Mid-America Apartment Communities Inc (MAA) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for participating in the MAA earnings 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 Investor Relations. Ms. Wolfgang, you may begin.

Thank you, Amy, and good morning, everyone. This is Leslie Wolfgang, Director of Investor Relations for MAA. With me this morning are Eric Bolton, our CEO; Al Campbell, our CFO; and Tom Grimes, our COO.

Before we begin with our prepared comments, I want to point out that as part of the discussion, Company management will be making forward-looking statements. Actual results may differ materially from our projections.

We encourage you to refer to the Safe Harbor language included in yesterday's press release and our [34X] filings with the SEC, which describe risk factors that may impact future results. These reports, along with a copy of today's prepared comments and an audio copy of this morning's call, will be available on our website.

I'll now turn the call over to Eric.

Thanks, Leslie, and thanks to everyone for joining our call this morning.

Our fourth-quarter and our full-year 2011 FFO per-share results were the strongest performances in our Company's 18-year history, and we expect continued positive momentum this year with growth in same-store NOI exceeding the results from 2011. At the midpoint of our guidance, we expect to capture over 9% growth in FFO per share this year and deliver another record performance for the Company.

The demand for apartment housing is likely to remain strong across our markets as the factors driving this demand are going to continue for some time. Employment trends are improving and the outlook for household formation in our Sun Belt markets are forecast to outpace the national trends. Resident turnover remains low, and we don't believe single-family housing, either as a for-sale product or a rental product, is likely to have a significant impact on our business for the next couple of years.

While there is a growing effort to get new multifamily development going in a number of markets, permitting activity and the forecasts that we review suggest that new supply trends in our markets are very manageable relative to growing demand, and we expect continued positive absorption.

The developer balance sheets and sponsors that are able to secure construction financing continue to primarily focus on the coastal markets and inner-core submarkets that aren't likely to have a meaningful impact on most of our locations. Compared to historic norms, the supply outlook in our Sun Belt markets is still running well below historic norms.

So, overall, we expect 2012 to be a year of continued strong performance and expect that both same-store NOI and FFO per share will surpass 2011's record performance.

Positive year-over-year leasing trends continued during the fourth quarter and through January. Leasing traffic in the fourth quarter grew 7.2% as compared to a year ago.

With continued low resident turnover and strong leasing traffic, pricing momentum remains positive. As compared to the prior year, new lease pricing in the fourth quarter was up 4.5% on top of the very strong 7.4% growth posted last year. Renewal pricing on the same basis grew 5.7%. With average effective rent trending up in each of our markets across both our large and secondary portfolio segments on both a year-over-year and on a sequential quarterly basis, we expect continued solid revenue momentum in 2012.

We were pretty active last year with new acquisitions, as well as starting three new development projects. We're currently underwriting a number of opportunities, and it's outlined in our 2012 guidance that we expect another busy year of acquisitions.

We also noted in our earnings release plans concerning a new development opportunity in Charleston, South Carolina, that we expect to get underway this year. As with our three other development projects, we're working with an outside developer who will oversee the development and construction with our team handling the lease-up.

You'll note that in our guidance for 2012, we also plan to step up our capital recycling efforts with plans to sell around $100 million of existing wholly-owned properties. We're committed to ensuring that we maintain a high-quality and efficiently-operating portfolio. At 16 years' average age, MAA continues to have one of the younger portfolios in the sector.

So in summary, we are excited about the outlook for 2012 and the opportunity to capture another record-year performance for MAA, and with that I'm going to turn the call over to Al for more insights on the quarter and 2012 guidance. Al?

Okay, thank you, Eric, and good morning, everyone. I'll provide a few comments on earnings performance for the fourth quarter, as well as a few highlights regarding investing and financing activities.

FFO for the quarter was $43.1 million, or $1.07 per share, which was $0.01 ahead of the midpoint of our guidance for the quarter. And our earnings performance was driven by our same-store portfolio, which produced 4.7% NOI growth over the prior year, based on a 4.9% increase in average effective rents. Physical occupancy ended the quarter at a strong 95.2%, 60 basis points below the prior year.

