over the long haul and provide the ability to withstand down cycles better than most. I would summarize those differences as follows.

First, we deploy capital in a diversified manner in large, middle and small tier markets focused in a steady and stable growth region of the country. Each market segment provides different ways to create value for capital and these differing characteristics collectively generate a more stable earnings platform.

Second, we focus on product that appeals to the largest segment of the rental market, avoiding the narrow market band at the very upper end price points as well as the risky aspects of capital deployment at the lower end price points.

Thirdly, we deploy capital under a very disciplined approach and remain very mindful of the cyclical nature of the real estate industry and specific markets.

And finally, we remain always very hands-on focused to property operations and expense control. Company culture and constant focus on operations and productivity is a key differentiator over the long haul in a highly competitive industry such as ours. We believe that our approach to this business and our investment strategy will continue to deliver long-term investment returns for our owners that will exceed comparative benchmarks.

Our focus in laying the foundation for improving dividend coverage during this weak part of economic cycle through, one, completing lease-up of our investment pipeline; two, protecting value and cash flows of our existing properties; and three, carefully deploying capital in partnership with private capital made steady progress during 2002. Leaseup of our development properties is virtually complete. Our company culture, that is based on a very hands-on and intense property management operation, has clearly continued to generate superior operating results as compared to our peers and, importantly, protect shareholder value during this down part of the operating cycle.

And we remain very pleased with our partnership with Crow Holdings despite a challenging acquisitions environment we have successfully launched this new growth initiative this past year and we look forward to continued to expand this opportunity in 2003. Our operation, our properties, and our balance sheet are all well positioned to continue to ride out the current market weakness and we are poised to make improvements in earnings performance as the economy and markets strengthen. Now I'd like to turn the call over to Tom to recap property management performance for the quarter. Tom?

Thank you, Eric. Same store occupancy performance during the fourth quarter averaged 92.6 percent, which is down from the 94.7 percent of the preceding third quarter and 93.2 percent of the same quarter in the prior year. We saw a follow-up in occupancy in December with year end occupancy at 91.9. Some of this trend is attributable to normal seasonal patterns. While occupancy performances will of course vary quite a bit based on local market conditions, we believe that overall portfolio occupancy performance will hold in the 91 to 92 percent range during the first quarter which is typically the low point of the year before picking up in the stronger leasing season of second and third quarters. Leasing traffic during the fourth quarter was essentially flat as compared to the same quarter up .23 percent.

In addition to the slightly weaker occupancy performance, revenues were pressured by an increase in collection loss, this job loss and the weak economy took their toll. Measured as a percent of net potential rent, collection loss rose from .9 percent from the fourth quarter of last year to 1.1 percent this year. We are vigilant in our operation about not compromising leasing and credit standards despite any occupancy pressures. And we are comfortable that the increase in collection loss is attributable to the weak employment picture and slow economy.

We were pleased to see a decline in unit turnover as same store resident moveouts decreased 2.1 percent as compared to the same quarter last year and with 68.3 percent for the preceding 12 months. This is a third consecutive quarter in which turnover has improved. This progress was made despite the current robust home buying environment.

Portfoliowide, we were pleased to see concessions decrease by 10.4 percent in the fourth quarter as compared to the same quarter last year and down a significant 17.3 percent from the prior quarter. This is primarily attributable to the improvement in the Memphis portfolio. We continue to see high concession loss in Atlanta and worsening conditions in Dallas. However, the positive performance in Memphis partially offset these two markets.

Various initiatives and programs associated with on-site operations productivity continue to post solid results.

Operating expenses, controllable at the property level, posted only a 1.8 percent increase on a same store basis over the comparable quarter of a year ago. Performance in this area is positively impacted by our significant focus on resident retention and working to minimize the high costs associate with obtaining new residents in this market environment performance. Total property level expenses increased by 5.2 percent as our renewed property and casualty insurance program was effective at the beginning of the third quarter. Al?

Thanks, Tom. As Eric mentioned although the apartment sector continues to be under pressure from the economic downturn, our portfolio has performed better than most over the last year showing the strength of our diversification across large mid-sized and smaller markets throughout the Southeast region. Pressure during the quarter was most evident in our larger markets where significant job losses and construction of new units continued supported by record low interest rates.

