Mid-America Apartment Communities Inc (MAA) 2010 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for participating in the Mid-America Apartment Communities' third 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 conference over to Leslie Wolfgang, Director of External Reporting. Ms. Wolfgang, you may begin.

Thanks, Stephanie, and good morning, everyone. This is Leslie Wolfgang, Director of External Reporting for Mid-America Apartment Communities. With me 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 that as part of the discussion this morning, Company management will make forward-looking statements. Please refer to the safe harbor language included in yesterday's press release, and our 34-X filing 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. Thanks for being on our call. As outlined in yesterday's release, leasing conditions across the portfolio continue to improve, and we're capturing solid recovery and pricing. Same-store NOI results have been better than expected and as a result, we once again increased guidance for NOI and FFO performance.

There are really two variables on the operating side that have generated the outperformance this year. Resident turnover has been lower than expected, and as a result effective occupancy has consistently held above last year's strong performance. We had originally expected that we might give up a little occupancy through higher turnovers began to push on pricing. Instead turnovers declined. Our current 12-month rolling turnover of 56% is the lowest we've ever recorded for our portfolio. The significant decline in residents moving out to buy homes continues to be the largest contributing factor to the lower turnover.

In the third quarter, effective occupancy averaged 70 basis points higher than last year's strong Q3 performance. We have also exceeded original projections for the year in the area of pricing, as rents for new residents have begun to recover faster than expected. Average pricing for new residents moving in during September were 9.5% higher than the average pricing achieved for this same customer in January. With the pricing for new residents just now poised to move ahead of the pricing on renewal transactions, we're optimistic about the prospects for continued pricing improvement heading in to 2011.

During the third quarter, our secondary market segment continued to slightly outperform our large-market group. Driven by more stable employment conditions, the secondary markets have held up better, and we have been able to be a little more aggressive earlier with pricing in these markets. Memphis, Little Rock and Lexington delivered solid third quarter results within the secondary market segment, which represents 40% of our total portfolio. We're encouraged with what we're seeing in the way of employment trends and new manufacturing jobs coming into many of these secondary markets, and are optimistic about the opportunity for continued upside performance from this segment of the portfolio.

Our large market segment, representing 60% of the portfolio is where we have seen more leasing pressure over the past 18 to 24 months. A combination of more dramatic falloff in employment levels coupled with new development that was started prior to the collapse of financing markets, weighed more on leasing in these large markets. With new supply now being absorbed, and employment conditions stabilizing, we're encouraged by recent pricing trends in our large market segment. Within our large market group in the third quarter, we saw some of the best pricing performance coming out of our Florida markets of Jacksonville, Tampa, and south Florida. Dallas-Fort Worth continues to show very encouraging trends, and despite having held up better than most large cities across the country during the recession, is likely to be one of the stronger performing markets over the next couple of years.

Our year-over-year same-store revenue performance went positive in the month of September, and we expect to capture positive year-over-year performance this fourth quarter, the first time we have seen that in two years. We continue to believe that MAA is well positioned for this recovery cycle. Employment trends in our Sun Belt markets are expected to outperform national trends. The falloff in new development supply across our region, as compared to historical averages, and what we have seen in past recovery cycles is more dramatic as compared to the national outlook. In summary, we like where MAA is positioned. We expect performance over the recovery cycle to be good, and we certainly expect it will be competitive within the sector.

On the transaction front we have been pretty busy, having closed on five acquisitions during the quarter. We have provided details regarding each of the transactions in prior announcements, so I won't spend any time this morning on the specifics of any one deal, but just add that in aggregate, the deals were acquired at an average NOI yield, based on projected stabilized NOI of 6.9%. Since the end of the second quarter, we have clearly seen a real increase in deal flow, and we're certainly underwriting a lot of opportunities at the moment. Our success in capturing new investments is tied primarily to the fact that we have invested and operated in this region, and in these markets exclusively for over 16 years. We know the players. We know the markets. We know the neighborhoods. We are doing repeat business with folks we have worked with for many years. We are able to put our balance sheet and due diligence platform to work at a very expedient and definitive manner. This all combines to drive a lot of opportunity, and a number of cases on an off-marketed or very limited market basis. And of course, I also believe that our focus on creating value in both large and secondary markets across the region, helps to create a bigger pool of opportunity. Our disciplines and our approach to capital deployment at this part of the cycle are based on the same principals and same practices that we have used for many years.

