Mid-America Apartment Communities Inc (MAA) 2010 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for participating in the Mid-America Apartment Communities first 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. Operator: Ms. Wolfgang, you may begin.

Thank you, Tyrone. Good morning everyone. This is Leslie Wolfgang, Director of External Reporting for Mid-America Apartment Communities. With me this morning are Eric Bolton, our CEO, Al Campbell, our CFO, Tom Grimes, Director of Property Management, and Drew Taylor, Director of Asset Management.

Before we begin I want to point out 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-X 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 will be available on our website. I will now turn the call over to Eric.

Thanks Leslie, and good morning everyone. We were encouraged with the better than expected start to 2010, as outlined in our comments this morning, we now believe that same store NOI will be better than originally forecasted. It seems likely that the high retention of existing residents, coupled with a steady recovery in leasing conditions will support our ability to continue pushing rents, in line with what we are forecasting this year, and reinforces our belief that improved revenue trends should begin to emerge late this year, and into 2011.

Results for the first quarter were highlighted by better than expected revenues as occupancy, fee income, and collections were all ahead of forecast. Same store occupancy was a strong 96.6% at quarter end, putting the portfolio in a terrific position as we enter the busy summer leasing season. The occupancy performance was 120 basis points better than Q1 of last year, and 140 basis points better than where we were at year end. As we think about the remainder of 2010, we now expect that occupancy will remain consistent with last year's very strong performance, with rent increases in line with our original forecast. In his comments Al will outline for you the adjustments we have made to our forecast for the remainder of the year.

In the first quarter when comparing rents to the prior quarter, and looking at trends on a sequential basis, traction for sustained rent growth is definitely beginning to take shape. Rents achieved on a new leases for all of the first quarter were up an average of 0.5% as compared to the fourth quarter. The recovery trend continued in April, with new lease pricing up 1.2% as compared to March. And as expected, the trend for rents on renewal lease transactions are lagging the trend on new leases, but are likewise moving into recovery mode.

Renewal rents in the first quarter were on average down 1.9% as compared to pricing in the fourth quarter. But when looking at the trends on a more real-time monthly sequential basis, April renewal rents were up 1.7% as compared to the pricing achieved in March,and reflect an improving trend as well. While it takes several months of repricing to capture meaningful impact in overall revenue results, we are encouraged by these trends, and remain comfortable with our forecast assumption that price willing steadily recover over the course of this year, and build for strong performance momentum into 2011.

The solid performance in Q1 was fairly widespread across our markets, with the secondary markets posting slightly better revenue results. Our large market segment performance in Q1 was somewhat weighted down by the weaker performance out of Houston and Phoenix. These are two markets that we feel good about long-term, and where we expect robust recovery over the next couple of years, but Houston was a little late to feel the impact of the recession, our properties there will be challenged with tougher prior year comparisons than most of our markets.

We continue to believe that our high growth sun belt markets will capture more robust job growth, as the economy begins to find traction. The latest projections from the Bureau of Labor Statistics released a week ago forecasted our markets on a weighted average basis, will exceed national job growth projections. And we are optimistic about the future rent growth prospects from our portfolio.

As noted in our release, we just closed on our third investment for Mid-America's Fund II. Broadstone Cypress is a newly developed property located in the northwest submarket of Houston. We acquired the property from the construction lender, who had taken it back through foreclosure. At $74,000 a unit for this upper-end and brand-new property, we acquired the property at a 15% discount to the construction loan. Well below replacement cost, and we believe we made a terrific buy.

We continue to have a very active pipeline of opportunities that we are reviewing, and remain optimistic that we will be successful in capturing a number of new investments this year, on both a wholly-owned basis for Mid-America's balance sheet, as well as for Mid-America's Fund II. As has been extensively discussed, there is a lot of investment capital chasing acquisition opportunities. And as a result, cap rates continue to hold up very well. For the high quality properties that we have been pursuing, we continue to see transactions execute in the 5.5% to 6% range throughout our markets.