Our same store revenues declined 5.7 percent for our portfolios in larger markets while our portfolio in midsized markets actually grew .3 percent and our smaller markets grew revenues 1.7 percent.

Dallas continues to be our most challenging market as negative absorption of over 8,000 apartments over the last two years has put tremendous pressure on occupancy and rents in the market. Occupancy for our portfolio end of the quarter, 4.3 percent below the prior year while concession levels continued to increase producing a 10.4 percent decline in revenues. We expect continued difficult conditions in the Dallas market throughout 2003 as apartment completions are again expected to outpace demand. The long term we believe the Dallas market is supported by strong fundamentals which will eventually bring recovery to the market.

We also saw continued weakness in Atlanta and Austin during the quarter as both markets continue to work through the large number of new units delivered over the last two years during a period of weakened demand. Occupancy for our Atlanta portfolio declined to 87.6 percent at the end of the quarter which was 3.1 percent below the prior year while concessions remain at historically high levels. Occupancy for our Austin market finished the quarter in a relatively strong 93.8 percent but concession levels as a percentage of net potential rent grew 4.1 percent over the prior year. Construction levels in both markets have shown slow reaction to market weakness but reduce multi-family permitting levels for the last 12 months in both Atlanta, which was down 8.7 percent, and Austin, which is down 16.7 percent, provide initial signs of slowing. We expect to continue difficult conditions for the Atlanta and Austin markets throughout 2003 with recovery for both markets being closely tied to the national economy.

We also began seeing some softness in our Tampa portfolio during the quarter as occupancy slipped to 89.2 percent by quarter end. We expect the Tampa market to remain relatively soft throughout 2003 but our four properties represent only about 3 percent of our total portfolio which should not significantly affect overall results.

Our markets producing the strongest revenue growth during the quarter were Memphis which grew 6.3 percent; Jacksonville which grew 2.9 percent; Houston at .8 percent growth; Columbus, Georgia, which grew 3.1 percent; and Jackson, Mississippi, which grew 6.9 percent. We were encouraged by the continued improvement in our Memphis portfolio during the quarter in both concession and vacancy levels improved producing increased revenues while controllable operating expenses were down over 8 percent creating a 13.7 percent increase in net operating income. While the Memphis market has seen significant levels of new unit deliveries over the last two years we expect deliveries for the remaining part of the current year and into 2004 to be more in balance with the absorption rate allowing for continued progress towards recovery. As mentioned, we were pleased with the continued stable performance of our portfolios in Jacksonville and Houston during the quarter however looking into 2003, we do expect our Houston portfolio to experience some softness as the market comes off of a very good year. We're also pleased with the stable performance of our smaller market tier properties throughout the southeast as 68 percent of these markets produce growing revenues compared to the prior year while 48 percent of them produce growing net operating income. This stability during the tough economic environment underscores the strength of our diversification strategy.

Looking at some of our portfoliowide initiatives, we essentially completed the rollout of our resident utility billing program including water, sewer and trash achieving nearly 95 percent portfolio penetration which produced almost $6 million in resident reimbursements during the current year and is expected to produce an additional $1 million during 2003. Simon?

Thank you, Al. Good morning, everybody. Our financial position has continued to strengthen as we finished the development properties. Of the three remaining, Grand View Nashville and Grand Reserve Lexington are almost stabilized, with only Reserve at Dexter Lake Phase 3 in Memphis, still in leaseup at 72 percent occupancy and it should be fully leased by the end of the second quarter.

As a result, our balance sheet has gained flexibility. Our debt service coverage is improved to 2.41 from 2.36 a year ago and our fixed charge coverage improved to 2.44 from 2.35. This marks the sixth sequential quarterly improvement on a year-over-year basis. At the end of the quarter, approximately 84 percent of our debt was fixed, swapped or capped. We think that our balance sheet is well positioned for our business strategy. Our portfolio and our business is proving to be less cyclical than others that are in the much riskier development business or those with big concentrations in some of the more volatile larger metro areas. Similarly, our net asset value per share has remained strong. We think our value remains in the $26 to $28.50 range and any weakness in NOI has been more than made up for by improved cap rates.