We announced last week that we acquired a land parcel in the very desirable Cool Springs submarket of Nashville, that we have had our eye on for quite a while. We just initiated construction of a new 428-unit high-end apartment community, and expect to achieve initial occupancy in the third quarter of next year. Our growth strategy remains centered on pursuit of opportunities associated with the existing apartment communities. New development will remain a limited part of our external growth strategy. However, at this point, there is clearly not much in the way of new development taking place, and we believe the current environment offers a number of unique and very compelling opportunities.

Upon stabilization, we forecast to capture more than 150 basis points higher initial yield on our Cool Springs development as compared to the forecasted yields from stabilized property acquisitions. Should particularly compelling development opportunities continue to emerge, you may see us initiate one or two additional development projects. That's all I have got in the way of prepared comments. I'm going to turn it over to Al. Al?

Thank you, Eric and good morning, everyone. We reported FFO results for the third quarter of $0.84 per share, which was at the high end of our range of $0.05 per share ahead of the midpoint of guidance. Our core FFO performance, excluding the non-routine items was $0.92 per share, which was about 3.4% above the prior year. Our same-store NOI performance compared to the prior year was about 2.8% better than we expected for the quarter, driving the outperformance. This produced about $0.04per share of favorability from our same-store portfolio with another $0.01 per share added from our other lease-up or non-same-store properties.

As expected, sequential revenues were essentially flat with the prior quarter. As outlined in our release, rental pricing, though, for both new and renewing residents continued to increase during the quarter, up 2.2% on a blended basis. However, this growth was offset by a slight decline in effective occupancy during the quarter related to a seasonal increase in leasing activity, or churn as we call, it compared to the second quarter, and a decline in fees as more people terminated leases early to buy a home in the second quarter. The main driver of the favorability for the third quarter was operating expense performance.

Operating expenses over all continued to be well under control, while real estate taxes produced the majority of outperformance to our expectations. We began the year expecting local governments to keep valuation levels fairly stable, while beginning to be a bit more aggressive on [millage] rate increases. However, we received the bulk of our tax notices during the third quarter, and we saw really both assessed values and tax rates coming in below our projections.

We also remained very active in the capital markets during the quarter. We issued a total of 1.6 million common shares through our ATM and direct share purchase plans, raising $85 million in net proceeds. We used the proceeds to complete the redemption of the remaining outstanding preferred H shares for $77.5 million, and to fund a portion of the remaining acquisition. As previously outlined, we plan to use our ATM program going forward to match our acquisition activity and maintaining our leverage in the current range. In conjunction with this preferred share redemption, we recorded a charge of $2.6 million, or about $0.07 per share related to the original issuance cost. And as mentioned before, redeeming the entire 8.3% coupon series, originally $155 million in total, improved our balance sheet leverage by about 6%, and improved our fixed-charge coverage ratio by about 20%, and will add about $0.06 per share to our FFO performance in 2011.

During the third quarter we also entered two fixed-rate mortgages, totaling $118 million at an average interest rate of about 4.3%. Both loans were agency financings. The first about a $30 million loan was with Fannie Mae, and the second about $89 million loan was with Freddy Mac, and both of these provide good examples of the current financing environment. The proceeds will be used to pay down our existing credit facilities providing capacity for future acquisitions. Our balance sheet remains strong and flexible. And after considering the excess cash from recent financings we ended the quarter with debt-to-gross assets at about 48%.

Our fixed-charge coverage ratio reached a historical high of about 3.3 times for the quarter, which is really well above the industry average. At quarter end we had over $150 million in combined capacity under our credit facilities in excess cash. We have no debt maturities until July 2011, and over 85% of our debt is fixed or hedged against rising interest rates. As outlined in our release, we are again raising our FFO guidance for the year. At the current increase of $0.06 per share or 1.7% at the midpoint reflects the strong operating performance in the third quarter and our revised outlook for the remainder of 2010.