Total revenues grew 3.6% during the quarter, while operating expenses grew 2%. Resident turnover remained low at 55.9% at the end of the quarter, with only 17% of moveouts during the quarter related to home buying, compared to an historical average of about 24%.

Operating performance met expectations for the quarter, while favorability in interest expense produced really the majority of the additional $0.01 per share compared to our forecast.

We did have three nonrecurring items in the fourth quarter -- a gain on the sale of a [non-real] asset, a loss on debt extinguishment, and a charge from employee severance costs, which all essentially netted to have no significant impact on the fourth quarter.

Our strong acquisition pace continued during the quarter as we purchased three new properties for a total of $101 million, bringing the full-year investment volume to $425 million, including a $25 million property purchased on behalf of the joint venture and development funding of about $38 million during the year. All three properties purchased during the quarter were stabilized on acquisition and represented average cap rate of about 6% on the first year's projected cash flows.

During the fourth quarter, we also sold one community located in Houston for gross proceeds of $12.9 million, and also as part of our 2011 disposition plans, in January we closed on the sale of an additional community located in Houston for $22.6 million. These transactions bring total proceeds related to our original disposition plans for the year to about $46.5 million from three communities averaging over 20 years of age at an average cap rate of 6.7%.

Progress continues on the three communities currently under development, which are still expected to cost about $110 million in total. We funded about $16 million during the fourth quarter and expect initial deliveries in occupancy at two of these communities during the first quarter of this year.

As mentioned in the release, we are also under contract to acquire the land and develop an additional 270-unit community in Charleston, South Carolina. This community is projected to cost about $32 million, and we expect to close on the land parcel and begin construction in early 2012.

We continue to make solid progress to our long-term financing plans and achievement of a full investment-grade rating. As you saw on our earlier releases, during the fourth quarter, we closed on a new $250 million unsecured credit facility, which has an initial maturity of four years and is expandable to $400 million. This new facility provides us the capacity and the flexibility we need to maintain our balance-sheet advantage and to fund growth on an unsecured basis.

We ended the year with just over 31% of our assets unencumbered, and during 2012 we plan to fund all of our new acquisitions and to refinance about $150 million of our current debt with additional unsecured borrowings, which is expected to increase our unencumbered asset pool to more than 40% of gross assets by year-end, putting us, what we believe, to be in a great position to pursue additional ratings.

In order to fund the equity portion of our acquisition and development activity during the fourth quarter, we raised $65 million in net proceeds by issuing one point million -- 1.1 million new common shares at an average price of $58.68 per share. We ended the fourth quarter with our leverage, defined as net debt to gross assets, at about 46%, while our EBITDA for the quarter covered fixed charges 3.8 times.

And then, finally, we provided initial guidance for 2012 in our release. Our full-year guidance is for FFO of $4.25 per share to $4.45 per share, which is about $4.35 at the midpoint, more than 9% growth over 2011. Our estimate includes full-year same-store NOI growth of 5% to 6%, based on revenue growth of 4.5% to 5.5% and operating-expense growth of 3.5% to 4.5%. And a large portion of the expense growth in 2012 is expected to come from real estate taxes, which is about a quarter of our overall operating expenses, and they are expected to grow between 4% and 5% in 2012.

Other key assumptions include our projected acquisition volume of $300 million, disposition volume of $100 million, and development funding of about $80 million for the year. We expect our leverage to range between 45% and 48% during 2012. It ended the year near the bottom portion of that range, while we expect our total average interest rate to be about 4% for the year.

We anticipate property management expenses of about $21.5 million and G&A expenses of about $15 million in 2012, combined to a total of around $36.5 million for the full year. The projected decline in G&A is primarily related to the $1.8 million non-cash charge and the other one-time charges affected 2011.

That's all that we have in the way of prepared comments. Amy, I'll turn the call over to you for questions.

(Operator Instructions). David Toti, Cantor Fitzgerald.

