Mid-America Apartment Communities Inc (MAA) 2010 Q2 法說會逐字稿

Good morning and thank you for participating in the Mid-America Apartment Communities second quarter earnings release conference call. The Company will first share it's 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. Ms Wolfgang, you may begin.

This is Leslie Wolfgang Director of External Reporting for Mid-America Apartment Communities. With me are Erik Bolden 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 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 company of this morning's call will be available on our Web site. I will now turn the call over to Eric.

Thanks, Leslie. Good morning, everyone. As outlined in yesterday's earnings release, leasing fundamentals across our markets are quickly recovering. We're very encouraged with the improvement in pricing that's underway. Through the end of the second quarter, the trend in overall blended pricing, including rent amounts for both new residents as well as for renewing residents, was up 3.9% from where we started the year.

More importantly, the pricing on leases written for new move in customers during June increased by 6.4% since the first of the year. And this trend continued in July with new resident rents up a very strong 8.4% since January. This trend in pricing coupled with continued high occupancy, low resident turnover and solid expense control supports what we expect will be robust same store performance in 2011.

A combination of stabilizing employment conditions, a significant pullback in new development, and continued low levels of resident turnover are driving a rapidly-improving leasing environment across most markets in the US. And while these variables should enable many markets to capture strong recovery in pricing over the next few quarters, job growth will need to improve in order to keep the pricing trends moving up. We believe that our focus on historically strongest employment growth region of the country has the portfolio in a terrific position to capture strong performance over the emerging recovery cycle.

As Al will outline for you in his comments, and as we did with our first quarter report, we are again increasing our FFO guidance for 2010 as a result of the better than expected same store results in Q-2 and a stronger operating outlook over the remainder of the year. Occupancy remains very strong across both our large and secondary market segments. Phoenix is our only market that I would characterize as not yet showing definitive signs of early pricing recovery.

But with occupancy improved 350 basis points on a year-over-year basis at our properties in Phoenix, we were still able to capture positive momentum in revenue performance on a sequential basis and we're optimistic that we will see momentum build for price recovery late this year or early next year. Houston is a market that weakened late last year as new supply came online throughout much of 2009. But this market is also now showing early signs of recovery as our properties there closed at 96% occupancy and we generated just over 2% growth in revenue on a sequential basis.

Atlanta was another sluggish market until recently, and likewise has begun to show positive momentum with a 1.6% sequential revenue growth from the first quarter. Both our large and secondary markets showed solid improvement and captured positive NOI growth in Q-2 as compared to the first quarter. As we work through the busy summer season and continue to re-price a larger percentage of the portfolio, we expect that year-over-year pricing will turn positive in the third quarter and overall revenue performance will turn positive by the first quarter of 2011.

Now taking a quick look at new growth and the transaction area, we completed three acquisitions of newly developed properties for a total investment of $70 million during the second quarter. And deal flow really is starting to pick up. Two of the new properties acquired in Q-2 were bought directly from the developer, and one was acquired out of foreclosure from the lender. We believe we made terrific buys in all three deals.

Blended pricing on the properties based on stabilized NOI was roughly 6.8% NOI yield and a 6.25 cap rate. But more importantly we believe the investments will exceed our IRR hurdle requirements. As I noted we are seeing a lot more activity and we're actively underwriting a number of additional deals. As of today we have five additional properties or 145 million of additional new deals under contract to acquire that we hope to close this quarter, two of which are early in their initial lease up.

As with the three properties acquired in the second quarter, assuming we've (inaudible) with complete due diligence and close on these additional five deals we're confident we're buying some great, high quality assets in very attractive pricing that will be accretive to shareholder value. With that I'm going to turn the call over to Al who's now going to give you additional details on the quarters performance as well as information on our updated guidance. Al?

Thank you Erik. We reported FFO results for the second quarter of $0.80 per share. But this did include two significant non routine and none cash items totaling $0.13 per share. Our core FFO performance excluding these two items was $0.93 per share, $0.02 ahead of the mid point of our guidance given on the same basis. In conjunction with the redemption of one half of our preferred shares discussed in our previous call, we wrote off $2.6 million or about $0.08 per share in original issuance costs during the quarter.