It's important to note, I think, that this takes our guidance for core FFO, which excludes the impact of non-routine charges, to $3.77 per share at the midpoint. This was more than 6% above the original guidance given at the beginning of the year, and as Eric mentioned earlier operating performance led by rental pricing and combined with the continued strong occupancy has been much better than we originally projected for the year. The primary components of the $0.06 per share increase, are first inclusion of the third quarter of outperformance of $0.05 per share, and an additional $0.01 increase reported for the fourth quarter.

Of course, there are several crosscurrents in the fourth quarter revision to consider with increase really comprised of $0.04 per share of improved operating results partially offset by $0.03 in combined dilution from the recently announced development project, the timing of our projected joint venture acquisitions and some additional G&A costs.

Our guidance for the full year is now built on an expected NOI decline in the 1% to 2% range, versus 2% to 4% of our previous guidance. We now project just over $200 million in wholly owned acquisitions for the year, of which $173 million have been closed, and project an additional $150 million acquired through Fund II of the year, of which $42 million have been completed. We have also added about $17 million in development funding related to the recently announced project. Our revised guidance for the full year is now for FFO in the range of $3.49 to $3.63 per share, which is $3.56 at the midpoint. FFO per share for the fourth quarter is projected to be in the range of $0.86 to $1, or $0.93 per share at the midpoint.

That's all that we have in the way of prepared comments, so Stephanie, we'll now turn the line back over to you for questions.

(Operator Instructions). Our first question comes from Michael Salinski from RBC Capital Management.

Good morning, guys.

Good Morning.

Good Morning.

First question. You acquired several properties in lease-up during the quarter. How much did that weigh on results? How much is that going to weigh on results in the second half of the year, and how much -- what is the year-over-year benefit essentially as you look ahead into next year, how much is that dragging down and how much is that going to be next year?

Hi This is Al. Just to give you a little color on that. In the third quarter -- since we acquired two of those in the middle of the third quarter, it was an add impact-- as it will be for the fourth quarter. Probably a penny, a penny and a half-ish. For the fourth quarter we do expect the two acquisitions we acquired in the third quarter as well as the development that we entered into to cost us between $0.04 and $0.05 a share in the fourth quarter, so that's an important point to remember. And as we go forward, obviously the two we acquired this year, we expect them to lease up meaningfully, and by the end of next year, beginning to produce more comparative results, final results, so I hope that gives you the color that you need.

Okay. That's helpful. Second of all, the Raleigh purchase was a bit outside of the traditional garden-style suburban mid-America type product. Is there any change in strategy there? Or was it just kind of a one-off transaction / opportunity, Mike.

It was really just a one-off opportunity, Mike, this is Eric. I think that -- having said that, if we find some other opportunities that are as compelling as The Hue purchase in Raleigh, we certainly would not be hesitant to buy something in more of an urban or downtown location. We feel like we can operate it just fine. Certainly we numbers are very compelling, but we -- we have no real stated intent to change the focus or anything along those lines.

I don't know if you gave the total development -- I think you mentioned $42 million for the Nashville development to be spent next year. Did you give a total cost that you guys were expecting?

Total costs we expect to be $52.5 million, works out to about $123,000 a unit.

Okay. That's encouraging. Just two final questions, then, in terms of acquisitions. Where are you guys underwriting IRRs on transactions today, and also I would be curious on the operation front, how October panned out both on the occupancy and rate side?

Well, in terms of IRRs we continue to model the way we always have, and IRRs are generally coming in around 12% on a leverage basis, using our -- overall balance sheet metrics as the leverage, so around 12% is generally where most of the deals were penciling out, which is, as we talked to you about in the past is well above what we defined as our cost of capital, cost of equity, so it's the same approach we have always used. In terms of October -- Tom, do you want to -- ?