Good morning, guys. Two questions. Eric, the first one is for you, and it has to do with performance divergence between revenues in the large and secondary markets. Are you seeing that gap widen or contract at all? It seemed from the last couple of quarters that the gap is increasing, from what we're seeing. Can you give us a little bit of color in terms of that trajectory?

I do think that we're going -- as noted, the large segment of the -- large-market segment of the portfolio, revenue growth surpassed the secondary segment this quarter, and we have been thinking for some time that was going to occur as this recovery cycle got underway, and I expect that we will continue to see that relationship with the large group outperforming the secondary market.

However, I don't think the gap is going to continue to gap out, if you will, and get bigger. I think that what we're seeing impact our large-market segment is obviously the Houston markets, particularly Dallas and -- or the Texas markets, Dallas and Houston, have been very good.

I think that what we're going to see in the secondary market, Little Rock, Charleston, Chattanooga, Savannah, some of these markets are actually showing some very good performance, and we think, based on what we're seeing, particularly on the supply side, it's the bigger markets that are getting some of the supply pressure that are starting to show evidence of developers gearing up, and these secondary markets continue to show very little in the way of permitting activity.

So with what we think is going to be continued good job growth and very little in the way of supply pressure, we think these secondary markets are actually going to be very resilient during this up cycle, as compared to the large segment, and I don't think the gap is going to be that great.

Okay. That is very helpful. And then, Al, a question for you. Can you just give us an update in terms of what progress you're making towards the fully -- the full rating, the full unsecured rating? What metrics are you really aiming for and how close are you to those?

All right, Dave, that is a great question. We've talked about for a long time, if you look at our balance sheet and our metrics, we feel like that we are in very good shape and compare very favorably really both to what rating agencies typically require and to many of our rated peers already, with the one exception. The area of work that we knew we had was in the unencumbered asset pool.

And just to give you an idea of what they typically focus on, you are talking about a fixed-charge coverage. I think typically they want companies to be greater than 2 times. We ended the quarter at 3.8 times.

Leverage, I think looking -- gross assets ranging for a Company like ours, below 50%, well below that, and we're at 46% at the end of the quarter. And then, I think debt to EBITDA is typically another one, and company -- for a multifamily company, I think something less than 8% is what they look for typically now. We're at 7.5%.

So obviously, the major metrics, we stack up very well. And on the unencumbered portfolio, we made a lot of progress this year. We began the year with less than 15% unencumbered and we ended the year with more than 30%. So we expect to end 2012 with more than 40% encumbered, putting us what we think into be a really good position. So, we plan on having some pretty good conversations this year with agencies and to make some good progress, David.

Great. Thanks for the detail.

Swaroop Yalla, Morgan Stanley.

Good morning. I know we have discussed this in the past calls, but I just wanted to once again ask about what you're seeing for the total moveouts to homes, both buying and renting single-family homes, and how that probably compares with the trough you saw in this cycle. Also, if you're seeing this elevated in certain markets.

Okay. Swaroop, this is Tom, and I'll take that.

On the home-buying front, I would say it doesn't -- it compares about the same in terms of a trough, if you will, as we're still in the bottom of the trough. So it's been kind of flat. It's 17% of total moveouts for us on buying a house.

Home buying -- or home renting over the time has increased. It used to be about 3% of our total moveouts, if you go back to 2007. It has moved up to 5% of total moveouts now. So, it has moved up, but it hasn't been a material impact.

And if you look at our highest markets, if you will, would be where you would expect them to be in a place like Jacksonville, and that's moved from -- it used to be about 5% and now it's about 8%. So it doesn't -- neither of those continue -- neither of those appear to be short-term threats.

Swaroop, I would just add that I know a lot of -- I get asked a lot about the threat of single-family product, either as a for sale or rental product, and we just continue to see -- as Tom outlined, we just continue to see little evidence that that single-family product is a meaningful threat to this up cycle that we are in.