Also during the quarter we incurred an impairment charge of $1.6 million or about $0.05 per share related to Cedar Mill Apartments, which is one of our IPO properties and we evaluated our intention to hold this asset for the long-term, choosing to reallocate the capital to higher growth opportunities. Our same store performance compared to prior year was better than expected as NOI declined only 2.7% versus our projection of a 5.7% decline, which produced an additional $0.04 per share in FFO for the second quarter. That performance was partially offset by a combined $0.02 per share reduction related to the dilution from equity raised during the quarter to redeem our preferred shares which was about $0.03 and a favorable performance on our interest expense projections, which was about $0.01.

Same store revenues produced about one fourth of the second quarter operating favorablility, driven by continued strong occupancy and growing pricing trends. Property operating expenses for the second quarter were also favorable to expectations, making up the remaining portion of the out performance. Real estate taxes made up the largest portion of this favorability due to successful prior year (inaudible) and continued declining valuation during the period. As previously mentioned during the second quarter we redeemed one half or about $77.5 million of our outstanding preferred shares.

We also called the remaining portion at an additional $77.5 million during the quarter and redeemed those shares yesterday at $25 per share plus accrued dividends. In conjunction with the redemption of this remaining portion we will incur an additional $0.08 per share charge during the third quarter to write off the remaining original issuance cost. This transaction is yet another step in strengthening our balance sheet and further preparing us for future growth. The shares carry a relatively expensive 8.3% coupon rate. And this transaction will reduce our total leverage, often defined as debt plus preferred capital to gross assets, by almost 6%, increase our fixed charge coverage ratio by almost 20%, and add nearly $0.06 per share to FFO in 2011.

During the second quarter we raised $131.6 million from the issuance of 2.5 million common shares under our ATM share offering program. The shares were issued at an average price net of issuance cost of $52.57 per share with the proceeds being used to, one redeem the first half of our preferred shares, secondly to fund our acquisitions and finally to prepare for the redemption of the remaining preferred shares in August. At the end of the second quarter we had just over 1 million shares remaining under our ATM program.

Also during the quarter we fixed the rate on $50 million of our Fanny Mae borrowings for seven years at 4.73% and entered a $40 million interest rate cap maturing in five-years with the LIBOR strike rate of 4.5% to replace interest rate swaps insuring during the year. At the end of the quarter 88% of our total debt was fixed or hedged against rising interest rates. Our balance sheet remains very strong, and we ended the quarter with our debt to gross assets at 48% and our fixed charge coverage at 2.7 times EBITDA, which is 15% above the sector average. We have no debt maturities remaining in 2010 and we ended the quarter with over $158 million in combined excess cash and current borrowing capacity.

I've outlined in our release we are raising our full year guidance, FFO guidance, to reflect the stronger operating and transaction environment. Though there are several cross currents in our value's forecast the two main changes from our previous guidance are our revised same store NOI expectations and an impact of the increased acquisition activity. We now expect same store NOI to decline in a range of 2% to 4% which compares to the decline of 3% to 5% in our prior projections.

We've also increased our acquisition expectations. (inaudible) owned acquisitions now expected to reach $200 million for the current year versus $150 million previously projected. This includes two new lease up assets. Operating fundamentals improved faster than we expected which is projected to add about $0.08 per share in additional FFO for the year. The $0.04 we gained in the second quarter and another $0.04 projected over the remainder of the year. And though we expect the two lease up assets that Eric mentioned that are under contract to contribute strongly to the future, we project (inaudible) $0.05 per share in FFO in 2010.

So in total in our projecting our FFO excluding none routine items to be in the range of $3.60 to $3.80 per share, an increase of $0.03 from mid point of guidance provided at the end of the first quarter. It is important to remember that we also raised our guidance $0.12 per share in the first quarter. Bringing total revision for the year to $0.15 per share or about 4.25%. And including non routine items for the year totaling $0.20 related to the full preferred redemption and asset impairment, we're now projecting FFO to be in the range of 3.40 to 3.60 per share. That's all I have. Erik.