Hey, Mike, Tom. The October closed out well. We closed out at 96, about 90 basis points ahead of last year, and the pricing trends we have seen throughout the quarter have continued. In fourth quarter we may see some sort of seasonal backoff on price, but not any sort of major [slide] back, and no signs for that yet.

That's all for me, guys. Thank you.

Thanks.

Our next question comes from the line of (inaudible) from [F Star Capital Markets] your line is open.

Hi, good morning, guys.

Good morning.

Hi.

Strategically, relative to the acquisition strategy, how are you guys thinking about the trajectory for this kind of spending over time? If we assume that the world stays as it is for sometime, your access to the capital markets remain similar, and the opportunity set continues to increase incrementally, can we expect this to pick up or continue along the same volume lines that we have seen so far? How do you guys think about that?

Good question, David. I will tell you that 2010, this year, has really been the tail of a sort of a front end of the year and back end of the year. Frankly there was not a whole lot done in the first couple of quarters -- I guess we did, I guess three deals in the first half of the year, and it really picked up in Q3.

At this point, I think it's going to continue at the current pace that we are on. I think that there is still going to be a lot of distressed situations out there. They are going to get -- have to get resolved over the next year. I think that certainly there's an awareness that the cap rates have come down and -- as long as financing is still out there, I think a lot of the transactions are still going to come to market, so we'll have a whole lot more to save about 2011 when we do our earnings release and guidance in February, but as we sit here today, I would tell you that the -- sort of the current pace that we're on, I think that that's -- I don't see any reason to expect it to really fall off going in to next year.

Okay. That's helpful, and just along the lines of the discussions you are having with the lenders and developers, are you sensing that they are eager to sell? Those opportunities sound like there are fewer bidders, so I am just wondering what you were -- do you have significantly more negotiating power in those discussions?

Well, I think that where we have more effective leverage and conversations with lenders and others is either where the asset is not yet stabilized, and the financing is harder to obtain from the agencies, that's where we found, we have had the most success. And then honestly when we find a lender or an institutional owner that for some reason needs to make something happen very quickly, you tend to see this a few weeks out from quarter end, that kind of thing, where they need to move very quickly, we have the ability to do that, much more so than some of the others that we tend to run into in some of these markets. So I think that as long as -- so those are the two attributes that really have enabled us to -- and I don't see that changing a whole lot. I think that as these banks and some of these lenders begin to manage the cleanup effort, I think that they sort of make decisions and try to manage their earnings, and they make a decision in the quarter, and they have a very controlled process. And somebody that has proven an ability to move very effectively, very decisively and very quickly, becomes a go-to group, and at least gets a shot at it. And if you have got the ability to demonstrate a record where you have been very successful on behalf of sellers, in terms of meeting their time frame, that's powerful, and it helps, so that's where you are getting a lot of the advantage right now.

That's great. And then just lastly, The Venue at Stonebridge, can you talk us through the decision to move that to the fund versus keeping it on balance sheet?

It is pretty straightforward. It is over seven years of age. We have a very bright line test, wherein if an asset that we get on a contract is seven years of age or older, we show it to our JV partner and ask if they want to participate with us, and typically those assets have some sort of a repositioning, redevelopment aspect to it as well, and this one fit that criteria, and that's why it is in there.

Great. Thank you.

You bet, thank you.

Our next question comes from the line of Swaroop Yalla of Morgan Stanley. Your line is open.

Hi, good morning. I just wanted to reconcile the $0.21 of charges you projected for the year. I'm looking at $0.06 this quarter and [$0.13] the previous quarter. Is there any other charges in the fourth quarter which you are projecting?

$0.21 is for the full year, Swaroop this is Al. What you have is two transactions on there. One is the redemption of the preferred, which in total for the year was $0.15. I think it worked out from roundly to be$0.08 in the second quarter and $0.07 in the third quarter. Then add on top of that the other with the impairment on one asset we reported at $0.05 in the second quarter, and about $0.01 in the third quarter, so you add all of that up and I think you get to [$0.21]. That gets you the components.