Our joint venture with Crow Holding in which we have a one-third interest, completed the purchase of The Preserve at Arbor Lakes in Jacksonville, Florida, for $22.1 million in mid-January. Freddie Mac provided a $14.9 million loan on the property through the credit facility that we have set up with them within the joint venture.

As we announced in our press release last week, using funding from our bank credit facility we have purchased 100 percent of Green Oaks Apartments in Dallas, Texas, for $18.9 million in Dallas, Texas, and we expect this to be contributed to the joint venture in the next 60 days. When we close the three notes purchase into the joint venture with our partners, we will have invested about half of our $150 million plan for the joint venture. Of which two-thirds will be debt. These latest two acquisitions should add approximately 4 cents per share to this year's FFO, which is included in our forecast. We executed a contract to sell the Crossings, an 80-unit older property in Memphis for $4.6 million during the quarter. We'll receive a sub seven cap rate for this asset from a buyer planning to redevelop the site. We expect this to close in the second half of the year with the sale diluting this year's earnings by around a penny a share. Although we've considered this in our forecasts.

As we discussed in the third quarter conference call, in October, we completed some significant refinancing which helped to reduce our average interest cost to 5.8 percent from 6.0 percent at the end of the Q3. Using our Fannie Mae credit facilities, we completed $29 million of conventional and $30 million of tax-free bond refinancing. We also refinanced our 9.5% Series E preferred stock repurchasing it at a 7 percent premium to a new preferred series with improved terms. We're close to finalizing the refinancing of almost $150 million of debt. We expect to close this with Fannie Mae on March 3 and we have executed forward swaps totaling $150 million to reduce our interest rate risk with an average life of 5 years. Including the impact of the deferred finance cost amortization, the average rate on the replacement debt is 110 basis points below the coast of the old debt. We'll see these savings almost 8 cents a share on an annualized basis to begin to impact our P&L in March. Once this flurry of financing activity is concluded we'll have less than $15 million of refinancing scheduled for the next 15 months.

You'll notice that our property management expenses for the quarter were reduced compared to last year in the prior quarter. The primary reason for reduced bonuses and reduced franchise and excise taxes. In the same quarter a year ago, we also incurred some one-time costs.

This quarter you will see that our nonreal estate depreciation costs increased of which $200,000 reflects a one-time charge associated with discontinuing our landscaping business. We are comfortable with First Call's current FFO projection for 2003 of $2.75 a share just one cent below 2002. We're forecasting a modest start to the year with the first quarter's FFO in the range of 66 to 68 cents per share slightly down from a year ago. Compared to this past quarter, we're projecting same store NOI to be reduced by about $500,000 from a combination of weaker revenues and increased expenses, especially real estate taxes.

This is offset by improvements in our income from our joint venture properties and related other income expense. We're projecting the first quarter same store NOI will be down by 5 percent over the first quarter of 2002. By the fourth quarter of 2003, we think we'll begin to see positive year-over-year comparisons partly because the fourth quarter of 2002 was relatively weak.

Since as Tom mentioned our insurance renews in the third quarter, we're hopeful that the shock of the 43 percent increase we experienced in Q3 of last year will be ameliorated once we roll into the third quarter of this year. When we're projecting a 14 percent same store increase in our insurance costs.

In the second quarter, we pick up the full benefit of the interest rate reduction from our March 3, $150 million refinancing. We are forecasting FFO per share of 71 cents per share for the second quarter and 68 cents in the third quarter, 71 cents in the fourth quarter. We've also forecast a completion of our $150 million joint venture with Crow with $75 million or half now invested, we think that this is a realistic assumption.

We feel confident about our ability to execute our business plan and sustain our dividend. Our concentrated focus is on improving our dividend coverage.

