Mid-America Apartment Communities Inc (MAA) 2006 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 we would like to turn the call over to Leslie Wolfgang, Director of External Reporting. Miss Wolfgang, you may begin.

Thank you, and good morning, everyone. This is Leslie Wolfgang, Director of External Reporting for Mid-America Apartment Communities. I apologize for the delay this morning. We were given an incorrect phone to distribute, but we're glad you were able to get through and join us this morning. With me are Eric Bolton our CEO; Simon Wadsworth our CFO; Al Campbell, Treasurer; Tom Grimes, Director of Property Management; and Drew Taylor, Director of Asset Management.

Before we begin, I want to point out 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 34X filings with the SEC which describe risk factors that may impact future results. These reports, along with a copy of today's prepared comments and an audio copy of this morning's call can be found on our website.

I will now turn the call over to Eric.

Thank you, Leslie. And, thank you for joining us this morning. I appreciate your patience this morning as we -- with the call process there. Simon and I will cover a few points and prepared comments and then we're going to open the line for any questions to our management team that you may have.

2006 was a great year of progress for Mid-America. Our properties and associates performed well, generating strong and competitive same-store NOI performance which under scores our position that the Mid-America portfolio is now competitively positioned for this growth part of the cycle. Fourth quarter same-store NOI grew at a solid 5.1% before the impact of straight line concession adjustments. This result is particularly noteworthy given the very tough comparison to the prior year's fourth quarter performance of 8.1% NOI in growth on the same basis before the concession adjustment.

The Company's portfolio has been successfully repositioned to add weight to larger markets, many of which are still in early recovery, driving our expectations for continued strong performance. Net effective pricing, a combination of rent increases and concession decreases grew by a strong 4.9% for the same-store portfolio in the fourth quarter. And again, we believe that we are still in the early stage of pricing recovery in many of our markets such as Dallas, Austin, Houston, Nashville and Raleigh.

In looking at occupancy performance on both a year-over-year basis and on a sequential basis, we are encouraged. You recall that last year in the fourth quarter we captured some occupancy boosts as a result of Hurricane Katrina evacuees relocating from the Gulf Coast area. In spite of this tough prior year comparison and a much more aggressive push on pricing this year, same-store occupancy at year-end was over 94%, and more importantly, economic occupancy was up 70 basis points over the prior year.

On a sequential basis, fourth quarter physical occupancy was down 170 basis points from the third quarter, which is in line with our average performance over the last five years and in line with what we saw last year. Even more encouragingly, we saw physical occupancy actually increase by January month end from December month end to 94.3%. That's the first time we have seen that happen since January of 2002.

The message here is that we see occupancy performance in 2007 remaining steady and generally in line with prior year despite a much more aggressive push on pricing. We believe Mid-America's portfolio profile bodes well for the Company's ability to deliver continued, robust results while retaining elements of a defensive performance profile that provides down side protection for any significant economic slow down that might impact the multi family business. Our strategy remains focused on establishing an investment portfolio, capital deployment practices and operating platform that will deliver more stable and higher risk adjusted performance across the full economic market cycle.

During 2006 several initiatives were taken which should help us continue to show solid results in 2007 and into 2008. As Simon will detail for you, a number of these projects and transactions are going to create some headwind for us this year in terms of reported FFO performance, but laid a foundation for steady, long-term value growth for our shareholders. The test of new yield management software over the last few months has been very successful and shows at least as much potential as we originally forecast. We're excited about our plans to implement it across the portfolio beginning in the second quarter of 2007 and expect to out perform a number of markets as a result of this new revenue management program.

Following on the heels of a very successful conclusion of our joint venture with Crow Holdings, we're optimistic that current conversations with a prospective partner will lead us to initiate a significant new joint venture program in 2007. The possible joint venture we've been targeting will be focused on acquiring value add apartment investment opportunities in our current footprint, mainly in major markets. We expect this new program to concentrate on the acquisition of 7 year-old-plus properties with reinvestment and operating upside as opposed to the newer core properties that we will continue to add to our wholly owned portfolio.

Over the years our team has developed a lot of expertise in creating value to repositioning properties, both in identifying and underwriting the opportunity, as well as executing the renovation and overhauling the on-site operation. We expect to know in the next month or so if this particular next joint venture negotiation will be successful, and are excited about this new growth avenue for the Company and opportunity to further generate value from our operating platform. There are no plans to sell any of our existing properties into the joint venture.

