Mid-America Apartment Communities Inc (MAA) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen and thank you for participating in the Mid-America Apartment Communities fourth-quarter earnings release conference call. The Company will first share its prepared comments followed by a question-and-answer session.

At this time I would like to turn the call over to Ms. Leslie Wolfgang, Director of External Reporting for Mid-America. Ms. Wolfgang, please go ahead.

Thanks, Jonathan. Good morning. This is Leslie Wolfgang, Director of External Reporting for Mid-America Apartment Communities. With me are Eric Bolton, our CEO; Simon Wadsworth, our CFO; Al Campbell, Treasurer; and Tom Grimes, Director of Property Management. Before turning the call over to Eric, I want to remind you that as part of the discussion this morning, Company management will make forward-looking statements. Please refer to the Safe Harbor language included in yesterday's press release and our 34-F (ph) filings with the SEC which describe risk factors that may impact future results.

We will post a copy of our prepared comments as well as an audio copy of this morning's call on our website. Further details surrounding Mid-America's fourth-quarter and annual results may be obtained from the 8-K that was filed with the SEC yesterday. You may also obtain a copy of our press release on our website.

I will now turn the call over to Eric.

Thanks, Leslie. Good morning, everyone. Thanks for participating in our fourth-quarter earnings conference call. As reported late yesterday, our fourth-quarter results were slightly ahead of first-call expectations and reflect continued steady performance.

Operating results for the quarter were driven by stable occupancy performance, continued high leasing concessions in our large tier markets and solid expense control. As you'll note in the release, same-store revenues were slightly down in the fourth quarter primarily as a result of some one-time adjustments that Tom and Simon will go over for you in just a moment.

We expect that same-store revenues will resume a positive year-over-year trend in the first quarter and throughout all of 2005 on top of the 1.4 percent growth in same-store revenue for all of 2004. Physical occupancy in January was almost 100 basis points ahead of the prior year and our preliminary financial results for the month of January strongly support our forecast.

As has been the case for the last several quarters, our markets continue to show signs of early recovery as occupancy performance was improved from the prior year. This marks the sixth straight quarter that we have generated higher year-over-year same-store occupancy. However, any sort of meaningful and across the board improvement in pricing performance was elusive again in the fourth quarter and thus continues to dampen overall revenue growth.

Our more immediate upside opportunity in revenue growth is dependent on lowering leasing concessions and re-establishing a pattern of pushing rents higher. We have significant upside to capture in revenue performance and expect a combination of slowly recovering markets as well as the benefits of new pricing tools rolling out this year to drive a meaningful level of improvement in revenue performance.

It is worth noting that for the approximately 27,000 units currently in our portfolio, that were also owned in the year 2000, during a more normalized market environment, we were generating 31 cents per share in higher revenue from lower concessions and higher effective occupancy. Again that just considers most of our same-store properties. Importantly this 31 cents of potential upside does not include the earnings upside we also expect to capture from the almost 5000 units in beat-up larger chip markets that we've added to the portfolio since 2001.

A focus on driving more productivity and efficiency into our operation remains a key priority. You'll note that our same-store operating expenses in the fourth quarter excluding hurricane-related expenses were down 1 percent over the prior year. Expense control and a heavy focus on driving efficiencies into our operations have characterized our results for years. We have said over the last couple of years that our priority centered on two things; first, improve the dividend coverage, and secondly, protect the earnings and recovery potential of our properties during this weak market cycle. We feel that we can definitively report solid progress and success on both of these priorities.

You'll note in yesterday's earnings release that Mid-America's FFO performance in 2004 was a record high result for the Company. And as we've reported to you in prior calls, we are confident that it is a result of maintaining a high-quality resident profile, our consistent capital spending in maintenance program and focused efforts to protect our properties rent structure, the portfolio is well positioned for meaningful improvement in revenue performance as market conditions fully recover.

While of course securing the dividend and protecting the earnings potential of the real estate will always remain a primary focus of ours. This past year we have also actively focused on the next phase of our strategy aimed at positioning the portfolio to more aggressively compete in an improving economy. Although our growing concentration of properties in large tier markets is pressuring pricing performance for the moment, we remain confident that as job growth recovery continues to build, these larger markets will drive a more robust and balanced financial performance for the portfolio over the full market cycle.