As we have noted in the supplemental data in our press release, our dividend is covered by our free cash flow. Any threat to our dividend will come from either a prolonged decline in our same store NOI or a drop in our FFO. We think the risk of either of these events occurring is slight. Through our joint venture plans, we are actively working to protect the dividend further and we have confidence in this year's FFO projection. You'll notice that our funds available for distribution for 2002 was $2.17 per share, just two cents below the level of 2001. And 17 cents, $3 1/2 million dollars, below our dividend $2.34. Free cash flow which adds back noncash charges of $2.37, three cents back better than the prior year and three cents ahead of our dividend. So while we recognize that FFO needs to grow to improve our dividend coverage, this is our primary management focus, we do not feel undue pressure. For 2003, funds available for distribution and free cash flow should be similar to 2002 but we expect this to begin to show improvement as our NOI starts to do grow towards the end of this year.

Turning to capital expenditures, we spent $12.1 million or $394 per unit on recurring capital expenditures in 2002, up slightly from last year's $376 per unit. In 2003, we plan to grow this slightly to around $418 per unit. We think that an average of around $400 a unit is a good long-term average for our portfolio and in 12 years its age is amongst the youngest of the REITs. We spent a total of $17.4 million last year on capital improvements to the existing properties and we project that we'll increase this by a million dollars this year. We believe it is most important to continue to maintain our properties in top condition through all phases of the cycle and particularly during tough times. Eric?

Thanks, Simon. To recap, I want to re-emphasize that despite the challenging operating environment, we continue to post fairly stable operating results and, importantly, continue to improve the balance sheet and coverage ratios.

Our properties are in excellent shape and are poised for stronger revenue growth as market conditions improve. As a result of our heavy focus on property management operations and careful execution of our new acquisition initiative, we believe that Mid-America's very well positioned for steady and growing earnings as the economy strengthens. We remain comfortable with our current dividend payout level, current net asset value for MAA is higher than where the stock is currently priced and we believe that our operation and balance sheet are well positioned to continue to steadily add to this value per share. In summary, our investment strategy is sound and will, we believe, continue to provide a platform for long-term, steady, predictable and growing revenue and NOI performance. That's all we have in the way of prepared comments and we'll be glad now to take your question. Christy, I'll turn back to you.

Okay. At this time if you would like to ask a question, please press the Star 1 on your touch-tone phone. To withdraw a question, press the pound sign. Once again, if you would like to ask a question, please press the Star 1 on your touch-tone phone. One moment while we await our first question.

Any questions there, Christie?

Yes, one moment. Okay. We'll go ahead and take our first question from the site of Rob Stevenson with Morgan Stanley.

Hi, guys. This is Jason Yearborn in for Rob.

Hey, Jason.

I had a quick question about the acquisitions? What were the cap rates on the acquisitions?

Cap rates, you know, based on '03, NOI were right at 8 percent. And you know, we -- we obviously have to look at cap rates but honestly we don't get too hung up on that. The way we approach these investments is we look at them over a five-year horizon and based on our predictions as to, you know, what's going to happen in Jacksonville and Dallas as an example, where we did these two acquisitions over that five-year horizon, we're looking for -- we underwrite to an IRR hurdle that we and our partners need to achieve but in terms of, you know, sort of current cap based on low operating environments, at 8 percent.

And can you talk a little bit about the bidding process? How competitive was it and, you know, who else are you guys seeing in the market out for those sorts of assets?

Well, it still remains very competitive as I mentioned, and you continue to see usually a higher leverage buyers, typically nonpublic companies that are -- that can carry the higher debt levels or want to carry the higher debt levels that we tend to run into still. And , yeah it's still very, very competitive out there no question about it. But, you know, through relationships and other things, we continue to -- to, you know, be able to get -- to get some deals done.

One of the pluses, Jason, that we have been able to do is offer to close quickly, after the due diligence period we and our partners can move very quickly way lot of other buyers --

We're seeing a lot of deals where the sellers are just very, very aggressive on prequalifying buyers. And frankly, in every deal that we bought, that deal has fallen out of bed two or three times before we got it. And so usually those are the ones where the buyers get to a point where they're really ready to move it and we've, you know, got a basis to talk.

And have you identified any of the assets for the next -- you know, for the remaining 80 million in '03?