Oh, okay. That's helpful. And then I just wanted to ask -- touch upon the redevelopment pipeline. Can you remind us the total amount of redevelopment you anticipate for this year, and if you are identifying a similar active pipeline going forward in the next year?

Hey, Swaroop it's Drew. We are seeing an improving appetite for our renovated units. We had good results in the Q3. We're going to end up about 1700 units or so this year, and we certainly are pulling together our plan for 2011 now, and think that we will have a meaningful increase in production for next year.

Okay. So the -- I mean, any idea about the pace -- it's not slowing down in terms of your portfolio itself?

No, it's not. I mean, we have done about 10,000 out of our -- you know, around 50 some -- around 50,000 units, around 20% of portfolio has been renovated. And we still have a number of projects that we discontinued as we went in to this environment over the last couple of years that we are expecting to be able to ramp back up.

I think it will pick up, next year, without a doubt. Market conditions certainly support it. We continue to uncover opportunities within the portfolio. We backed off the last couple of years. I think you'll see it pick up next year.

Great. And lastly, can you tell us about the percentage of move-outs due to home purchases and financial reasons, and other -- you know, other reasons?

Yeah, the major thing on the turnover was the turnover for home buying, which is down significantly in the lowest point of the year. Home move-outs for other reasons, financial reasons were also down. We're seeing less for skip evict, and less for job loss. But, frankly across the board it's a story of decreasing turnover.

All right. That's very helpful. Thank you.

Our next question comes from Sheila McGrath from KBW. Your line is open.

Good morning. Eric, I was wondering if you could talk to us about some of the recent acquisitions that you have purchased in lease-up. If you could give us general statistics how the lease-ups are progressing, have most been as you projected, and how your ownership or strategy right accelerate the lease-up versus the previous owner.

I'm going to let Tom give you the specifics on that, but in both cases, these properties - the Hue in Raleigh and the Times Square in Dallas - were at a point where they were either -- well, the indication the Hue is totally empty. They weren't doing any leasing. And at Times Square, the lender has brought in a management company that was more or less sort of babysitting the situation, so without a doubt what we're bringing to the table is going to accelerate the pace. Tom, you want to...

Yeah, hey, Sheila. On The Hue, as Eric mentioned, that was the biggest unknown for us. We have never underwritten an empty building. We expected to have everything ramped up and leasing by now, and have about four occupied units now. We have 43. So we have gotten a nice push there. The unanticipated thing for us on the good side is that frankly, Raleigh as a city has taken a civic pride to push the downtown living option in this vacant building, we have gotten just a ton the of positive coverage in a city that we care a lot about. On Time Square we had planned to have 179 units occupied, and we have got 197, on a 313 total, so both are moving quite well to our projections.

And then if you look at the ones that you have done over the past year or so, how would the stabilized yields look on those versus just buying a fully stabilized asset? The ones in lease-up versus, what is the advantage in terms of pricing?

Well, I can tell you Sheila, it's about 100 basis points; maybe 125 basis points higher NOI yield that we're getting on a stabilized NOI versus what we're buying it on a stabilized property. In the case of The Hue as an example, we think the first year stabilized NOI will be 7.7 compared to anywhere from 6.5 to 6.1 on the stabilized assets that we bought early this year. And similar story with Time Square. We think the initial NOI yield -- stabilized NOI yield will be 7.5.

OK, and Eric you mentioned that the pipeline is more active now. I was just wondering if you could give us some insight on what factors might be driving this? Are lenders just getting more stuff off of their books or -- and also are the sellers more lending institutions right now, or what is the mix of the sellers?

Well, where we are finding our best opportunity to be successful, are dealing with the -- one of two groups. We're either dealing directly with lenders, or we are with developers, and where the developers are facing -- have some special motivation to go ahead and make something happen. Either they have got a maturing construction financing, or some kind of distress or they just have -- frankly, looking to build a relationship, and they have got an opportunity where we can come in and doing something to help them out with an existing asset, and maybe we'll do something with them down the road kind of thing.