Thanks, Al. The summary point we believe you should take away from our report this morning is that with strong pricing trends and increasing acquisition opportunities, Mid-America is clearly in position to deliver solid results over the emerging recovery cycle. We believe the Company's performance will continue to be very competitive in the apartment sector. Our strategy is aimed at delivering top tier results for shareholders over the long haul.

As we begin to move into the recovery part of the cycle, we believe that the Company is very well positioned. A combination of our focus on the region and markets with some of he strongest employment growth projections in the country, little in the way of new supply pressure for the next couple of years, and growing opportunities to capture meaningful level of new growth, all combined to put the Company in a strong position. And that's all we have in the way of prepared comments. So Amy I'm going to turn it back to you and we'll open up for questions.

(Operator Instructions). Our first question comes from Dave [Khani] of FBR Capital Markets

Good morning, everyone.

Good morning, Dave.

Quick question. I notice in the press release you mentioned replacement cost as a justification for some of these deals, or more partially justification. Can you maybe walk us through an example of one of the assets that you acquired? And give us some detail on how you think about the replacement cost. I'm particularly interested in the land component and how you think about that.

I think that in all three cases we were working with the developer on two of them with their lender or mez lender as sort of part of the conversation. Of course one of them we bought directly from the bank. And in a number of cases, frankly we had access to information either regarding the loan amount or what the properties were built for. So a lot of our ability to conclude that there was a discount to replacement value was frankly based on the information we were given from either the lender or the mez lender and kind of knew what the deals were built for.

And then of course, we talked to a lot of developers as well and know what these projects go for. Frankly I really couldn't get into a lot of specifics about the land value component on any given deal, but we can certainly look into that if that's of interest to you and get back to you on it. But broadly speaking in terms of how we just concluded the discount that I alluded to was based on the information we were given from the lender and or the developer.

Okay. So that was essentially their original cost basis is how you viewed it.

Correct.

Maybe I'll follow up offline on some of the details. And I guess are you seeing increasingly a little bit of a thaw relative to what's been a year plus of a bit of a standoff in some of the acquisitions you made were from developers, from the banks and so forth.

Yes, absolutely. It's been amazing to us frankly how in the last 90 to 120 days things have really started to move. And I think that for whatever reason, a multitude of reasons, a lot more product is coming to market. I think the banks are either in a position where they are prepared to go ahead after having written down loans or whatever they needed to do to go ahead and move product. In many cases we continue to see developers who are looking at near term maturities that they've got some sort of an issue and they want to go ahead and address it.

I think there's a sense that the market is pretty good from a seller's perspective. I think it's easier now for buyers to sort of underwrite the outlook for the next couple of years. I think there's a sense that cap rates have come down pretty good, even though we're sort of sitting on trough NOI numbers at the moment we're also pretty confident about what's going to happen with the operating fundamentals over the next two years. I think a combination of factors are causing a lot more sellers to come to market.

There's a lot of capital out there chasing these deals. Where we find our best success frankly are either based on a result of relationships that we've worked on and built up with some of the lenders and or the brokers, in some cases the developers, and/or as we mentioned in our call, some of these lease up deals where they're not as easily financed, and thus the buyer activity is not quite as active, we're able to come in and not have to face as much competition and make what we think to be some pretty good buys.

That's helpful. And then just finally, can you maybe guide us a little bit relative to how you're thinking about financing future acquisitions? I know that the agenda, the strategy is growing a little bit in terms of total volume, and you've completed your ATM. I'm just wondering how you're thinking about the balance sheet going forward in that respect.

Yes, Dennis, good question. I think first thing we're obviously committed to our target leverage range of -- we like where we're at right now, somewhere around or just below 50% debt to gross assets. We're going to protect that. We have a little more capacity under our ATM. I think if you just take our guidance for the year, our models for the year, we've increased our acquisition guide, to $200 million.