Our steady progress in bringing more balance to our market allocation and growing Mid-America's portfolio presence in some of the region's larger tier and robust job growth markets made good progress in 2004. And despite an acquisition environment that remains competitive, I am confident that we'll make additional progress on this effort in 2005. We believe our strategy that is centered on deploying capital across three market tiers will continue to deliver one of the more stable and best shareholder returns in the apartment REIT sector.

And with that introduction, I'm going to turn the call over to Tom to highlight property operating results.

Thank you, Eric. Physical occupancy for the end of the fourth quarter was up 60 basis points from a year ago and we ended the quarter at 93.7 percent. Our push to secure occupancy during the third quarter should prepare for the traditionally slower fourth quarter was successful. Occupancy performance was good across all three market tiers. Our large market group gained 150 basis points. Our medium markets gained 120 basis points, and our small markets dropped 30 basis points but ended the year at a solid 93.8 percent.

We have seen significant improvement in occupancy in Atlanta and Tampa, where occupancy increased by 350 basis points. National improved by 400 basis points and while not yet reflected in our same-store numbers, our new expansion into the South Florida market ended the year at a strong 97.7 percent occupied.

Dallas was down 130 basis points and Houston, while up versus the prior year, continues to be a challenging market and remains concession driven. As you'll note on the supplemental schedule, our largest drop in occupancy was Huntsville, Alabama, where we have only two of our communities. This market has seen an increase in new unit deliveries and temporary road construction that has affected our community has hampered leasing. Encouragingly for Huntsville, we picked up 220 basis points of occupancy during January of 2005.

This positive occupancy trend for same-store group has continued and 2005. At the end of January our occupancy was 93.6 percent, up almost 100 basis points from January a year ago.

Our marketing processes continued to drive improvement. Both traffic and applications to lease were up versus the prior year. Our traffic levels increased by 8 percent and our applications also increased by 8 percent. Closing ratio was a solid 44.7 percent. The occupancy performance in light of the weaker winter leasing season highlights the effectiveness of our lease expiration management program and the third-quarter push, both of which kept our occupancy levels well ahead of last year.

In addition to strong occupancy and sales results, we were pleased that the portfolio-wide friends have remained intact, actually up 20 basis points. We feel that keeping our pricing structure stable bodes well for the future as markets improve and concessions burn off. As we have mentioned in prior calls, concessions remain our preferred means of price competition and have been most heavily used in the large market tier of our portfolio. Dallas and Houston have been markets where we have seen especially challenging price competition.

In December we had a non-reoccurring write-off of aged receivables in the amount of $124,000. This same-store, one-time charge was related to the treatment of core housing contracts.

Delinquency improved on a sequential quarter basis by 12 basis points. Our resident selection hurdles remain high. We rejected 25.2 percent of our applicants in the fourth quarter, which is up from 24.1 percent in the prior year. Our inventory management and resident retention programs continue to aid revenue and expense. Resident turnover improved by 3.4 percent as we turned 159 fewer units in the fourth quarter of 2004 than in the prior year. Homebuying remains the number one reason for residents leaving our communities but encouragingly it dropped by 1.4 percent to 27 percent of all move outs.

Our 12 month turn rate for the year ending December 2004 was 62.8 percent. The average days a unit sits vacant decreased again down 5.3 percent from the prior year, dropping more than a day to 19.2 percent -- to 19.2 days.

Expense control remains a strong point. Driven by improving efficiency in our repair and maintenance and marketing programs, expenses were down 1 percent from the prior year and now (ph) 4.3 percent from the prior sequential quarter. In addition to turning units more quickly, we are also turning them more efficiently. Our cost per turn is down versus last year by 1.7 percent from 689 to 676 per turn. This was driven by improvements in labor utilization which allowed us to reduce the amount of contract labor required.

Our sales cost to generate an application to lease was also down 7.6 percent to $393 per application. Al?

During the fourth quarter we completed the final portion of our financing plans for 2004 by refinancing $68 million in debt at rates producing annual savings of about $1.2 million. The total refinancing consisted of $20 million in tax-free bonds and $148 million conditional mortgage which were all paid off using borrowings under our Fannie Mae credit facility.

Our refinancings for all of 2004 totaled about $200 million which produced interest rate savings of over $4.5 million on an annualized basis. We continue to use our Fannie Mae and Freddie Mac credit facilities and we've gained significant balance sheet flexibility. At year end, we had about $50 million available to borrow under these credit facilities and nearly $150 million in additional expansion capacity which we plan to use to fund future acquisitions.