Our redevelopment program, aimed at updating kitchen and baths with 1100 units completed in 2006, will be further expanded in 2007 with an additional 1500 units targeted for renovation. We are capturing an average rent bump of 17% on this reprice-- on the repricing of these units in the program and see significant value creation continuing from this effort. A new development program focusing on value add opportunities by expanding existing communities is continuing, and we have our first unit to Brier Creek Phase II in Raleigh, North Carolina coming on line in the first quarter of 2007. Similar, value add expansion development in Jacksonville and Dallas are expected to get under way later this year also.

We continue to develop a number of other revenue building and expense control programs on the growing stream and use the technology on our operating platform and these efforts also continue to bear fruit. For instance, we have a new program to be implemented in 2007 that we believe will enable us to capture a higher level of fee income through fully automating various fee assessments and improving associated collection practices.

Our expansion into the Phoenix market with the purchase of the 480 unit Tallis Ranch property, which is still in lease [inaudible] and therefore diluted the short term FFO, establishes a strong presence for us in this high growth market. We plan to expand our operations in Phoenix, but will remain patient in securing additional investment opportunities that meet our strict investment protocols. With our entry into Phoenix, Mid-America's portfolio is now positioned in 7 of the top 10 markets nationally for projected job growth and household formation over the next 10 years. A number of markets continue to offer very strong prospects for pricing recovery throughout 2007. We believe that the opportunity to recover concessions and solid -- and capture solid net pricing performance in 2007 exist in a number of our large share markets. We expect another year of strong results from our Florida portfolio across all three market tiers, large, mid-size and small markets.

The past couple of years have seen us make significant strides with Mid-America balance sheet as we have been able to build coverage ratios and reduce leverage. Over the course of this past year, debt plus preferred as the percent of gross assets has decreased by 420 basis points, this provides us considerably more financial and operating flexibility as we pursue opportunities for steady growth and creating value by further leveraging the Company's deal flow pipeline and operating platform.

We believe that we can capture another year of solid performance in 2007 and deliver results that will be competitive within the apartment [reed] sector for several reasons. First, job growth is strong throughout our investment region and this will continue to drive higher population growth and household formation performance as compared to other regions of the country. Second, the single family housing markets and majority of the southeast markets have not gotten materially out of line with historical pricing standards and we don't expect there will any sort of impact to Mid-America properties from a major correction in the segment of the housing market. And given the rapid rise in construction costs over the past few years, we expect the high growth markets in the southeast and southwest will enjoy limited new supply pressure for the next year or so.

Given Mid-America's largely suburban locations with only minimal exposure to the overdeveloped condo market in south Florida, we haven't seen so far much competition from condo reversions back to the rental market, even in Tampa and Orlando, which outside of south Florida, may be two of the markets where condominium reversion may be most significant. Our five properties are not being significantly effected.

Clearly, 2006 was a year of very strong operating results and we remain confident that Mid-America's investment portfolio, along with the redevelopment initiative, new pricing systems and improvement in our operating platform will yield continued, solid performance in 2007. While the acquisition environment remains challenging, we're also encouraged with prospects for capturing competitive levels of new external growth over the course of 2007 for both our wholly owned portfolio and the potential new JV. Deal flow is very high and we're currently underwriting quite a few properties.

I'm going to turn the call over to Simon now to give you more details on the quarter and guidance for 2007.

Thanks, Eric. Morning, everybody. We are pleased that we were able to report record fourth quarter FFO of $0.83 a share, capping another great year for Mid-America. We provided FFO guidance for the fourth quarter both with and without the promote fee from the sale of our last joint venture property [Veranda] at Timberglen. The sale actually closed January 12th, so the promote fee will be reported as income in the first quarter of this year. The mid point of our fourth quarter, FFO guidance before the promote fee was $0.79 per share. And we were able to beat this forecast by $0.04 per share mainly due to very strong operating results.

You'll remember that in the fourth quarter of 2005, we recorded a $1.2 million credit to revenues related to straight lining of [crop] period concessions. Before this adjustment, year-over-year same-store NOI growth for the fourth quarter of 2006 averaged 5.4%. Same-store expense performance for the quarter was good. Property level operating expenses, excluding taxes and insurance grew by 3.3% when compared to the same period a year ago.