We've issued over $161 million in new equity through our ATM program and we're going to protect our leverage. We have 1 million or so, just over that, shares left in our current ATM program. So you can roll all that together and come up with a remaining need for the year let's say of $30 to $40 million. And so I can't tell you specifically what our current plans are but we're going to continue to look at all of our options for that funding.

Okay. Thanks for the detail this morning.

Thanks.

Our next question comes from Swaroop Yalla of Morgan Stanley.

Hi. Good morning. I was just wondering if you can share your thoughts on how you look at acquisitions and allocate them to your fund versus wholly owning them on your balance sheet. What kind of criteria are you looking at and what's your guidance for the acquisitions for the fund, too?

Well, the primary bright line that we use is if the asset is seven years of age or older, we show a tri-joint venture partner. And strategically that fund was really put together primarily to focus on sort of value add or repositioning investment opportunities. And so typically the older assets tend to have that sort of a component to them. And we just define the use of a simple age test if you will to make that break. And again, strategically we just believe that the newer properties are the ones that we would prefer to put on the public balance sheet on a wholly owned basis.

So that's primarily the criteria. Now having said that, if we find a terrific acquisition opportunity that's a fairly new asset in a given market or sub market where Mid America already has a heavy concentration of capital allocated we may elect to go ahead and show it to our joint venture partner as well in an effort to just diversify our risk a little bit and not load up to much in a given sub market or market. That would be strictly at our option at that point. The only real obligation we have is that seven year test that I mentioned.

Got it. And I just wanted to touch on the GSC rates you're seeing right now with the 10 year yields coming in most recently. What are your seeing from the GS season with the rates and underwriting.

Good question. This is Al. They continue to be in the market and be very active and aggressive in giving bid. What we're seeing right now is you can look at a five year or seven year or 10 year fixed financing. The spreads on open treasury on 10 year are about 200 basis points or a little under 200 basis point. It gets a little over 200 basis points for seven years and even higher for five years.

So all in you're looking at sub five just 4.9, 4.8 or 10 year, 4.5 on seven year and something like that. So I think one interesting point I'll add to that is that what we've seen that's encouraging lately is insurance companies have come into the market and began to put up some pretty aggressive bids as well. And they're matching pretty much those terms with good proceeds as well. So that's an encouraging trend.

That's very helpful. Thank you.

Our next question comes from Sheila McGrath of KBW.

Good morning. I would assume the redemption of the preferred stock could be viewed as one of the steps to pursue an investment grade rating. And I'm just wondering what other steps are necessary and how you kind of view that in terms of timing.

Sheila this is Al. That's a very good question. I mean, that's certainly one way to look at it. I think what we would say is we certainly don't have a stated strategy to go for an investment grade rating right now.

But having said that, we're looking at all of our options for the future. And that's one of the options that we could look at. We're going to -- we like our total leverage where it is right now. We may set a target to have it be between 45% and 50% over the longer term and look at all of our options. And obviously if we chose investment grade rating, you would need -- basically it's a long-term process and you would need some stepping stones to get you in position to do that.

The preferred could be one of those stepping stones, convertible bonds could be one of those stepping stones, and certainly larger credit facility with regional banks or commercial banks could be one the stepping stones and would be one of the stepping stones. We don't have that as a stated strategy but we are looking at all those opportunities and carefully looking at the future and planning.

Okay. Thank you.

Our next question comes from Michael Salinsky of RBC Capital Markets.

Good morning, guys.

Good morning, Mike.

First of all, Eric, I think you mentioned five properties under contract. Can you give us a sense of location, pricing on those?

Well, I'll talk broadly about it, Michael. I'm a little hesitant to get into too much detail simply because we haven't closed yet. They are under contract and we're optimistic and pretty comfortable that we'll get them done. But I don't want to spook -- mess it up here. But broadly the deals are a combination of Dallas, Raleigh, North Carolina, and Nashville markets.

They are all fairly new assets. A couple of them are still in lease up. And pricing, it's going to vary quite a bit based on the market and the -- just the nature of the deal. We're in some cases buying them out of foreclosure. In several of these actually. So we're pretty optimistic. We've got these five under contract. We've got several others that we're looking at at the moment. And I'll be looking at some more next week. So there's quite a bit coming our way at this moment. And we frankly have been planting the seeds for this for some time.