So in summary, we are excited about where Mid-America's position for the coming recovery cycle, while the Company's performance over the last couple of years has demonstrated ability to withstand a down cycle, we continue to believe that the comparative recovery opportunity within Mid-America's portfolio is somewhat underappreciated. When considering the upside for job growth throughout the southeast and southwest markets, coupled with the muted new supply pressure for the next couple of years, we believe that our core growth will be very competitive within the apartment REIT sector over the coming recovery cycle.

And on the external growth front, it is clear to us that the transaction market is picking up. Certainly cap rates have trended down, and it appears that cap rates throughout our markets have pretty much trended in a fashion that is consistent with trends we have seen in other regions and markets across the country. We remain confident that our long record of focus on the Sunbelt region, with an ability to perform for sellers will enable the Company to capture meaningful new growth while retaining the discipline that had historically guided our investment practices.

The solid prospects for recovery and pricing out of our existing asset base, and growing opportunities to capture new value from an increasingly active transaction environment, we believe Mid-America is in a terrific position to perform well over the coming recovery cycle, just like we did during the last recovery cycle. That is all I have got in the way of prepared comments. I am going to turn the call over to Al.

Thank you Eric. Our first quarter FFO per share of $0.99 was $0.08 ahead of our initial guidance. Same-store NOI for the first quarter was projected to be down 7% compared to the prior year, but was only down 3.5%,as mentioned, and occupancy collections performance and fee income were all above expectations. The occupancy climbed well above 96% during the quarter, which really formed the basis for most of the favorable results. Low resident turnover continues to support the higher occupancy, reaching a historical low of 56.9% at the end of first quarter, which was 3.7% below the prior year.

Same-store operating expenses after netting bulk cable programs in revenue also remained under control during the quarter growing only 0.6% over the prior year, which was slightly better than projections primarily due to personnel cost, utilities and real estate tax expenses. Our balance sheet remains stronger than ever, and we made good progress on planned financing activities during the quarter.

We were pleased to complete the renewal of our $50 million bank credit facility during the quarter, which was our only debt maturity during 2010. The new facility matures in two years with a one year extension, and has a $20 million expansion feature. We were pleased with the final terms, the most significant being the borrowing costs of LIBOR plus 275, which remains well within current market levels.

We entered two interest rate caps during the quarter totalling $50 million to replace a maturing interest rate swap hedging a portion of our available rate borrowings. As consistent with our recent transactions, both caps have low strike levels, of LIBOR at 4.5% and mature in 7 to 8 years. We also entered a $19.5 millionFreddie Mac fixed rate mortgage on a recent acquisition property, which matures in ten years, and bears interest at just below 5.5%.

Our leverage, defined as debt to gross assets ended the first quarter at 49%, and our fixed charge coverage was 2.83 times EBITDA for the first quarter, which is 2% above the previous year, and more than 25% above the sector average of 2.23 times dividend. Our total average interest rate for the first quarter was 4.1%, and we ended the quarter with 86% of our debt fixed or hedged against future interest rate rises. We also ended the quarter with over $175 million of current borrowing capacity and cash, providing flexibility and strength. In April, we also fixed a rate on an additional $50 million of Fannie Mae borrowings, adding another 3% interest rate protection, bringing the total fixed or hedged debt to 89% of our outstanding balances.

As announced in our release earlier this week, we called half of our outstanding preferred H shares, the shares are redeemable at $25 per share on June 2nd, for a total redemption price of $77.5 million, plus the accrued dividends. We plan to use proceeds from our F market or ATM program for this redemption. And through the end of April we raised almost $73 million through our ATM, at an average price of just over $52 per share, net of issuance cost. And we have the ability under our current ATM program to issue up to 4 million shares of which over 2.5 million shares remain.

We plan to continue using our ATM program to fund a portion of the acquisition opportunities that emerge over the remainder of the year, in order to maintain our current balance sheet strength. The preferred redemption is yet another step toward strengthening our balance sheet, further preparing us for future growth. The shares carry a relatively expensive 8.3% coupon rate, and this transaction lowers our total leverage, defined as debt plus preferred gross assets average by almost 3%. And increases our fixed charge coverage ratio by 10%.