The large increase in premium costs we experienced at the end of June drove our insurance expense up 43% although this was partially mitigated by an excellent quarter of real estate taxes which were 0.3% below the same period a year ago. The tax reduction was due to some successful tax appeals, tax law changes in Texas and some tax rates being set at lower levels than we expected. Total property expenses increased by 4.3%.

Before the one time prior period concession adjustment in 2005, for all of 2006, same-store revenue grew by an average of 5.7%. Expense growth averaged 3.8 and NOI growth averaged 7.2% on the same basis. Offsetting the 17% increase insurance expense, real estate tax expense increased only 0.7% in 2006 for the reasons I mentioned above.

Results for the quarter continued to demonstrate exceptionally strong NOI growth by a large tier market, especially Atlanta, south Florida, Dallas and Houston, as well as a continuation of recoveries in Austin, Greenville and Raleigh Durham. On the same-store basis concessions dropped from 4.1% of net potential rent in the fourth quarter 2005 to 3.0% in the fourth quarter of 2006.

Our leverage, defined as debt plus preferred to market capitalization, dropped from 52.3% at the end of 2005 to 46.3% at the end of 2006. We have over $200 million of unused debt capacity and our fixed charge coverage was 2.15 up from 2.10 a year ago and at or about the sector median. We have been told that we will be well within investment grade parameters should we elect to pursue an investment grade rating and reduce the share of our total debt that's secured. We like the flexibility in pricing of our agency credit facilities but in the future this is something we can't pursue should it make sense.

When evaluating Mid-America's leverage, it is important to remember that our business strategy is safer than most apartments REITs, and we don't have a lot of capitalized overhead and interest expense or a major commitment to development. Our FFO is not dependent on businesses that carry a lot of transaction risks and we see that our three tier market strategy provides additional stability in operating performance.

In looking at our forecast for 2007, we have given a fair amount of details on our model in the press release on the components of our guidance. Our forecast is based on continued market strength. The same-store NOI growth in the 5% to 6% range and at the mid-point of our range FFO per share growth of 5%.

We have some cross currents in our projections that I'll comment on. Firstly, we have got a couple of one time items included in the forecast. The sale of our last joint venture asset was completed on January the 12th. We received almost $10 million for our equity position and the promote fee turned out to be $0.04 per share as opposed to the $0.03 in our earlier estimate. Partially offsetting this income will be a $0.02 per share non-cash charge to write-off the original issuance cost when we refinanced $12 million of our 9.25% Series-F preferred in October. The remaining $155 million of Series-H preferred is called on in August of 2008, it's coupon is 8.3%.

As Eric mentioned, we are planning to start the rollout of our yield management system in the second quarter and to have the rollout complete by the end of third quarter. We expect it will have a positive impact on revenues and FFO in 2007, but there are some associated expenses. We'll add about $600,000 to our G&A expense and about $200,000 to software depreciation expense. We expect that the operation of the old management system will encourage us to use net pricing. Thereby reducing concessions substantially. Since we amortize our concessions over the life of the lease, this is projected to reduce the amount of capitalized concessions by $0.02 to $0.04 this year, a non-cash charge to FFO.

The sale of two of our older Memphis properties, Hickory Farms and Gleneagles is expected in the next few months with a sale price in the range of $12 million. Which represents about an 8% cap rate for these averaged 25 year old assets. We have also included in our forecast the sale of an additional $14 million of older properties as we continue to upgrade the portfolio. We anticipate dilution in the range of $0.02 per share as a result of these dispositions in 2007. We also expect dilution in the range of $0.09 per share from our investment in development and lease up properties, with $0.06 per share from our Tallis Ranch in Phoenix which is currently 44% leased and $0.03 from our limited development program.

Construction on the 200 unit Brier Creek Phase II in Raleigh Durham should be completed this year at a cost of $24 million. Construction on the 124 unit expansion at St. Augustine in Jacksonville, Florida is planned to begin at the end of the second quarter. And on Copper Ridge, 216 units in Dallas, Texas in the second or third quarter. Our supplemental data schedule contains more information on the development program.