Also during the quarter we entered into an interest rate swap agreement to a fixed to variable rate on an additional $50 million for our debt which will become effective in early 2005 and mature in 2012. At the end of the year we had 79 percent of our debt fixed, swapped or forward swapped while we had an additional 2 percent capped.

Our plans are to continue using interest rate swaps along with fixed rate borrowings under our credit facilities to manage our exposure to interest rates. As you'll see on our supplemental data schedule, our fixed rate maturities are well laddered through 2012.

Our blended average of borrowing cost rose solidly (ph) (technical difficulty) from 5.2 at the end of the prior quarter to 5.4 percent at the end of the year. This increase is due to rising short-term interest rates which we expect will take our average borrowing costs to 5.6 percent by the end of the year but have an average of 5.5 percent for the entire year.

Looking at our 2005 financing plans, we have about $100 million in fixed-rate maturities which consists primarily of maturing interest rate swaps which we expect to replace at interest rates at or slightly below the current levels.

Our balance sheet remains strong and increasingly flexible and we think it is a good match for our conservative business strategy of expansion through acquisition, resident through development. Both FFO and AFFO grew during the quarter with our AFFO reaching its strongest point ever.

Our leverage is well within our target range, representing less than 50 percent of our total market cap at year-end and our combined debt and preferred capital levels have remained essentially flat as a percent of gross assets since 2000.

Our portfolio remains in excellent condition. During the current year we invested $366 per unit or about $13 million in recurring capital and an additional $144 per unit or just over $5 million in revenue enhancing capital which is designed to enhance the competitiveness of certain communities.

We spent an additional $3.2 million to upgrade recent acquisition properties. In 2005 we plan to spend about $420 per unit or just over $15 million in recurring capital and an additional $262 per unit or $9.5 million in revenue enhancing projects. And now I will turn it to Simon.

Thanks Al. We reported record high FFO for the quarter of 77 cents per share towards the top end of the range that we projected. For the year our FFO was $3.00, again in line with our projections and compares to $2.87 per share last year before the 28 cent non-cash charge relating to the redemption of preferred stock. Our AFFO for the year also a record with $2.45 percent per share.

As you know, in the third quarter we had to start straight lining our concessions that are above our normal run rates. Thanks to our web based property management system in the fourth quarter, we were able to conduct a more detailed review of our leases and further refined our estimate of the impact. We made a prior period adjustment in the fourth quarter which reduced our same-store revenues by $257,000. As Tom mentioned, we also wrote off $124,000 of government accounts receivable at one of our properties. The combination of these two unusual items was to reduce our same-store NOI growth from 1.1 percent to 0.3 percent, a significant amount on our reported same-store performance.

For the whole portfolio for the quarter we reported about the same revenue straight lining our concessions as if we had been reporting on a cash basis. Year-to-date, the impact has been just over 5 cents per share, all of which was included in our forecast.

In the fourth quarter, we incurred a charge of $146,000 relating to our uninsured hurricane losses. This is in addition to the $368,000 estimate of losses that we made in the third quarter. We anticipate that now almost all of our hurricane expenses have been captured.

We reported a gain from refinancing of almost $1.3 million in the quarter. This gain has been included in our forecast and it was attributable to 4 tax-free bonds. We also took a $200,000 impairment charge to write down the value of a property that we had classified as held-for-sale, Eastview in Memphis.

In the fourth quarter we reported a 1 percent decline in same-store property expenses before hurricane-related expenses, compared to the same period a year ago, in part because of our productivity initiative especially in repair and maintenance and marketing that Tom has outlined. And also because our insurance costs dropped by 11.5 percent and our property taxes by 2.7 percent.

We have two other properties in our joint venture in which we have a one-third interest that we are presently marketing for sale. We don't know the eventual outcome at this point. Should they be sold, our share of the equity will be about $7 million.

During the quarter we sold two properties, Highlander Creek (ph) in Brunswick, Georgia for $10.5 million or $94,000 per unit at a 5.5 percent cap rate. Our joint venture also sold a property, Preserved at Arbor Lake in Jacksonville, Florida for $111,000 per unit at a 5.3 percent cap rate compared to its purchase price two years at $78,000 a unit. We reported a gain of $5.8 million on the sale of Highlander Creek and our share of gain on preserve was 3.2 million.