So that's where we are finding our most success, is with those two groups of sellers, and I think what is causing things to certainly pick up last part of this year versus the first part of this year is just -- I think people are becoming increasingly convinced that this is an environment that if you have got any sort of situation where you are going to want to get out of an asset or need to get out of a property, say over the next 12 to 24 months, the window to do so is probably now. The financing is very available. I think there's a recognition that there's a lot of buyer interest out there in a macro sense, so I think the sellers are just at a point where they are saying now is the time. Let's pull the trigger and get going.

I think there's a lot of buyers that are able to feel a little bit more confident in the apartment fundamentals, and willing to think about pretty good performance over the next couple of years, and so that gap between pricing between seller and buyer expectations is narrower, so you just got a lot of things that come together and created an environment where transactions are pretty active, and a lot of them have a lot of competition, and frankly, that's where we're not finding a lot of success. And it goes back to what I was saying earlier. For us, the most success we are having is, we are talking directly with the lenders and developers, and there is some special attribute to the situation that gives us an edge. Either they need to move very, very quickly, or the financing is not available because it's not stabilized, and we're able to come in and offer features that a lot of the other buyers that we're competing with can't, and that gets us what we're getting.

Okay. Thank you.

You bet.

Our next question comes from Mark Lutenski from BMO Capital Markets. Your line is open.

Hi, good morning, I'm here with Rich as well. In terms of the acquisitions that you are looking at going forward, are you targeting any specific markets in your -- any specific markets other than -- I see you focus a lot in Dallas. Is that part of a strategy or just where opportunities are coming up?

Well, strategically our focus is to stay oriented towards the Sunbelt region as we have been, so you are not going to see us really deviate outside of our existing footprint. Markets where I think there has been a lot of distress over the last two -- couple of years - Phoenix, Dallas has had some, Charlotte is a market we don't have a presence in that we're -- we have been aggressively looking at things there. Some markets down in Florida.

So I think that for us, it's going where the opportunities are, and fortunately there are a lot of opportunities within our existing footprint. Having said that, we also continue to believe very much in our strategy that centers on having some allocation to the secondary markets, and so we're looking at some opportunities with some of these secondary markets that we like a lot. Charleston, Savannah, some of the state capitals - Tallahassee, obviously Nashville, Little Rock, so you're going to see us as we look for growth and look for opportunities, stay committed to both the regional focus as well as committed to this two-tier strategy between the large and secondary markets, and in the large markets, there was a lot -- there seems to be a little bit more opportunity at the moment, just given that's where a lot of the development took place over the last couple of years.

Having said that in the secondary markets, you don't see as much institutional buyer competition going in there, and likewise that creates a little bit more of a opportunity for us, because frankly, there is not that many buyers -- or as aggressive buyers as what you will get in the bigger markets, and we are able to come in and make some things happen.

Okay. Great. Thanks for that. And as far as the guidance is concerned, just to get it on record, what is the preference to follow the guidance with -- or without the preferred redemption charge.

At the moment -- this is Al. It looks to me like the majority of analysts are showing with it included at this point. And that's why in our release we sort of lead with all inclusive, and then provided it excluding those charges so you could see the power of the core FFO.

Okay. Thank you very much.

Our next question comes from Paula Poskon from Robert W. Baird. Your line is open.

Thank you, good morning, everyone.

Good morning, Paula.

Eric, to follow up on your comments just a little while ago on the acquisition market, what portion of deals would you say you end up walking away from, simply because the bidding is overheated.

You know, I would tell you more than half. That's for sure. We see a lot, and we have kind of gotten to a point where, if it looks like it is going to be pretty actively bid situation, we generally just back away from it, and so it's -- so it's a high percentage, I'll tell you that.

Okay. Thanks. And Al, question for you. Does the guidance for fund 2 acquisition volume include or exclude the transfer of Broadstone Cypress and Venue at Stonebridge?

It includes.

That includes.

For the full year we think we will acquire a total of 150 for the joint venture, and so we have acquired 42 million at this point that are transferred into the fund, and we think the last one for this year, that we have got under contract, 18 will be transferred very soon, and we have -- what is that remaining -- about 75 remaining to go.

We're looking at a lot of things right now, so we still feel pretty good about it.