Real estate tax expense on a same-store basis increased an average of 0.7% in 2006. We don't think we can repeat this in 2007 and have forecast an increase in the 3% range.

Our G&A and property management expenses expected to grow a combined from $3 to $5 million, driven by several items including franchise and excise taxes resulting from legislative changes and as I mentioned, costs associated with yield management. We expect to incur some start up cost and overhead expense associated with the joint venture that we will hope will be in place by the end of the first quarter, where the first investments will likely be made in the second or third quarter.

We plan approximately $102 million in swapped and fixed rate refinancings that we anticipate replacing with about a 10 basis point improvement. We expect interest rate changes, which we forecast using the forward yield and forward [LIFO] curve to cost us about $0.03 per share. We have included $150 million of wholly owned acquisitions in our guidance, and $150 million of joint venture acquisitions. We anticipate that we'll own a third of the joint venture as it'll be 65% leverage managed by us on a normal fee structure. We have approximately $0.03 per share of FFO in our forecast of 2007 associated with the successful implementation of the joint venture.

Excluding development and redevelopment, property capital expenditures are forecast to approximate $33 to $35 million including $6 million for redevelopment and a further $28 million in new development.

We anticipate that we will fund about $20 million for our share of the equity in the joint venture, plus invest $150 million in wholly owned acquisitions. We plan to finance this with almost $40 million in proceeds from property sales, including the pro-joint venture. With debt under existing financing arrangements and with equity from the continuous equity plans. We anticipate that our capital structure and ratios will remain at or better than current levels, assuming that there are no significant market changes or other events.

Recurring capital expenditures should approximate $0.63 per share down from $0.74 per share this past year, which was unusually high due to the timing of some exterior paint jobs. AFFO for 2007 is thus forecast to be in the range of $2.77 to $2.97 for the year compared to $2.59 for 2006 which is an 11% increase at the mid point of the forecast.

Eric.

Thanks, Simon. In closing, I want to extend my appreciation and thanks for the hard work and terrific results achieved by our team of associate here at Mid-America. The average tenure with Mid-America among our management team at the vice-president level and above now stands at 10-years of service to our shareholders, and this commitment has a lot to do with our strong and steady performance.

Our business model is pretty straightforward. We continue to believe that our strategy of deploying capital in a careful and disciplined manner against the high growth region of the country with a focus on maintaining a high quality of earnings and a hands-on focus on the operating platform of the Company makes sense, and we'll continue to generate attractive and competitive results within the public REIT sector.

That concludes our prepared comments, and, Operator, I'm going to turn the call back to you now for any questions.

Thank you, sir. [OPERATOR INSTRUCTIONS] First question comes from Rob Stevenson from Morgan Stanley.

Good morning guys. Simon, in addition to the sort of net $0.02 positive impact from the $0.04 promote and then the $0.02 preferred redemption charges, is the integration of the yield management system, is that the only sort of other nonrecurring item in the guidance right now?

That is basically correct. I would say that we probably got $0.01 to $0.02 of start up costs associated with the joint venture that we are working on, Rob. But, hopefully-- we are hopeful of course, as I mentioned, that we will get a net $0.03 from that if the joint venture is successfully put in place.

Okay. What is the cost per unit that you guys are looking at in terms of your '07 plan redevelopments?

Drew, you want to comment on that?

I will. As was mentioned, we're going to do around 1500 units. That's what we expect to do, and it is going to be a mix of our full and our light rehab 50/50, and when you combine the two, I think we're anticipating around $3,000 for our light, $5,000 for our full, so a blended average around $4,000 a unit.

Okay. You said that the rent bump is 17%. But what is the expected return on the incremental dollars?

It is 13% on an IOR.

And important to keep in mind, Rob. That does not to assume anything other than a payback associated with rent, Bob. We're not assuming any sort of terminal value, benefit, lowering turnover, lowering repair maintenance cost, none of that stuff, it is strictly the rent, Bob.

So, it is about a 13% IOR unleveraged.

Unleveraged, right.

Okay. And then, in terms of a few of your markets had some 200 basis points or so decline -- or greater decline on occupancy. So is there anything other than seasonality going on there? Orlando, Greenville, Nashville, Raleigh Durham and most of your smaller markets.