As we announced on our last conference call, we completed the purchase of three properties on November 4 for a total price of $78.8 million. The largest of these properties, Preserve at Coral Square with 480 apartments, is located in the Fort Lauderdale market. Grand Reserve at Sunset Valley with 210 apartments is in Austin and the Village of Kirkwood (ph) with 274 apartments is in suburban Houston. We paid approximately a 6.7 percent cap rate and assumed loans of $55 million at an interest rate of 7 percent, which ballooned in September 2008. The debt required a $5.4 million fair market value adjustment which will be amortized to reduce interest expense by $344,000 a quarter.

Our forecast for FFO in 2005 continues to be in the range of $3.00 to $3.10 per share based on same-store growth in the 2 to 2.5 percent range. Since we are forecasting a reduction in concessions the impact of straight lining our concessions across the life of the lease is forecast to reduce our FFO by 3.5 cents next year, compared to reporting on a cash basis.

On the same-store projection, our same-store projections assumes some recovery in the market and in particular some improvement in our collections especially of our reimbursement income, primary utilities. We are examining some procedures for improving our collection processes for our reimbursable expenses and are optimistic that this will generate additional revenue.

We also plan to continue our productivity initiative that helped our performance in 2004 and are projecting another reduction in insurance costs, although less than we achieved last year when our programs renew in July.

Following a year of no increase in 2004, we are forecasting almost a 5 percent increase in real estate taxes. We anticipate approximately $150 million of acquisitions and we have several that we are currently negotiating to buy. Funding for the acquisitions will be from our credit facilities, our dispositions, and new equity from the continued use of our direct stock purchase plan which provides $9 million to $12 million per quarter of common equity when it is in use, as it is at present. Eric?

Thanks, Tom, and let me recap our comments with five key points that I hope you take away from our report this morning. First on the operating side, as we head into 2005, I believe we will see continued stable occupancy performance and expect pricing performance to show improvement. While the pace of the recovery remains hard to pin down, I am confident that our markets will capture strong job growth as the economy improves. I am also confident that our properties and our operation are poised to make the most of this improvement.

As I noted in my opening comments, when comparing the performance of close to 27,000 units owned in 2004 that we also owned in the year 2000, at a time of more normalized market conditions, we were generating 31 cents per share of higher revenue. Well it is clear that our portfolio properties has weathered the storm of the past couple of years and performed better than most, it is important to realize that we did not escape the pressure altogether. 7.1 million or 31 cents per share of earnings, is a material amount of upside opportunity to reclaim and I am optimistic that we are on track to do so.

Secondly, the Company is increasingly well-positioned to drive higher internal earnings as a result of the refinement we have made and continue to make in our portfolio allocation. We continue to build a more balanced market allocation in our portfolio and are better positioned to compete in a robust phase of the market cycle with a higher allocation of capital to large tier markets. My points is this, as market conditions strengthen, we believe results will surpass our historical earnings performance.

Thirdly, while remaining active on the acquisitions front we will continue our disciplined approach to allocating and deploying capital. Bottom line, we simply will not overpay to chase growth, a clear recipe for disaster in eroding shareholder value in our opinion. Our pipeline is full and we remain optimistic that we will continue to make good progress in capturing new earnings growth through our disciplined underwriting program.

Fourthly, Mid-America's dividend safety has materially improved over the last two years during arguably the weakest operating cycle our industry has faced in 30 years. We believe we are well-positioned to continue to strengthen dividend safety and recognize the importance in laying the foundation to grow this important component of return to our shareholders.

And finally, we continue to believe that at the current market price of 59,000 per unit, Mid-America's value is not fully reflected in the share price. It is important to remember we have added 330 million of properties or close to 4500 units to the portfolio at an average price of 75,000 per unit over the last two years. A price by the way that we feel is a discount to the properties replacement value. When you take a look at any number of examples of what multi-family real estate is currently selling for, either as one-off transactions, large portfolio transactions, or even recent M&A transactions, at an implied price of 59,000 per unit for Mid-America's portfolio, we believe the share price continues to offer an attractive value play within the sector.

That is all we have in the way of our prepared comments and, Jonathan, I'm going to turn the call back to you now to see if we have any questions.

(OPERATOR INSTRUCTIONS) Dave Rodgers from KeyBanc.