We are also required to record a noncash charge of about $2.6 million, or $0.08 per share, related to the original issuance cost of these shares. We expect to incur an additional $0.01 per share during 2010 executing the transaction. However the redemption is expected to add between $0.03 and $0.035 a share in FFO in 2011.

As noted in our release, we are raising our guidance for the year, and providing guidance both before and after the preferred H redemption. Overall, we expect to hold our solid occupancy through the year, in the 95% to 96% range, with pricing trends continuing to slightly improve over the next few quarters. Again beginning to show more improvement on a year-over-year basis late into 2010 and into 2011. We are now projecting same store NOI to decline in a range of 3% to 5%, compared to their prior guidance of a 5% to 7% decline. And though there are other cross currents in our forecast, this 200 basis points improvement in projected same store results for the year, really produces about $0.12 per share in FFO, which is the primary reason for raising our guidance. Thus our revised guidance for the year before the preferred redemption is for FFO per share of between $3.57 and $3.77 per share, $0.12 above our previous guidance at the midpoint.

After considering the noncash charge and the execution cost of the preferred redemption which totalled $0.09 per share, FFO is projected to be between $3.48 and $3.68 per share, which at the midpoint is still slightly above our initial guidance for the year.

And that is all the comments I have. Operator, we will now turn it over to you for questions.

Thank you, sir. (Operator Instructions). Our first question is from Swaroop Yalla from Morgan Stanley.

Good morning.

Good morning, I just wanted to get some more color on the Houston acquisition. Given that it was a distressed opportunity, can you comment a little bit on the cap rate, the IRR you underwrote on this asset, and also what is the spread versus a comparable core product you are getting in that market? Are you seeing more such opportunities as well?

Well, the acquisition cap rate which is the property has just been in the process of leasing up, so it is really in our opinion not really a stabilized level of NOI just yet. But the going in cap rate was around 6. I think when you look at year two, where we think we will be in a more stable situation, the cap rate is around 7.

And if I remember the rest of your question, there was some, are we seeing other similar kinds of opportunities? There are a few out there. We certainly are spending a lot of time talking with a number of banks and lenders, as well as developers, in an effort to try to find these opportunities. I think that clearly we have a lot of financing coming due I think over the next year or two. I know a number of these assets have not performed in line with what the construction financing assumed would be taking place.

So we are hopeful that there will be more to come, and depending on the level of stabilization of the asset, or the property, the more non-stabilized it is, frankly, gives us a little bit of an advantage in that the agency financing is not readily available for that, as you know. So I think that we continue to be hopeful that we will see more of these opportunities emerge.

All right. And I guess the other question I had was about the low turnover. New home sales rose by 43%, I think, last month in the south region. I am just wondering if you are seeing any increase in the rate of move out to home purchases in your markets, or it looks like the low turnover indicates that it is not really panning out that way?

No, Swaroop. This is Tom. We are just not seeing that home buying dropped significantly in our markets across the board, frankly.

Okay. Thank you so much.

Thank you, sir. Next question or comment is from Michael Levy of Macquarie.

I was wondering whether you could talk a little bit more about the acquisition opportunities in the Mid-America markets, relative to perhaps the coastal markets?Are the markets comparable in their competitiveness, or do you think there are more opportunities in the Sunbelt markets?

Yes, that is a good question, Michael. My sense is that there is clearly a lot of capital out there chasing opportunities. I think that a lot of the capital continues to be somewhat focused on the notion that it is important to buy in the so-called gateway cities in the coastal markets. And my sense is that there probably is a little bit more competition there.

But having said that, I can tell you that in certainly some of the major markets that we have been looking in, be it Phoenix or Houston or Dallas, the competition is pretty active, and we are finding routinely that particularly if there is a broker involved, and there is a fully marketed process involved, to suggest that the competition is less, in some of the major markets in the southeast than it is ton coast, I would be hard-pressed to believe that. Of course, we are not in a lot of those coastal markets, so I can't opine on just how competitive it is. But I can sure tell you in our markets, it is very, very competitive. There seems to be a lot of investor interest in these markets.