We have a pretty healthy pipeline right now that we're looking at. Still doing a lot of the initial underwriting and evaluations. There is nothing specific that I can point to right now, but, uhm, you know, we continue to believe that this tough operating environment is going to continue to create growing opportunities in this area, particularly some of the properties have nesdebt on it and those that are really carrying a pretty heavy debt load, you know, this operating environment is going to continue to squeeze that and, you know, so the deal flow kind of or the activity, if you will, sort of slowed down sort of right after the first of the year but it's starting to pick up again.

And what cap rate were you guys using on your NAD analysis?

About 825 which is pretty consistent with, you know, what we're seeing and it's certainly in range with what we sold assets at.

Can you talk a little bit about the new guidance versus the previous guidance? Just kind of walk through what, you know, what the actual differences are, you know, given the new refinancing, then the -- and also the incremental accretion from the acquisitions?

Sure. Jason, this is Simon. The big sort of significant difference, you know, we found we saw between the guidance we gave at the beginning of this fourth quarter and the guidance we're giving you if you like at the beginning of the first quarter this year, is that same store NOI base that we are going from is significantly lower. And particularly, it's about $900,000 lower.

Base meaning what we saw in December, what we're starting '03 from.

That's exactly right. The fourth quarter NOI same store NOI was significantly below what we projected three months ago. And so that flows through into this year. So although we're still projecting a 2.5 percent decrease in this year's same store NOI, we're starting from a lower base. And that's equivalent to about 4, 4.5 cents a share. The other thing that we have done in -- like bridging the difference is that we've got probably another penny a share in real estate tax forecasts in some of our nonsame store properties. We have also got another penny of reduced income from the anticipated sale of this property, the Crossings. And then we actually did introduce another penny of conservatism into our forecast, so, you know, offsetting those, that's about a million and a half or so, about 7, 7.5 cents a share reduction from our forecast. Now, offsetting that is the fact that we have closed on two assets in January and February into the joint venture, the Preserve and Green Oaks. And then also, we've got about a penny and a half in there forecast from this $75 million of additional acquisitions in the back half of the year. So that, if you net those -- that's about a million one of pickup so you net the two together and we shaved our forecast just by a couple of cents.

The bottom is the range.

Yeah.

Those acquisitions are going to occur mostly in the last two quarters of the year?

Yes. We've actually forecast at the end of the second and third and fourth quarters.

That's what we have been saying that obviously if we do something quicker than that, it will be, you know, better, it would be more beneficial.

And also, after the initial $150 million is kind of worked through, is there any expectation or thoughts of increasing the JV allotment?

Yes, there is. We believe that -- we've not formalized anything, but certainly based on the progress that we've had to date, we continue to believe that, you know, we'll move forward on this platform with Crow Holdings. You know, we long term we -- right now, again, our focus is just, you know, using the capacity that we have on the balance sheet to add properties and add earnings via the JV platform. Eventually, we do feel like we need to get into some recycling of some of the assets that we really matured in terms of performance and value and so, yeah, we continue to think we'll be moving down this path with Crow Holdings for a while. Okay. And then one more question over here. How is occupancy trend since the year end? It's basically been about flat. We ended January pretty flat to where December was. We are starting to see things pick up a little bit. Typically, December and January are always pretty bad. And in terms of traffic levels being pretty low. But what we're seeing really is the exposure to moveout is pretty low right now. We don't have a lot of leases expiring over the next 60 days. So on balance or on a net basis, we think that we'll continue to pick up some occupancy over the next 60 days.

Great. Thanks.

Thank you.

We will take our next question from the site of Paul Puryear with Raymond James. Please go ahead, sir.

Thanks. Good morning, guys.

Hi, Paul.

You know, there was a comment earlier in the call about an expectation for occupancy increasing as we roll through the year. I just wondered if you could break that down into a discussion of supply and demand and, uhm, you know, what you think happens as the year rolls forward. And I guess specifically addressing new construction.