To be honest with you we've added resources to our transaction group over the last year. We've got the ability to execute on a number of deals simultaneously. We've geared up for this. We, as you know, have been focused exclusively in this region for a long time. So we get a shot at most everything that comes to market to be honest with you. And based on the relationships that we've got with the brokers and others involved. So we're feeling pretty good about this area.

Second of all you gave some detail as to new leases and renewals on a sequential basis and year to date basis. Just wondered if you had those on a year-over-year basis.

Yeah, Michael, it's Drew. On a year-over-year basis, at the end of the second quarter our new leases were up 1.3% as compared to the same quarter last year. And on our renewal leases, we typically look at those versus the expiring lease or the lease they're replacing and those are up 2% in the quarter. I think interestingly enough we saw improvement in both of those throughout the quarter, both new leases and renewals and saw improvement again going into July on a year-over-year basis on new leases and lease over lease bases on renewals.

Do you have July trends as well?

We do. July new leases were up 2.6% over the prior year, and renewals were up 2.6% versus the lease they were replacing.

Okay. On that note, it sound like you're getting a pretty strong rent growth actually relative to your original forecast for the year. Just curious why you didn't raise revenue value into this point. Are you guys assuming occupancy tapers off in the second half of the year by a significant amount or is it tough comps or what's the driver there?

Mike, this is Al. That's a good question. I think the real answer there is what Drew is talking about is very good current trends in leasing. And we saw that into the second quarter. We saw that continuing into the third quarter and we expect that will continue. We expect trend to continue in the back half of the year. There'll be some moderation from seasonality. But certainly seasonality is not going to act in this environment like it has normally in the past. So we expect continued positive trends in our forecast.

I'll say the reason we don't expect total revenue performance to be positive until later is because those are current trends, the tip of the spear. And it takes time for those current prices to work through the portfolio. So we'll continue to have those positive year-over-year prices rolled into the third quarter and fourth quarter and probably we'll see some positive year-over-year at the very end of the fourth quarter, sort of in our projections, not making the average for the quarter positive, but seeing a positive in the first quarter on average, if that helps.

It just takes a certain amount of penetration of these new prices into the portfolio to really manifest itself in a meaningful way in overall revenue results. And as you know, year-over-year occupancy upside is not very great. We carried very strong occupancy through all of last year. We've carried very strong performance for the last two years in collections. So really for us the up side is in the area of pricing. And the trends are great. It just takes awhile for it to really manifest itself in a meaningful way in the revenue results.

That's helpful. A final question, you saw a tick up in the rents pricing you were getting on redevelopment. And you guys have been pretty active on that front over the past couple of years here. Just curious how much there's left in the redevelopment tank at this point. Is it something you can ramp up or is it about to become a less important piece going forward?

Hey, Michael, it's Drew again. We knew going into 2009 and 2010 that it was going to be a more difficult environment to successfully push through our renovate program. So we really planned about 50% less the last couple of years as compared to 2008 which was our peak year. I think as we go into 2011 we're already seeing sort of an increased appetite for our renovated units. And I would imagine that we'll come off of our last couple of year 2000 units or so a year level. I don't think we'll probably get back next year to 4,000 units, certainly, but I think we're going to see that program begin to grow again in 2011.

That's all for me. Thanks, guys.

Our next question comes from Rich Anderson of BMO capital markets.

Sorry. I'm new to this mute button phenomenon. Can you talk about the balance sheet a little bit more on the GSC exposure? You guys are above average in terms of the percentage of your debt being tied one way or another to the GSCs. Can you talk about what your strategy might be for the long term to correct that if you think it needs to be corrected?

Rich, that's a great question. This is Al. We're definitely very focused on that. I think certainly right now most people believe it's going to take several years obviously to work through the GSCs and the problems. And then currently on the fixed rate products we're very active in the market and are a good choice for marginal deals. We're also looking at insurance companies and other products as well.