Then having said that, of course, if you get into some of the secondary markets, where of course as you know, we like to play there as well. I think that is where we find, there is competition there, no doubt about it, but frankly they don't have the balance sheet strength, the execution capabilities, and the ability to perform as quickly as we can. And so we think we can go in to a number of these markets based on relationships and based on execution capability, and based on their demonstrated record of being able to perform for the seller, where we can come in and create an advantage.

We don't find ourselves running into a lot of the other REITs. Mostly it is just private capital. There's a lot of private capital in all these markets chasing the deal. So I think the competition is just as fierce, but I think we have got an advantage from an execution capability that hopefully gives us a little bit of an advantage. We are always trying to find ways to lock up these deals on a non-marketed basis, if we can.

So would it be safe to assume that going forward it would seem more likely that acquisitions would come more in the secondary markets than in the primary, well large markets, things that you call them?

No, not really. I think that we are pretty comfortable with our current portfolio allocation at the moment, which is roughly about 60% of our capital allocated to our large share segment, with about 40% allocated to our secondary segment. We think that is about the right allocation in terms of how we want to perform over a long period of time. So we are active in both segments of the market, both primary, as well as secondary.

And I think though, our ability to be competitive from an acquisition perspective is probably a little bit stronger in the secondary markets, just the competition may be off just a little bit in those markets. But frankly it is pretty competitive there as well. So I wouldn't interpret it as an indication that we are going to be focused primarily on acquisitions in the secondary markets. I think it will be focus balanced between the large and the secondary

Okay. In a nutshell, just reading the press release, it seems like the Company is a bit surprised that they haven't been as acquisitive as maybe they thought it would be over the last six months. Would that be a fair characterization? And if so, would the reason, why do you think you haven't been able to acquire as many assets as you have thus far this year?

It is just kind of back to the competition. There is a lot of buyer interest in these markets. And what we are also are finding, frankly, is a lot of these sellers are coming into the market almost to sort of test the market, and see what possibly they can get. They are not happy with what they are seeing and they're pulling back.

I can tell you an interesting data point that we underwrote 46 deals in the first quarter to buy, and 25 of them did not close. The seller just decided to pull the asset back off the market. So that says to me that there are a lot of sellers out there that would like to sell, some of them are not getting, they continue to believe their pricing is going to get even better, values are going to get better, cap rates are going to get lower, they are not happy with the numbers that they are seeing, and they are pulling back. I thought that was a fairly telling statistic. So we will see. I think we are going to need a little bit more, get a little closer to maturity dates, or a little bit more to timeframes where people are forced to either refinance, or put more capital into deals, what have you. Maybe we will see more of these sellers willing to trade at prices that we are comfortable with

Okay. Thanks. One more quick question on turnover. The numbers are obviously really impressive. In the past, I think you have mentioned that the view is a 50s number in turnover is probably unsustainable over the long term. So I guess I was wondering, is the idea now that tenants aren't really, they are sort of stagnant because they still aren't sure about their jobs, they can't get the good deals that they maybe could have a year ago, and you aren't really raising rents on renewals, so there is no real reason to leave, and that as time passes, once you are able to be more aggressive in raising rents, the tenant turnover will probably pick up a bit?

Michael, this is Tom again. I think our philosophy on this is that the main two areas where we have seen move outs drop off are on home buying and on job transfers. And while we expect to see home buying pick up in the long run, the short term, in the next year or so maybe more, but we really feel like, one, that the discipline is much better out there as far as underwriting risk for mortgages, and that there just won't be the large push to homeownership that there has been in the past.

And two sort of to your point that the psychology has changed a little bit. I think folks now have been carefully demonstrated to that they can actually lose money in real estate, and that it is a little more appealing in their minds just to stay and rent a bit. Frankly, we are taking advantage of that and beginning to push rents, as Eric referenced, both on the new front and on the renewal front. Renewals lagging a little bit, but it is definitely getting more and more competitive

Mike, I think as the employment situation recovers over the next couple of years, I think it is realistic to expect turnover to move back toward sort of the 60% range. I think historically long term that is where it generally hovers. But I think that going back two or three years ago, we were seeing 67% kind of turnover ranges. That was the home buying, mortgage financing environment driving it. I think we will move back up, but I think we need a much stronger employment market before that happens.