Well,obviously, you know, it varies, obviously quite a bit by market. And, uhm, you know, you look at this stuff all day long just like we do. I think that, you know, in our particular markets, the -- it's been really a function of supply and, uhm, lower demand as a function of the weaker economy and job growth. We're always competing with home buying in the Southeast. It's just the way we live down here and you know we have to put up with that all the time. So that's not really so much an issue from my perspective. And really, I think the biggest issue has just been supply and, clearly, in Dallas and in Atlanta, we expect '03 to continue to be pretty tough. We don't expect to see a lot of recovery in those two markets. I do think that Austin's going to bounce back a little quicker than the other two. But, you know, Memphis is a perfect example of a market that, you, in 2001, this market delivered over 4,000 units. This market can absorb a little over 2,000 units a year. So we made some progress in 2002 as evidenced by our performance in the fourth quarter in this market. There are really no deliveries planned for this market in '03 and so, you know, we think this market is one that will continue to show some real improvement. And really it's coming through in the, you know, slight improvement in occupancy. Think you really have to get the economy turned around before you really begin to see occupancies return pretty consistently to 94, 95, 96 percent range. But as a Memphis market, as an example, begins to improve it shows up in a lot lower concessions. You are not just having to buy as aggressively as you were before occupancy. So you know, we continue to think that Memphis is going to show some pretty healthy progress over the year. Jacksonville has remained very stable. They have done a pretty good job of controlling supply down there. So, you know, I think it's on balance, you know, I suspect that we're going to continue to see our market -- our portfoliowide move into the 92, 93 percent range as the year progresses, maybe we'll get to 94 by year end. Who knows. Dallas and Austin or Dallas and Atlanta will still be the issues for us.

So the US supply numbers for new apartments continue to run at sort of 300,000.

Right.

Unit level.

Right.

Do you think that's accurate as it relates to your markets? I mean --

No. I think that -- I think that a lot of those, you know, big, broad industry stats are to a large degree focused on sort of the top 50 metropolitan markets in the country. And, uhm, and I think that those stats tend to distort, if you will, a lot of the sort of the macro variables applicable to our unique portfolio and we think places like Jackson, Mississippi, and some of the smaller markets in Florida and some of the markets in the Carolinas and Tennessee and Kentucky we have, are going to continue to remain relatively stable. Memphis is going to you know, is going to get better and better. So I think that, you know, taking some of those broadbrush macro reads of the industry and necessarily overlaying them on our portfolio I think is not correct.

We have certainly seen, Paul, bankers pull back from lending in some of the markets that we operate in. And that certainly we are seeing a more (INAUDIBLE) returning from that standpoint so I think you are absolutely right that in some of the markets, you know, that aren't mentioned, we are definitely going to see fewer deliveries of units this coming year than we have seen in the past couple of years.

And then, uhm, it appears that way given the sort of the relative stability that you've seen. But another question, Eric, on the demand side, and sort of the market share that the home builders are going after here, just, I guess your comments again on how you think -- how you think home building is holding up in your markets, particularly some of your smaller markets that are not on the radar screen. Well, home buying is still pretty strong and -- but, you know, it's hard to really get a fix on. In terms of overall -- again, you almost have to just get, you know, market by market. Some of the smaller markets that we are in, home -- I don't think home buying has really changed a whole lot. It been fairly consistent. It's always been a pressure point to some degree. You know, certainly bigger markets like Dallas, Atlanta, some of the Memphis area, Jacksonville, home buying has been fairly robust and, you know, like most of the apartment operators, we get direct mail by starter home builders and why rent when you can own and all that kind of stuff. But, you know, we have had that for four or five years. And so, uhm, I think that again, you know, if I had to put my finger on, you know, the variables that really matter, quite honestly, home buying for us is probably the third point and I would put supply issues and the job growth of the weaker economy really as the two components that they impact us more so than home buying.

Okay. Thanks. Bill's got a question.

Good morning, guys. Just wondering if you could tell us who the sellers were of those two properties that you acquired? I'm just trying to get -- understand the dynamics of who would be selling, who would be buying.

Yeah.

Bill, on The Preserved Arbor Lakes that was Prudential and on the Green Oaks property that was Gables.

All right. Thanks, guys.

Thanks.

We will take our next question from the site Asad Hadim of Deutsch. Please go ahead.

Hey, guys.