I can run through them one by one if you want Rob, or just give you an overview. I mean, obviously there's some seasonality there. The other thing that we did is, a lot of these places were pretty stacked on occupancy and we have been pushing aggressively on rents, and that shows up where we think it is most important is on the economic occupancy line with fiscal occupancy down slightly, 88 -- or 89.8 the best fourth quarter economic occupancy we've had since 2000. So, the slight tradeoff for occupancy is more than being paid back on the net pricing side of it.

Again, just to reiterate an earlier point. We are not really alarmed by any sort of sequential comparison. Because it really is in line with what we have seen historically. And, unusual for us, at least what we have experienced, January actually ended the month higher than -- we ended the month higher than we did in December on fiscal occupancy.

What sort of -- you guys are forecasting relative growth of 4.5% to 5.5% in '07. I mean, what does that assume for occupancy? What is the embedded occupancy and rental rate gain assumptions in there.

It's essentially flat.

Okay. All right. Thanks, guys.

Our next question comes from Dave Rodgers from RBC Capital.

Hey, guys. In terms of the guidance, and, Simon, you did a good job of walking through each one of the pieces. Now, to break it up a bit, could you, one, walk through the redevelopment dilution as that comes on line? Like '06, '07, '08. At what point -- we've hit a plateau. Do we expect it to continue to go up or are we pretty stable versus last year at this point?

In terms of what we would expect, Rob. Excuse me, Dave, is that the redevelopment units we would not expect a lot of delusion from that. Probably should be, I would think fairly flat for the current units. Now, we will expect accretion from last year's units. Because if we did 1100 units last year with $100 rent bumps and putting a cost of capital to that we should expect probably $0.02 to $0.03 from last year's units. Now, some of that, of course, is in same-store, probably half of that's in same-store group. The other half is not in same-store group. But this year's group, which as Drew mentioned, would be about 1,500 units, we should think would probably be about flat overall for this year and then be accretive next year.

Okay. The timing of the dilution related to the development, will that mostly hit in the second quarter?

Beginning in the second quarter, yes, yes, and then it'll probably build in Q3 and be stable in Q4. I think that's right, Al?

That's right.

The timing of the $0.02 to $0.04 that you gave for the concession impact in 2007, is that spread evenly only over the second, third and fourth quarters as LRO is rolled out?

It's probably Q3, Q4, [a day], yes.

Okay. The neutralization of that dilution from Phoenix, I mean, is that gone by mid-year or will that sustain into the second half?

What do you -- how did you model?

I think it'll look better in the third quarter and fourth quarter should be productive, first and second would be the largest part of that dilution, Dave.

Okay. And then, final question for me. In terms of what you have seen with LRO, in terms of the benefit in the small tier markets, have you had any problems there in the sense that there's as many fewer transactions than there are in the larger markets to keep the system moving.

Dave, Drew Taylor. We tested LRO across a pretty broad mix of markets and property sizes. And really saw sort of the same results across the range. So, I don't think that there's anything particular about the smaller market sizes where we think that there's going to be any sort of measurable difference there.

Okay. Thank you.

Our next question comes from Bill Crow from Raymond James.

Good morning, guys, couple of questions. Eric, you have been pretty confident that the smaller markets wouldn't be a drag in the up cycle, like maybe we have seen in past cycles. The performance in the fourth quarter though seems to show they were drag. And are you confident? Is that just kind of an isolated event, or do you think they will be a drag as you go forth?

Well, I think that, what I've really feel like I've tried to get across is that, the small tier markets will not likely be as robust as some of our mid-tier and large-tier markets in a real, in sort of the top of the cycle phase that we are in right now. I don't think there is any question that we are not going to be able to push rents as aggressively in say, Chattanooga as we are in Dallas. I don't think there is not any doubt about that. What we were wanting to do and had been working to do over the last five years, is to reduce that small tier allocation -- small-tier market allocation from where it was five years ago which was roughly 52% of the portfolio down to where it is today which is roughly a third, and recognize, and we are okay with the idea that we may have, if you will, a little bit of drag. Less so now than it would have been five years ago, but a little bit of drag during the up part of the cycle but willing to trade off on that in an effort to have the stability and the benefit on the other side of the cycle. And, so, I think there may be a little drag there and it is not, in our sense, something that we think the pay back is there for that.