Thanks a lot, guys. Have a great weekend.

Sure.

Thank you, sir. Our next question or comment is from Rich Anderson of BMO Capital. Your line is open.

Good morning, everybody. What do you think the kind of natural level of occupancy is in your portfolio? The 95% seems high, relative to the kind of the way I think of your market. I think they are like 92% occupied markets. Am I wrong about that?

I would, in a nutshell, say you are wrong about that. I think that occupancy is, to suggest that occupancy average is roughly 92% or 93% even for our markets, I guess the thought would be, and the logic behind that would be that because these markets can get supply from time to time. But I would tell you that I think we are in kind of a new paradigm here as it relates to new supply pressure. And the psychology of home buying.

Both of those two phenomenon are really going to be somewhat unique in terms of the effect to our business and our markets, I think over the next couple of years. As a net result, I don't know what a normal level of turnover is, but I would tell you that our benchmark is kind of the in the 95% range. If we begin to see turnover much above that, then we start really thinking long and hard about how we are managing with our yield management system, and believe we have opportunity to get traction on pricing and then below that level, we get a little nervous about it, and feel like from the expense management perspective, and so forth, that we don't want to see it much below that.

Rich, we are just basically trying to optimize revenue and that is what the platform that we have really allows us to do is find that sweet spot of best occupancy with best rent options

I understand. I understand what you are doing. But I am thinking about the market. Even when I look back in history now, I have the advantage, I just opened up my model. Looks like it is been 90-ish pretty much back to 2005. I don't know. You are saying it's a different world these days, is that right?

We're saying other folks are making different decisions on their optimizations.

Yes. Okay. On the balance sheet strategy, you guys are known for using swaps, and swapping and all of the rest. Talk to me about the advantage of that is to you?I mean the brain damage going through that explaining to people all the time swaps, buyers, debt, buyers, a lot of moving parts on your balance sheet. What do you think is the clear reason why you do it that way?

Rich, this is Albert. I can give it to you in a nutshell if I can. Historically, using the derivatives has been the best way to create the most flexible lowest cost debt. Instead of going out buying retail fixed mortgage at Treasury plus something, we bought an underlying [inaudible] rate, and put the derivative on top of that, and ended up in a better place, in terms of cost and flexibility. No prepayment penalties, and those kinds of things.

What we have seen in the changing environment, you have seen us begin to use caps more lately. There has been somewhat of a sweet spot in the cap market. What we are doing there is we are able to enter a cap, and all-in costs were at a strike level of 4.5 onmost of them, all-in costs at 5.5% to 6% range. If we went out and bought fixed rate debt on 10-year mortgages with a similar maturity for that, it costs us pretty near that 5.5%, maybe a little north of that.

But in the mean time, we are able to have the low 1% to 1.5% borrowing costs. So it just makes a lot of sense. We think there will be a little bit of volatility when the markets change, and rates go up. We know that. But what is going to happen,we expect that revenue historically, variable rates have been very correlated to apartment NOIs. And so rent increases, NOI increases will offset that ball tipping to us in the future. That is what we are doing. We feel like it is very flexible in the long run, by far the lowest cost approach.

And as part of our Fannie Mae and Freddie Mac contracts that we do, that we basically cross-collateralize facilities. We borrow at a variable rate, and use these derivatives on top. Moving in the future, I would say that on a marginal financings we do in the future, you will see us do more fixed rate financing. More 10-year stuff, 5.5% to 6% from this point, and in the future we will see.

Thanks.. And then last question. It sounded like the previous answer already took care of this, but you are not seeing anything in the way of supply bubbling up in your markets at this point?

No, not at all, Rich. We are working through some supply that came online last year, in Houston a little bit in Austin. But no, everything that we continue to read and see and what we are hearing in the markets that folks we are talking to, is that nothing is getting going at this point

Perfect. Thank you. Good quarter

Thanks.