I think in the future you'll see more securitization products, more CMBS type product growth as well. So we're certainly looking to the future, looking to make that a smaller percentage of our overall debt profile, particularly as we grow and look at all of our options. And as I say, we don't have a stated strategy to go to have an investment grade rating but we're certainly looking at all of our strategies at this time that may be beneficial.

Yeah, Rich, it's kind of hard obviously to underwrite what the GSCs look like three or four years out. Certainly at the moment and they have historically been and been a great thing for us and for our industry as a whole. And I personally believe that they will remain committed to multifamily at some level. I think that -- and I expect that the GSCs will continue to be an active part of both our industry as well as a part of our financing platform.

Having said that, there is uncertainty out there. So our effort over the next couple of years is to continue to work to strengthen our balance sheet and have the Company's balance sheet in the strongest position as we can get it within reason. We're working through kind of a long term financing review and strategy with our board at the moment, and we'll probably be in a position to add a little bit more definitive direction on all this early next year.

We're glad that frankly the extent of the relationship we've had with them has been a tremendous thing for us. And the idea that we need to run or greatly reduce it is we're not sold on that idea. We're looking at it. But we also understand that it's a different paradigm now. And it's a different environment. And it would behoove us to think about alternatives and how best to position the Company for whatever alternatives make the most sense at that time. And that's kind of how we're looking at it at the moment.

Okay. So it's at least a several year process as you bite away and then you have the big 2014 maturity that you're I assume starting to plan for.

Absolutely correct.

Okay. Can you break out the cable revenue out of the top line revenue for our model? Revenue and expenses?

Absolutely can. Al, do you have that handy or do we want to -- I tell you, what Rich. Let us get that specific data to you after the call. We've got it. We just don't have it handy right at the moment.

I understand you're rolling it up into your same store analysis. But I mean you reported on it last quarter. I don't think you did this quarter, might as well keep the disclosure, unless I missed it.

The disclosure was the same.

We didn't change anything on that. We show it with and without the cable rolled up in last two quarters report and we did it again this time.

And we can certainly provide you the specific cable gross revenues and gross expenses if we need to offline. But what we're trying to do is just show it both ways so that -- and we think the best way to describe operating results from a management perspective is with it netted in revenues consistent with presentation of the prior years. We have both in there.

Okay. We'll talk about that offline. I missed a number you mentioned into a previous question. Year-over-year renewal rate for the second quarter, what was that again?

New is 1.3. And when we talk about renewals we really feel like the best way to analyze that or look at it is versus the expiring lease or the lease that new lease is replacing. Those were up 2% in the second quarter.

Okay. So we're getting close to that inflection point. Well, we're already there practically in July. They're right on top of one another. That's a good sign in your review I imagine.

It is.

Okay. And then finally just want to talk about guidance and make sure I understand this. On an apples to apples basis just to get this on record. With the change in how you're dealing with your preferred redemptions, and now the guidance includes the benefit of the reduced preferred dividend but also the dilution from the ATM program for the guidance range that backs out the redemption charge, is that right? Do I have that right?

It is. And let's just give it color. That's a very good point, Rich. And some of you may have noticed in our guidance that we put out in the last quarter, we basically in order to adjust FFO we were looking to exclude everything related in transaction to try to present a number as if that transaction never happened. Which would include three things: The redemption cost, the original issuance cost right off, the dilution from raising the equity in the quarter you did it to pay off the shares and the benefit of the dividends in Q-3 and Q-4.

We pulled all of that out, excluded that before. It netted to $0.09 dilution or charge for the year. After looking at that I feel like the typical market presentation is really to only exclude the $0.08 charge for the specific non cash original issuance call. I think that's probably a better presentation. We revised that presentation. For the year it doesn't make any significant impact to the guidance. It makes about a $0.01 difference impact on the guidance we have presented it in that way, it would have been $0.01 higher at mid point. So we thought the best thing to do was revise that presentation. Now it would put a little bit of noise in the quarters, as you mentioned, Rich. The quarters would look a little bit differently. Overall a not big impact.