First question for Simon I think on the utility billing. What do you think the long-term potential is of passing through utility costs? What was the positive impact in '04 and what do you think the possible benefit could be in 2005 to FFO?

I guess the question that I can address pretty straightforwardly is we think we have got upside of probably 5 cents a share better than what we have been doing to improve our utility selling days. And I think it comes from really some improved systems that we are able to use to pump (ph) this MRI -- property management system we've put in in the middle of last year.

Part of what we're going to be doing, Dave, is transitioning the collection effort from an outside party. They are going to continue to do the billing but we are actually going to move the collections on site with rent and as Simon alluded to, if we think -- there is no reason why our collections on utilities is not consistent with our collections on rent. If we just bring the two in line with one another, there's your 5 cents.

How quickly do you think you can capture that?

I'm saying probably -- it will begin probably midyear, Dave, probably beginning third quarter.

It is hard to know for sure but I would be disappointed if we don't do at least -- there's some system modifications we're having to work through and some programming but I think a reasonable expectation is half of it this calendar year and half the remaining next year.

I agree.

I guess maybe a related question for Tom, do you see any push back on the rental side if you do go back and claw back these utilities?

No, I don't think so because that is already built into the price that they plan to pay. We just want to make them pay, encourage them to pay the part that they have been a little lax in doing, which is the utility side. Just clean it up is basically what we're doing. We don't see a discount there.

In relation to G&A, Simon, during the third fourth quarter it was higher sequentially. How much of this was related to S-Ox costs and what was the impact of your regional marketing efforts potentially on that number?

Dave, the S-Ox in the fourth quarter was probably $300,000 approximately. We had about the full year for S-Ox cost was about 800,000 but we did have some -- it was a little bit skewed towards the fourth quarter. The marketing efforts would have been probably incrementally about 100,000 of that, which is really additional field people that are out there. We did add some personnel.

Yes. We've got 6 regional marketing pricing directors that we're adding. Three are on board and we've got another three that have just come on board, all dialed into our forecast.

What is your forecast for 2005 overall for G&A and then related to these issues, I guess?

Well, of course the good news is, Dave, that the worst of S-Ox, and also of course, the worst of our out-of-pocket expense for installing our property management system which was about $350,000 in 2004 is through. Now we look at our G&A internally. We combine our property management expenses with our G&A expense and for 2004 the total was about 19.6 million or so. And we are forecasting for next year that it will go up by about 900,000 or so.

Next question, do you have an update on the sale of Eastview now that you wrote off the impairment?

Yes, this is Eric. Everything appears to be fully on track. The buyer has got financing lined up and so we expect sometime probably in March that we will get it closed. It is a property that we have had on our sale list for quite a while and candidly it had some old fixed-rate financing with some pretty punitive prepayment penalties associated with it that have kept us on the sideline and away from selling it until just recently. It is one that we have had for many, many years before our IPO of 11 years ago. So it is one that we have intended to get out of as soon as we possibly could and we reached that point and that's what we're doing.

Final question for either Tom or Eric or a combination is can you give us some guidance for your same-store outlook either by tier or maybe some of your major markets where you're generating most of your NOI?

I can give you kind of the general perspective on it. Maybe Al can actually give you some detailed numbers on it. We think that probably our biggest areas of upside opportunity, Atlanta was a much better market for us this year in 2004. We expect to continue to show good, steady progress in 2005. Dallas is a market that in terms of just sheer numbers would probably have the biggest upside to recapture but I think the Dallas market has been so beat up its going to take a little while for it to come back. And I think that we'll see slightly better results in 2005 and much better results in 2006. If you want to get some specific numbers or are you just kind of looking for general color?

If you can just throw some specific numbers around it and maybe not by market but hit a couple of those major markets in the larger tier.

That may be something, Al that you might want to call Dave on.

In general, it's going to come from the larger markets that Dave was talking about. Specifically, for some concessions throughout the year in some of the larger -- Atlanta, Dallas, Houston. But I can put something on the website that would give us general by market tier of what we're expecting for next year.

That would be great. Thanks.

Thayne Needles from Baird.

You had talked a little bit on the revenue side and you'd also expressed some thoughts about what you'll be able to do on the cost savings side. Is there much lap on the cost savings side or have you run what is available out of that?

I think probably on the cost savings side, there's not huge opportunity other than perhaps in the marketing area. I think that these regional marketing directors that we're rolling out are going to continue to drive more efficiency and frankly just better decision-making as it relates to how we use our marketing dollars and we are looking to both capture slightly lower costs and at the same time, drive more traffic if you will from these dollar marketing costs that we incur.