Thank you. Our next question or comment is from Carol Kemple of Hilliard Lyons.

Good morning.

On the property you all acquired in Houston, what was occupancy when you bought it, and what is it now?

It was in the high 80s when we bought it, and it's probably, my guess mid-90s, low-90s, somewhere in that range right now.

We really just got going on it, to be honest with you, Carol. So it is just getting going.

Okay. And on your second quarter guidance, when you don't consider the impact of the preferred redemption, considering when you do, looks like there is an $0.11 spread there. When I was looking through the press release, I saw there was the $0.08 for issuance cost, and then the $0.01 of execution cost. Where are the other $0.02 coming from?

That is a very good question, Carol. What we are seeing for the year, the cost is $0.09. That breaks out at $0.08 from the redemption cost for the initial cost for the preferred, and $0.01 for the execution. That breaks down into the second quarter. We are going to have $0.08 for the redemption costsand $0.03 dilution from issuing shares in preparation to do that. Then we will have $0.01 per quarter in the third and quarter accretion, because it is a good transaction. So it nets out to $0.09 for the year.

Great. Thank you.

Thank you. Our next question or comment is from Sheila McGrath of KBW. Your line is open.

Good morning. Al or Eric, I was wondering if you could speak a little bit more about redeeming the preferred strategically, should we view this as a step to eventually pursue an investment grade rating?

I would answer it this way. There is no stated goal that we have to move to an investment grade rating. I will put it that way. What we do believe is this. Is that we are headed over the next several years, we are going to be in an environment where I think the capital markets, as it relates to multifamily financing are going to continue to evolve. I think how the agency's role continues to evolve is something we're all obviously watching. We don't think anything happens any time immediately, but broadly speaking, something will change.

I think the cost of capital will, on the financing side, will likely rise. And so broadly speaking we just think that getting the balance sheet as strong as we reasonably can, mindful of earnings impact and all of the other things you have to think through, is only just a smart thing to do. And given where the common is trading, and the yield on that, and how it compares to the preferred, we just felt that at this moment in time it made sense to pull down half of the preferred. It puts our metrics, in a much even better shape than they are right now.

And the preferred is a percent of our capital structure, is much more in line with I think where the sector is and what the market is comfortable with. We just see it as one of several things that we are going to continue to do to best position the balance sheet for what is an uncertain future as it relates to financing multifamily real estate, and a stronger balance sheet is better than a weaker balance sheet. And there is nothing more than that behind what we are trying to do here.

Okay. Another question would be on your Nashville properties, have any of those been negatively impacted by the flooding?

No. I mean, not in any major area. I mean, certainly they got about 13 inches of rain. We had folks that were stranded and couldn't get to their properties, and a little bit of wet carpet, but nothing like what you are seeing on national TV. So no trouble there.

No insurance claim out of this at all. We didn't lose any residence or anything of that nature at all.

Okay. Last question. Just on the sequential NOI numbers, the Texas markets were weaker than like the prior quarter. Just wondering if there are supply issues, or if it's just tougher comparisons 'cause they had such a strong year last year?

Right. I mean, it is a little of both. Houston particularly is of interest. The new construction came online a little bit later there. Their unemployment is really pretty decent. And they added 14,000 jobs from February to March.

The real change there is that this time last year expenses were down 8.2%, which was a result of some hurricane Ike expenses that were expensed in the first quarter of 2008, they were over expensed and we cleaned it up in the first quarter of 2009. So really that one, which is the biggie of that group, is just a comparison. And then on Austin and Dallas, both hanging in there all right. But as Eric mentioned, they were a little late to the party, and really sort of more of a supply factor on those two.

Okay. Thank you.

Thank you. (Operator Instructions). Our next question is from Paula Poskon of Robert Baird. Your line is open

Thank you very much. Good morning, everyone. On the Houston acquisition in the press release, you noted that it is going to Fund II, because you didn't want to increase your concentration on the wholly-owned balance sheet in that market. How do you determine what concentration in any particular market should be? Is it purely just the percentage of NOI contribution to the whole portfolio, or do you think about some other things?