Just to get to brass tacks here, you raised your guidance $0.03 relative to a different way of presenting it, but on an apples to apples basis you really raised it $0.04.

Yes, you're right.

Okay. That's all I have. Thank you.

Thanks, Rich.

Our next question comes from Steve [Swett] of Morgan Keegan.

Hey, good morning.

Good morning.

Eric, if I could ask you on the $145 million that you've got out, a couple of broad clarifications. Of that $145 million, about how much is the properties that are in lease up?

Let's see. I would put that number at about $65 million. Two of the five deals are in lease up.

Yes. Okay. And are those properties that you're taking over once they're stabilized, or are they halfway leased or are you starting the leasing process in kind of where are they as you assume the controls?

One is about halfway through the lease up, and one is very early on in the lease up.

Okay. And then Al just one final question for you on the guidance. The new guidance that includes all the impact of the redemptions, et cetera, includes the complete write off of the issuance cost including what was done in Q-2 and Q-3?

Exactly. And it was about $0.08 for the second quarter, that impact was deferred and $0.08 will be again in the third quarter. It's actually $0.75 so it rounds to $0.15 for the year, Steve.

I'll make a note of that. Thanks very much.

Our next question comes from Carol Kemple of Hilliard Lyons .

Good morning.

Good morning, Carol.

On the cedar mills property that you all are thinking about selling, do you anticipate that will go back to the potential buyer that first approached you? Or are you going to market it?

No. We have it under contract with the person that approached us. And this is somebody that we've done business with in the past that's got a very unique business model that has performed for us on prior sales that we've done with him. And so we felt good about going under contract. And have talked to enough people in the brokerage community that we're certain that we're getting good pricing for that asset. So that's the plan at the moment.

And do you have any specifics on when you think it will be done, the third quarter or fourth quarter?

Probably in the fourth quarter.

Okay. And then it looks like you all had good success with your after market equity program. Is that something that you would look to try to continue, maybe start a new one up soon?

We have had a lot of success with it. We've been doing it for about five years now. And so as the current program expires we are -- it's completely funded in all probability we'll take a look at doing something new along the same lines.

When would a new one start, if you all did that? Fourth quarter or --

It kind of depends on the closings and the transaction activity. And so the timing is a little bit uncertain at the moment.

Okay. Thanks.

Our next question comes from Paula Poston of Robert W Baird.

Thanks. Good morning everybody.

Good morning, Paula.

Question for Drew. I'm trying to reconcile the comment, the bullet point in the press release last night where you said "rent levels for both new and renewing residents are up 2.6% sequentially" versus the supplement on page s 3 where the average effective rent for the portfolio was down 20 bits.

I think the answer is the same sort of time set that Al gave earlier where you're looking at just what were the new leases that we signed in that period versus the same period a year ago. And then the concept of the effective rent for the entire portfolio which those new leases have to build into.

If you had 100 assets and 20 of them had a new rent within the quarter, whether that was a new lease or renewal lease, and so sequentially that was up on average 2.6%, so then there's 80 leases where the rent didn't change.

Right.

But the blend there was down .2? I'm trying to figure out what happened to the other 80. Like what's that reflecting?

Prices that were already embedded, Paula. You know, essentially we're re-pricing 1/12 at a time. And so the prices that those were leased at were lower than -- or were higher earlier than what we're doing now. So we're up since the beginning of the year, but we're down on average year-over-year.

Okay. Thanks very much. And the acquisitions that you mentioned that you're seeing more flow, are you continuing to source those independently through your relationships or are you seeing more marketed deals?

It's a combination. We continue to uncover a lot of these opportunities just based on relationships that we've got. And either we get them on an off marketed basis or we find out about them sort of early on. And the brokers just got the listing or what have you. And it puts us in a little bit of an advantageous position to reach out to the seller sooner than some of the others. And in some cases avoid the marketing process. But it's mostly the relationships to be honest with you.