The biggest area of opportunity that we have captured over the last really couple years has been our big push on our inventory management, particularly our term programs. We do think there is some more opportunity there. It's hard to know exactly how much it is. We moved from 18 days to 16 days average days vacant between turns in 2004. We have an internal goal that we are shooting for to capture another couple of days this next year in 2005 if we can do so. And that will translate not only to slightly lower vacancy loss but also we believe there is opportunity in lowering the turn costs a little bit more as well.

One of the things we are looking to do in an effort to drive more productivity is be more aggressive in how we manage our lease expirations. We have always managed them on a seasonal basis and kind of monthly basis and now we are moving into it, because of this new system able to administratively handle it in a lot more efficient fashion moving to defining an optimum lease expiration plans for days of the week, weeks of the month, and effectively drive more productivity through that fixed cost structure we have in place of our maintenance staff.

And so we don't have -- I can't give you a specific number right now other than a couple benchmarks on lowering days vacant between turns and particularly that one, as well as by driving -- keeping our maintenance team more productive on the turn activities, we think that we can avoid a little bit more cost that we have been incurring in periodic outside vendor costs that we have had to run out and incur every now and then as well.

Great. Thanks, guys.

Rob Stevenson from Morgan Stanley.

Eric, what is your thought these days on joint ventures? It sounds like you're selling some of the joint venture assets. Unless I missed it, I didn't hear too much JV and Simon sort of financing plan for your '05 acquisitions. What are your thoughts at present?

Well, at present, Rob, we are not really looking to pursue any more joint venture activity. It has been great and we have enjoyed it, but frankly the challenge, we've got enough challenge just putting our own money to work right now, much less ours and someone else's, to be honest with you, is part of the issue. The second issue, of course, is the JV structure brings some complication, administratively, management-wise, reporting-wise, and we don't really feel that there is enough value created at this point to really warrant it. But more than anything, it is just really -- we think we're serving our capital best by what good deals we can find that make sense for us. We feel at this point, we're better off just to own them 100 percent.

If I understand it correctly, you have two joint venture assets you're currently marketing?

Yes.

After you sell those, how many assets will you have in the joint venture?

One.

Is it feasible that one would be marketed in the near term as well?

Probably not. This is in a separate fund, if you will, that I know that our joint venture partner has. It is in Dallas. It is in a terrific, terrific location right on the tollway in North Dallas. It is a big property, and we feel that -- we've not had any conversation about taking it to market. We think the Dallas market will really deliver some -- the recovery there will really deliver some performance for this particular property, so I suspect we'll hold that for a while.

Okay. And last question, Simon, you have about $100 million of fixed-rate debt maturing in '05. What are you assuming in terms of refi there, in terms of any FFO pickup or differential in rate?

I'll let Al address that, but broadly, of course, we continue to forecast off the forward yield curve. Generally, our maturities that we're looking at right now are 2012 and 2013. And typically, we're financing 110 to 115 or so over treasuries. So it looks fairly flat to slightly down, but I will let Al approach that more specifically.

Right, that is exactly right. It is mainly interest rate swaps, Rob, and we expect that they'll replace those at rates that we forecast are slightly better than the current rate. So no significant impact in the current year. And like Simon said, we based our projections off the forward yield curve, which is treasury plus about 110 to 120 basis points.

Okay, thanks.

(OPERATOR INSTRUCTIONS) Bill Crow from Raymond James.

Nice quarter. The question is you indicated that the number of people leaving for single-family home ownership had declined 1.7 percent. I was wondering if there was any difference between your large markets and the mid and small markets in that statistic?

Good to hear for you. This is Simon. Let us get back to you on that question. We don't have in front of us broken out that way but we could easily get it, (multiple speakers) so let us get back to you on that.

Just curious whether there is a difference there. Paul is here as well and he has got a question.

I was just curious, Eric, as you look at a he market and take a larger market, Atlanta or Dallas, do you target a specific price point and do you see a difference in performance or at least return expectation based on those price points? In other words are you looking to trade up to the more expensive units? Are you looking to trade maybe in some market below the average? Really that sort of a thought process.