It starts with the percentage of NOI contribution and capital allocation. Frankly, we do look at historical patterns regarding supply and volatility, and other variables that we bring into the analysis. In this particular case, not only was the property in the metro Houston area, that we already have a fairly significant presence in, but Frankly it was in a submarket that we are pretty weighted in as well.

So we just felt that there was probably more risk associated with a wholly-owned investment than we were willing to take. And but it was a terrific buy , we think we will get a lot of value out of the capital we do allocate there, and obviously be able to leverage our operating platform and the management that we have in place there that much more. So it starts with the capital, the NOI allocation concentration. But there are other factors as well that we look

That is helpful. Thanks, Eric. Given the compressing cap rate environment in which we once again find ourselves, are you thinking at all about recycling some assets?

Well now that, frankly, it appears that the capital markets are starting to strengthen, and loosen up a little bit, it certainly becomes something that we begin to think about. We haven't planned any this year. But we are looking at it, and nothing planned at the moment. But I think that we do believe that it is just part of our discipline to look at moving two or three properties generally a year.

We have been reluctant to do that up until recently just given what we felt like was more of a buyer's environment, rather than a seller's environment. As you point out with cap rates doing what they are doing, and buyer interest being what it is, it does beg the question. So we are looking at it. There will be more to come on that

Any markets that sort of filter towards the top of your list?

Not really. For us, I mean, we have no real strategy shift that we think we need to execute as it relates to portfolio allocation. I think for us, it is more a function of do we have specific properties where we either have building CapEx issues, or expanding Cap Ex issues, or neighborhood shifts taking place, that cause us to believe that now would be a time to get out. And it really has nothing, no broader portfolio considerations that compel us to think we need to exit a given market at this point.

Al, what are you hearing from your friends at the GSEs these days, in terms of how they are underwriting assets, pricing and terms, and also their market views?

I think we're hearing a lot of similar, Paula. Nothing significant has changed there. They are still very aggressive, both agencies. Pricing that we are getting is very good,especially for the best borrowers out there. So it is encouraging for the short term, for sure. Everyone is looking to see what happens in the long term. A lot of answers to be solved there. But no real changes

Okay. And just one final question, Eric. I think it is fair to say you have been through a few of these cycles. As you look out over the next several years, do you think the pricing power that is on the horizon could be the best you have ever seen?

No doubt about it. I absolutely do believe it is going to be better than anything that we have seen, certainly in my 16 years here at Mid-America, and the seven years in Texas before that. So I do think that we are in a very different paradigm here, in terms of the southeast/southwest markets, in terms of demand and supply. I am more excited about rent growth prospects and the upside opportunity for our Company, than I have been in 16 years.

Do you happen to know off the top of your head. If not we can take this offline, what the best same store rental growth you have had in Mid-America?

That is a good question. I don't know what it is off the top of my head. Al is flipping through pages. We'll get back to you with that, Paula and let you know

Great. Thanks so much. Congratulations on a good quarter.

Thanks, Paula.

Thank you. Our next question is from Rich Anderson from BMO Capital.

Sorry about the follow-up. Something that occurred to me when you were talking, was that you expect renewals to take longer to recover than new leases. Is that what you said?

Not longer. It is just that they tend to be, they lag the trend historically on new rent trends

I guess we are talking apples and oranges then. Year-over-year I would think renewals were more stable than new leases, right? In terms of new rent you would be able to charge your tenant?

Certainly the rent level itself is higher on the renewal than the rent level on new lease.

Right

And so, Yes. Talking just about dollar amounts, you are right. I was referring to more of a trend.

Okay. And when do you think that that kind of crossover happens? I think a healthy market is when new lease increase, rent increases are larger than renewal rent increases. That is a pretty good indicator that a market is healthy.

Yes.

When do you think that happens?

I think that it is probably sometimes toward mid to latter part of this year.

Third quarter

Third quarter. Somewhere in that range

Okay. Excellent. Thank you.

You bet.

Thank you. I am showing no further questions or comments at this time.

Okay. Well, thank everyone. If you have any follow-up questions, just let us know. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Have a wonderful day.