Okay. Tom any change in move-outs for job transfers?

No, no change on move-outs for job transfers. It has been relatively flat. The one thing that has come up has been renting house, but honestly, it's such a small part of the business, it doesn't really show up, so not -- no job transfer increases, and then the job losses come down.

And the renting house phenomenon is that kind of market specific? Or are you seeing that in pockets everywhere?

It is sort of in pockets where everywhere. There is not a rhyme or reason to that one.

Just to give you perspective of our total move-out it is something like 4 to 5%.

No, it's a small -- very small chunk of the move-outs.

Okay. And then finally, what is your comfort level on dividend coverage in terms of AFFO?

Well, we are going to be looking at that, honestly here in about a month with our Board. We sit down once a year and take a look at our dividend policy and we will be thinking about it. Certainly we like where the coverage is right now, and would believe -- I believe it's important to keep the coverage strong. But heading in to what certainly by all accounts appears to be a pretty good earnings scenario, if you will, for the next couple of years, I think we have got some upside here. So we will look at it with the Board and have more to say about that as we get to the end of the year.

That's all I have. Thank you guys.

Thank you.

Our next question comes from Carol Kemple from Hilliard Lyons. Your line is open.

Good morning. Congratulations on a nice quarter.

Thanks, Carol.

You're welcome. Going forward, when thinking about acquisitions is there a certain per cent of those that you expect to sign with equity rates from the at-the-market transactions?

Broadly, we like where the balance sheet is right now, and as Al mentioned, right now we're at 48% debt to gross assets, so I think as we look to grow the Company, we feel like that we'll be funding growth along those same lines, kind of 48% debt and 62%, if you will, equity, and it may move around a percentage or two here or there depending on the volume and the velocity of transactions, but we kind of like where the balance sheet is right now, and I think you know we have got the ATM program up, and at this point with the preferred off of the balance sheet, as we think about funding the balance sheet and growth, we'll be pulling in capital as we need it to meet growth needs, and that's really the only real needs we have at this moment.

Okay, And besides the Cedar Mill apartment community do you have any other apartments that you are looking at selling in this environment, since pricing does seem attractive from a seller's perspective?

We are going to be looking at that and are looking at it right now. We have -- sort of a strategy of always looking to sort of sell off, two, three, maybe four assets a year, just look at some of the assets that -- properties where we believe the outlook is not as robust as other ways we could redeploy that capital. So as we give our 2011 guidance, we'll have more to say about disposition plans for 2011, but certainly I think you'll see us probably tee up two or three other assets for sure.

Okay. Thank you.

Our next question comes from Rob Stevenson from Macquarie. Your line is open.

Good morning, everyone, it is Nick Yulico here on the line with Rob. Eric or Tom, are there any cities within your primary markets where you feel you are on the verge of being able to push rents a little bit more?

I mean -- the inverse of that question is probably whether to do it. What you are seeing is that the effective rents aren't catching traction, but our rents from the beginning of the year in pretty much all of our primary markets are rolling pretty good, as Eric mentioned up 9.5% from the beginning of the year. I think sort of -- maybe -- does that answer your question? I don't want to wander on on this point for a while, but most of our markets we're seeing great traction in.

I guess I was just wondering, if I look at the year-over-year rents in the large markets versus the secondary markets, you are having more growth in the secondary markets, and I was just wondering in the large markets, if there is some cities there where if I am looking at a number here whether it's a year-over-year number that -- in Dallas or Atlanta, maybe that's perhaps a little misleading that you feel like the rents are going to show some more improvement there in the near term?

Yeah, I think there are great opportunities there, and again, that's the repricing, working through those markets, dropped at a little steeper rate than the others, but Atlanta is up 7.5 since the beginning of the year, Dallas 13.7, Jacksonville and Nashville, 13.4, and 12.7. So these are all pretty strong pricing trends. Those will begin to turn positive as we reprice the right number of units.