Do you think you maintain that 33% allocation or do you continue to keep creeping up toward the larger markets?

My guess is that the percent will continue to decline a little bit, and I wouldn't be surprised to see it get 25% or there abouts. Just depends on the acquisition side of things. But, we are -- there are select small-tier markets that we still feel very, very confident about, places like Savannah and Charleston and Lakeland, Florida, Ocala Florida, where we are doing very, very well in some of of these small-tier markets. And so, just as a function of growing the portfolio, mostly focused on large and mid-tier markets and continuing to cycle out some of our holdings and some of the smaller tier markets, I think the percentage will go down. But, I will tell you that when you start to look at the small-tier markets, I think you have to be careful about using a broad brush in order to labeling the small tiers being, perhaps, not quite as robust during this phase. Places like Charleston, Savannah, the ones I was mentioning, they have been very robust and very strong.

Just, this is Tom. A quick thing. The anchor for us in the performance of the small tier markets was Jackson, Mississippi which was full this time last year and as the Katrina relows moved back and moved out and found more stable housing, we just couldn't compare to Jackson, we felt Katrina more than any more market that's why it is done 11% over a year by year NOI basis. And that's really the driver of our small tier performance this go around.

That's helpful. Simon, what would it take to get the first quarter to one extreme or the other of the the $0.10 guidance now that you've recognized the promote fee you've gotten occupancy back up from where it is in December. What are the variables that would shift it by a dime in either direction?

A dime would be a lot. What we have seen and consistently seen over the last quarter is frankly better operating performance than we forecast and now that we haven't been out, we were out as we were in the fourth quarter and we we underestimated our operating performance when we went into the fourth quarter by $0.03 and we also picked up about a penny on interest expense. So, I think those would be, it is really for the first quarter, it would really be, the operating variables.

Okay, what are you seeing in Tampa? We have seen some weakness here ourselves, obviously living here and have you seen an impact? You said you haven't yet felt an impact from the condos coming on line. But what are you guys on the ground seeing here?

I think things really steady and what we have done, Tampa was extremely tight for a long time and we pushed rents very aggressively and saw net price increase of 6.4% in the market on a year by year basis. January is already improved on occupancy and we are 92.4 at the end and 92.4 at the end of the quarter and January ended 93.3 and we are not going to be able to be 98% full and push through 6% rent increases but we expect stable occupancy and above average rent increases there. Traffic continues to be good in those markets. And demand still seems pretty good. We are we have not seen heavy competition from reversion of condos at this point.

One final question. Eric. What is your sense on the acquisition volume. The 150 million I know in the past your guys internally had they could exceed the expectations, I mean is the deal throw such that there could be up side to the external growth.

Well, I hope so, we, last year, we went into the year frankly with an idea of 150 million and we did 192 million last year and so, and that's 192 million last year as compared to just over 100 million each of the two years before that. I can tell you that we've dedicated additional resources to the acquisition effort and our pipeline is very active right now and I feel pretty confident about the 150 million target for our sort of core acquisition program and as said, it is a challenging environment out interest and we are, I am looking at the deal flow work sheet in front of me right now and it's pretty darn full and we will see what happens.

Terrific. I appreciate the time.

Thank you.

Our next question comes from Nap Overton from Morgan Keegan.

Good morning. I was hoping you could clarify for me to make sure I understand the capital spending plans. It is $18 million and recurring, $6 million on the redevelopment program and then there is a 10 million spread between the $18 million maintenance CapEx and what you call total CapEx including the yield management system. Is there $10 million for the yield management system?

No, it is not. Nap, this is Simon. The yield management system should be about a 1.350 million. The different, the additional 9 million or 8.5 million is revenue enhancing CapEx and other than that redevelopment program that Drew was talking about. That would be our normal regular revenue and revenue enhancing capital.

All right. And then on the you have got $56 million of unit expansion projects going on right now or development projects. What would you estimate the market value of those units once completed and occupied will be versus what you are investing in them?

I think I would answer that. And we are looking at. If I am correct, about 7.5% NOI yield on those. And we are typically buying five year old assets of about 6.5% NOI yield and I would say that were are looking at a 15% to 20% up on that once they get out of the ground. That is my, kind of mathematical approach to it now, not having the touch and feel that the development guys do and that's my 10% to 20%. And something in that range.