And just based on also a fact that we've been very successful in terms of our performance over the last year or so in closing on deals. I'm very active in the process. I'll go out and look at the properties. I'll spend time with the broker and/or the owner or the developer, whoever is there. And we can offer them a strong degree of assurance that we'll get the deal done for them.

We know these markets. We understand how these assets perform. We feel like we can underwrite very good. We know how to underwrite these assets and thus we can move very quickly. And our ability to execute due diligence and close in a very timely fashion with a lot of assurance has been very helpful in our ability to secure a lot of business.

Okay. Thanks. Eric. And then just finally several of your peers have commented already this season that their perspective is that we need -- we actually need less job growth than a normal cycle would need to enhance pricing power because supply is so low relative to previous cycles. Do you agree with that? And do you think that's true in your markets?

Well, the concept I think is right in that I think over the next several quarters there are other factors that play here other than job growth that are really propelling the recovery that we are seeing. And be that, the psychology of the home ownership not being as attractive as it used to be and our ability to hold onto a rental market more actively than we have in the past, the lack of new supply is certainly part of it. And frankly just the stabilization of the employment market causing those who have jobs to feel a bit more confident about their job has been helpful to some degree. So I think all of those factors will sustain some level of pretty healthy recovery I think over the next several quarters.

Having said that, I do believe that by the time we get to late next year, certainly early 2012, I think to continue the pricing recovery that's going to propel some of these numbers that folks are beginning to think about and very strong performance, I think the economy has to start adding jobs. I think that at the end of the day that's what drives and creates new households, that's what causes people to move around looking for temporary housing and apartment housing, and I think we need that job growth longer term to really sustain this recovery. I think we don't have to have big job growth over the next, call it the next year, but I think much beyond that you'll see things plateau fairly quickly without it.

That's all I have. Thanks very much.

Thank you, Paula.

(Operator Instructions). Our next question comes from Andrew McCullough of Green Street Advisors.

Good morning, guys.

Good morning, Andrew.

It appears you're targeting more foreclosure, distressed properties. When you think about those, how much of a discount do you think you're getting on these type of deals versus maybe comparable assets being marketed by non-distressed sellers or banks maybe on a price per door bases?

That's a good question. You know, I don't know. I'm guessing. But I would tell you that there's probably a good 10% or so, maybe 15% discount that we're able to capture simply by virtue of the fact that we're not having to compete against any other people. In some cases no one else. Because they don't either -- a lot of the capital that's out there looking to deploy gets very, taking advantage of the low interest rate environment. And the way I think a lot of that money was raised was predicated on capturing some fairly early cash on cash returns in their modeling.

And what they sort of promised their capital. And of course in a lease up situation it's pretty darn hard to do that. It's impossible even at this low interest rate environment. So I think that knocks a lot of people out, as well as the more difficult financing situation that you have with a non stabilized asset. So I think a combination of those two factors causes a lot of the buyer market to get called out. So to put a number on it, I'm going to put it 10%, 15%. But it's going to vary obviously a lot by deal and situation.

Right.

And then when you underwrite a property that's still in lease up whether distressed or not distressed how much of a return premium do you require over a stabilized asset to take on that lease up risk?

Well, you know, for us we don't try to establish different IRR requirements based on the characteristics of any given deal. The way we've always thought about it is our cost to capital is our cost to capital. And our return requirements are consistent regardless of the kind of deals we go after. Having said that, where you get into the differentiation is in your underwriting and the level of risk that you're willing to take and the level of risk that you make in your underwriting assumptions. And we take a hard look at what the market we believe will sustain in the way of a lease up.

In many cases I can tell you that in a number of these deals we're looking at the lease up assumptions that we're making are less than what the property is currently doing. And so we think that's where we introduced if you will the conservatism or the risk premium into our underwriting is into the underwriting. As opposed to if we were looking for a 12% IRR for one kind of deal and we're looking for -- we don't think about then we got to get a 200 basis point premium to that just because it's a lease up. We just try to address that in the underwriting.

Okay. Thanks.

Thanks, Andrew.

I'm showing no additional questions sir.

Okay. Well, thanks very much and call us if you have any questions.

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.