Okay. Great. Thanks. And then Al, on the 2011, and 2012 maturities, I guess I'm wondering how early can you address those particularly the 2012 ones? Are you able to start refinancing those next year? And if so does it make sense to perhaps pay off some swaps early to refinance that at what are very low rates today?

That's certainly a very good question, Nick. We are looking at -- just separate those two first. 2011, we are already talking about that. I mean we have the $100 million maturing in July, $80 million in December, so we're already focused very hard on the $100 million in July, and obviously both of those we will be able to take care of them a little early. And try to do those as early as we can, without being inefficient, ineffective and too costly. So I think we'll be able to finish them middle of the year, something like that on a combined basis.

2012, it's really $130 million. $80 million is swaps, and $50 million is our credit facility. So you have to separate those. We will begin early talking about our credit facility. So you have to separate those. We should be able to take care of that, and do negotiations on that, do the hard work on that, well before that maturity happens. And on the fixed rate environment, we are choosing right now to be patient on some of these swaps, not take the path -- it's not the time to blow up swaps, take the huge costs given the very good financing environment we're seeing going forward, there's no reason for us to believe that rates are going to go up, sharply over a year and a half period so we're going to be patient on that, watch the market, and most likely take care of that 2012, middle of the year, first quarter, second quarter of the year.

Okay. Thanks, guys.

Thank you.

Our next question comes from Tayo Okusanya with Jefferies and Company. Your line is open.

Yes, good morning. Congratulations on a solid quarter.

Good morning.

Question about the redevelopments. I mean, that whole initiative seems to be working for you very well, and I was just kind of curious as I start to think about 2011 if you see a world where you think you might do similar amounts of redevelopment or more redevelopment on a going forward basis.

Hey, this is Drew. We are seeing -- I think I mentioned earlier, an improved appetite, if you will, for our renovated units. We have seen our returns in the third quarter at about an RR of 10.8 on the units we developed in the third quarter, and we have done about -- we expect to do this year, 1700 or 1800 units. I think next year as the environment is improving, we are expecting that we will have a meaningful increase in our production in 2011 over what we have done this year.

Okay. That's helpful. Thank you.

Thank you.

Our next question comes from Andrew McCulloch from Green Street Advisors. Your line is open.

Hey, good morning.

Hey, Andrew.

Most of my questions have been answered - just a couple of quick ones. You had some room left on the current fund but given your expectation for a fairly robust acquisition pipeline, do you think you will put another one in place once that one is sold?

Short answer is yes.

Are you in any discussions already?

We stay in conversation with our partner, and I think that they certainly show an appetite for continuing to do things, so I believe that the strategy for us makes sense. I think that this is a great way to continue to leverage our operating platform. We love operating and we love getting our hands, if you will, on these sort of repositioning opportunities. I'm a little reluctant to add a lot of that product to the -- on a wholly owned basis to the public balance sheet, given the age and so forth. But I think from a Mid-America strategy perspective, I think you are going to see us continue to execute on this growth opportunity on the way that we are doing it currently, and I think that we'll probably put together another fund with the group we have or maybe someone else, but I think certainly going forward -- we like the strategy.

Okay. And then just on the agencies -- we're through midterm elections, there are a lot of headlines flying around, anything change in your outlook for Fannie and Freddie?

Not at this point, we had them in here a couple of weeks ago at a matter of fact. And I think that for us, we continue to take a broad look at our financing platform at the moment thinking about the growth of the Company, and continue to think about options and how we should continue to position the balance sheet to best take advantage of whatever financing alternatives are at -- over the next two to three years. I think that as has been said a lot, I don't think anything what happens the agencies overnight, and so I think that will play out, and I think there will be other players that will continue to become active in the marketplace, and we are intent on getting our balance sheet as well positioned as we can to take advantage of whatever opportunities are out there that afford us both the pricing and the flexibility that we think we need to run a REIT balance sheet.

Great. Thanks, guys.

Thank you.

Thanks, Andrew.

I'm showing no further questions at this time.

Okay. Well, thank you for joining us this morning, and let us know if you have any other questions. Thanks.

Ladies and gentlemen, that does conclude today's conference. You may all disconnect, and have a wonderful day.