And do you have other properties at which you have that opportunity to do some expansions or do you contemplate many more going forward?

Nap, it's Eric. We have one or two others that we are looking at. Not a whole lot more and frankly what we find is we go out and on the acquisition side of things and talking to a number of developers that we know and do business with, where they have often built the first phase. We can create an opportunity for them and us by buying the first phase and working an arrangement to have them built the second phase for us like were doing in Raleigh with the Brier Creek development and I am sure we will stumble on another deal or two like that over the course of the next year, but within our existing assets. There are maybe one or two opportunities we are considering.

Okay. Separate question. With repositioning properties well-being one of Mid-America's characteristics, over the long haul, really. Seems like over the last 10 years. One of the things you pride yourself on. Why would you share that expertise in a joint venture instead of take on that capital program yourself on balance sheet?

Bottom line, we were able to generate better returns for our shareholders by leveraging our platform in a relationship with the joint venture partner and starting to monetize, if you will the value of our expertise in operating platform through fees. And it really comes down to the the tradeoff is how much volume we think we can acquisition and redevelopment acquisition we can find and if we are able to secure and execute on the kind of volume that we are talking about, it is far more advantageous for our shareholders to a joint venture platform because of the ability to capture move value for the platform.

Okay. And then just a couple of clarification questions. The same-store numbers that you talked about, same-store NOI being at 5% instead the 2.5 excluding that concession adjustment. Does that exclude the adjustments in all periods or does it just exclude. Did you just make an adjustment for the one fourth quarter period adjustment last year that was rather unusual?

It is a very good question, Nap. Bottom line is, that we just excluded the one time concession adjustment.

Can you tell us what the total straight line rent/concession adjustment was for 2006 and for 2005.

$1.2 million.

$1.2 million and 2006.

Yes. That's correct.

And that was a, so GAAP rents were 1.2 million below cash rents.

That's correct. So we ate $0.04 a share. If you like last year of non-cash.

And 2005, the straight line rent and concession adjustment total was?

I don't have that in the fourth quarter, the one time item was 1.2 million. In the fourth quarter total was like about 1.3 million of 2005. Don't have it right in front of me for the-- all of 2005. But can certainly get it back to you.

Okay. And the point of the impact of the revenue management system is that those straight line adjustments, if you go to more using net rents will decrease in the future?

That is exactly correct.

Okay. And then could you just tell me what amortization of deferred compensation was in your G&A expense for the year?

Gosh, let me get back to you. Don't have that right in front of me.

Thanks, that's it.

Thanks, Nap.

Our next question comes from Thayne Needles from Baird.

Good morning, guys.

Hi, Thayne.

Just a couple of quick questions related JV. One, you think that you are looking at opportunities or across the board at opportunities that represent where there is a better management play or just a repositioning and just market cycle changes, what kind of properties are you looking at and the second part of that the variable of those acquisitions to the REIT really principle going to be based on the age of the asset? Yes, answering your second question first.

Yes, and anything that is seven years of age or older, we will show to the JV first and anything younger than that would be a core acquisition opportunity for the 100% owned portfolio and as far as the redevelopment opportunity, we really look for several things. First is, physical issues that may be holding back the property's performance and rent growth opportunities or revenue growth opportunity, where we can go in and upgrade either exterior landscaping leasing centers and certainly the interior renovation opportunity is something we will take a hard look at. So it is really deferred CapEx opportunity and secondly, we are looking for, you in, operating weakness or operating opportunity that is not being fully exploited and as we continue to develop this operating platform that we have and yield management and all the other things we are doing. We believe that we are going to find ample opportunities particularly in some of these third party managed situations where they just don't have the operating strength that we are able to bring to bear to the property and generate additional value that way.

And finally, can you give us the average share count that is implied in your estimates. The guidance for '07.

About 28.5 million.

28.5 million, that's your full- year weighted average?

That's, full year average.

That's all, guys. Thanks.

And that concludes the Q&A session for today's conference call and I would now like to turn the conference back over to our speakers for closing remarks.

Thank you. No closing remarks. We again, apologize for the delay this morning and if you have any other questions just give us a call. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program for today. You may now disconnect and have a wonderful day.