Yes, well I would tell you that we have historically always tended to shy away from both ends of the spectrum. We are not going to go into a market looking to buy if you will a C property unless it's in an A location and there is really a turnaround opportunity. Those are not nearly as easy to find at they used to be years ago. But our bread and butter really is that A to B+ kind of range. We just feel that that is ultimately going to cater to the largest segment of the rental market in these large cities and tends to offer the ability to serve a broader segment of the market and thus creates a lower volatility I think in terms of how it performs.

We're not going to -- we tend to shy away from the so-called downtown or real expensive product, again believing that you tend to have a little higher volatility in that product. As a function of you get more move out for homebuying and particularly for job transfer, which are the number one and two reasons why turnover occurs at least in our business and our portfolio, is what we see. So we're going to continue to look -- 75,000 units have been the average price we've paid for the 4500 units over the last several years. That's kind of our bread and butter, right in that range.

I guess where I was headed with that is we see in the home building data that we track already new home sales in the lower price points are slowing down relative to higher price points. And I just wondered if you had a corollary sort of trend in your portfolio or if you had seen -- if you could see it I guess?

Not really, other than I will tell you that it's good to see that -- if what you are referring to are starter homes, if that is in fact is declining that hopefully is true ands makes sense because I think that is the point, that's the price point where our rising rate environment is going to choke off the flight to homes at that price point quicker than any other segment. And so I think that our goal is too -- you get into sort of the low-end quality properties, the C quality, those are people that are effectively living with you by necessity. They can't afford a home and probably don't have much prospect of doing that. But being at that sort of where we have been at for the last -- where our whole portfolio is, we are pretty sensitive if you will, to the starter homemarket and so to the extent that that starts to tighten up, which I think it will as mortgage rates begin to move up, it does not take a whole lot of rate movement to really impact that segment of the rental market or the homebuying market very much. So we think obviously it's going to work to our benefit over the next couple years.

We haven't gone through a multi-family call yet this season without focusing on the condo opportunities and I know your portfolio maybe doesn't lend itself as readily to that. But have you canvassed your portfolio for potential conversion opportunities?

We have done a couple. And they have been nice sales and we have got a couple of others that we have talked about and we are looking at possibly trying to do something with them. But honestly again, we continue to first and foremost be focused on strengthening our dividend and continuing to make improvement there. And so as we get increasingly comfortable with our ability to put money back out, then we will continue to look for some opportunities to do some things with exiting some properties where we can really pick up a nice gain.

We have got a handful of properties that we feel like in some coastal markets that we think we could probably do that on. And so nothing specific right now. It is not going to be a huge area for us.

Okay, thanks. I appreciate it.

Dave Rodgers from KeyBanc.

Could you give us a little bit of an update now that you're on the ground with the three acquisitions from the fourth quarter, the capital requirements there compared to your initial estimate?

I think, Dave, this is Simon -- I think there has been no change from our initial estimate. We do a very thorough analysis before we acquire property and we go through these things with a fine toothed comb. Our engineer, Kevin Perkins, is kind of an expert at that. And so our plan is being executed and certainly I' not aware of any change and would be amazed if there was a change from our plan.

And your 9.5 million of revenue generating CapEx for the year, what is the scope of that? How large of a number of communities or a number of apartment homes will be touched by that?

It touches quite a few of them but primarily I would tell you it is largely concentrated in some of our larger tier markets where we feel like the rent growth opportunity is more pronounced and more real. And most of it tends to focus -- a lot of it tends to focus on unit interiors, kitchen and bath in particular. We have always done a little bit in that area every year but I expect you may see it pick up. Certainly it's going to pick up this year and probably into the next year just as pricing traction grabs hold.

It doesn't make sense to spend it unless you can get it back and we think the opportunity to get it back is going to be better over the next couple of years and mostly you'll see in Houston, Dallas, and some of the bigger markets.

We've discussed in the past -- we've got an initiative underway right now to identify properties that have some exciting upside.

In Nashville we've got several properties there that we feel like that can really support a much higher rent structure if we will go in and do some work on the interiors. We've got a property up in the Hampton, Virginia area is one that has been a very, very strong market for us on that regard. So it's kind of in different markets where we just really feel like the rent growth is going to be there.

Okay, thanks.

There are no further questions in the queue at this time. I'd like to turn the program back to you for any further remarks.

I appreciate everyone being on the call this morning and if you've got any follow-up questions or details that we can supply you with, just give us a call. Thanks a lot.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.