Hi.

Couple questions. First one, is it possible to give the sequential revenue expense and NOI growth numbers?

For Q3 to Q4?

Yes.

If you are talking let's say Q3 to Q4, the -- our same store revenues were -- let's see Q3 to Q4.

I have it right here.

It was down half a percent, .5 percent. And our expenses Q3 to Q4 were up 1.7 percent. That's our property level operating expenses.

And that does not include the insurance and real estate taxes?

That's right. And the real estate taxes were up 1 percent and insurance was up on the same store basis up 3 percent.

And that translated to an NOI of?

Our NOI was down -- now, this is Q3 versus Q4. Excuse me, this is the first quarter of this year compared to the last quarter of last year. Is that the question?

No. Actually, not year-over-year. I meant sequentially from Q3 to Q4 2002.

I'm sorry. Okay. Let me back up.

Maybe the thing to do is, can we call you back offline and just give you those stats?

Oh, absolutely. Next question is, uhm, can you guys -- what's your, uhm, estimate for your interest expense in '03?

Our estimate for our interest expense in '03 is -- we're forecasting 48.-- just over $48 million.

Gotcha. And on the acquisition -- on acquisitions, what is the unleveraged IRR hurdle for I guess, for you guys and -- and for the joint venture?

Well, we're looking at it on a leverage basis and on a leveraged basis, our hurdle rate is 17 percent, always has been on acquisitions during the whole period. And of course, our partners are dealing with a different hurdle rate, but that's our hurdle rate.

Gotcha. And in terms of the 8 percent cap rate in '03 on NOI what kind of -- are you forecasting any rent growth in '03 for those properties to get to the 8 percent cap rate?

No, not particularly not the Dallas property. No, we underwrite these very, very conservatively and assuming -- I don't remember what Q2 or the second and third years look like in the pro forma on Green Oaks. There is some recovery I'm sure by the second and third year. But clearly for the first year, no recovery in sight assumed.

Gotcha. Lastly, if you could just talk real briefly about some of the markets, Dallas, Atlanta in particular, do you think that most of the rent decline occurring in Dallas or as a consequence of prior concessions, which now those rents are being rolled to market or do you see further decline in market rental rates in both markets?

You know, I think it's really more a function of, uhm, just prior leases rolling and being repriced in the current environment. I really don't think that we are going to see a material reduction in it rent levels from this point. I think really it started about 2 quarters ago, three quarters ago as an example in Dallas and I think the majority of the decline is just a function of, you know, current leases renewing in this pricing environment more than it is anything else. I think concessions will stay fairly healthy. But I don't think we'll see an appreciable decline in rents.

And are concessions -- concessions are a necessary evil to induce occupancy in those markets and will that be the case all through the -- in your opinion, your portfolio all throughout '03?

Again it varies by market. We certainly think they will continue to be pretty high in Atlanta and in Dallas for the majority of '03. I suspect by Q4, you know, we hope to be in a position where we're seeing some relief on that front.

And how are you folks treating concessions? Are they up front or are you folks advertising them with a larger lease, what's the general trend in Atlanta and Dallas?

No, we really if it's a concession we book it up front. I think that there are a number of our competitors in properties we run into quite a bit that have a practice of pro rating concessions over the life of the lease. And honestly, that's nothing but a rent reduction. And that's what we call it. We don't -- if we take a concession if we give a concession, it has to be up front. If we find ourselves in a position due to market factors where the monthly amount of money that the resident is going to pay us has to be less than what we wanted to get, that's a rent reduction. That's what we call it and that's how we book it.

Great. Fantastic. Last question or maybe you can answer this offline, too. On the swaps that are in place right now, when do those expire?

The swaps that are in place right now, the -- I do have that. It's actually a fairly lengthy list.

Why don't you call us back right after this call and we'll give you this detail.

Sure, that's perfect. Thank you very much.

You bet.

Thank you.

We have no further questions at this time. I would like to now turn it back to management for any closing comments.

Well, thank you. We appreciate your being on the call. Appreciate your interest in Mid-America. Thank you.

This concludes today's conference call. Thank you for joining and have a good day.