And despite some of the efforts underway to get investors to come in and start buying up some of this vacant inventory and look at ways of trying to start renting out this single-family product, we just continue -- for the renter profile that we cater to and the product that we offer, we don't think that the single-family product is going to become a meaningful competitor to us. People want the lifestyle of the communities that we offer.

And when you look at the demographics of -- I think what happens is a lot of the people that lost homes become renters of homes, and I think for the age bracket, 20 to 35, that we really tend to focus on, I just don't think the single-family product is going to be a meaningful competing product on a rental basis.

And then, on a for-sale basis as long as the mortgage financing stays disciplined, and there's no real clear evidence that single-family house prices are starting to rapidly move up, I think that people are going to be reluctant to pull the trigger and go out and start buying houses in a big way for quite some time.

That's helpful, Eric. Just turning onto expenses, last year I think your guidance was also for about a similar kind of expense growth, 3.5% to 4.5%, but you came in well below that. I'm wondering what was the drivers for that, and if we could see something which is favorable this year as well?

Swaroop, this is Al. I can give you some color on that.

We did have something similar in last year. What happened was in the latter portions of the year, we did have some favorable set appeals from our real estate taxes that came in. It helped us in the third and even in the fourth quarter, and I think our utility costs were a little more favorable in the fourth quarter than we had expected.

So I think moving toward the end of the year, we had -- we were at the bottom in our forecast of our expense range that we put out at the beginning of the year. In the fourth quarter, we had some of those favorable items that pushed us, really, actually, below the bottom of that range, I think, for the fourth-quarter performance and full-year performance.

So in terms of looking at next year, the pressure items are fairly similar. We talked about real estate -- really, two areas when you look at that, real estate taxes and utilities, and utilities, I will add the cable program in there because that is considered a utility, and those two together are about 50% of our expense rise this year.

For us and taxes, the pressure is going to come from two main states, I mean, Texas and Florida, and incomes are rising. They tend to be aggressive in those areas, and so we do expect some pressure there. Certainly we're going to work very hard to challenge that and hope to see some favorability there.

But that is what we believe it will be at this point in utilities. We've put in what we think best for our water costs and cable contracts, and we think that is the right number right now.

And Swaroop, again, just to recap what Al said, I mean, over 50% of our rise -- our growth in expenses in 2012 is associated with just those two line items, utilities and taxes.

And sitting here today, I mean, we don't know. We won't know for sure what's going to happen on taxes until we get towards the third and early fourth quarter.

But given what is going on in such a positive way in terms of apartment values and apartment fundamentals, we have a forecast for both utilities and taxes of 4.5% growth in 2012 over 2011, and we think that's reasonable to go out on that basis and expect that kind of increase in our guidance. I hope we'll do better, but -- and we're going to certainly do all we can to make sure we do better, but that is our best guess at this point.

That's very helpful. Thank you.

Rob Stevenson, Macquarie.

Good morning, guys. Eric, you talked about 5.7% on renewals in the fourth quarter. What is that thus far from what you sent out for the first quarter, for the first couple of months of the year?

Well, I can tell you that our renewal pricing in January was up 6.7%, and the renewals that we've done so far in February and March are running higher than that.

Okay, so I mean, the momentum really does -- it looks like it's even picking up. Or is it just still a relatively low amount of the leases in February and March that have come back at this point?

It's still a little early for March. We're pretty well into February, obviously, right now, but the point is is the renewal pricing that we got in the fourth quarter, year over year, was up 5.7%, and what we're seeing in January and February and March thus far is ahead of that.

Okay. And then, when you take a look at your main markets, I mean, what -- which ones are you expecting the most growth out of in 2012, you know, one or two markets? And then, what are the one or two markets that are on your watchlist that you hope does better than what you think, but are going to wind up, if you force-rank them, would sort of be at the bottom of the list?

Sure, Rob. And the ones that have been going is where job growth has just sort of caught. So Dallas, Houston, Austin, Raleigh, all, we feel -- we're very encouraged by the trends. Those are showing up in this quarter's numbers and we expect them to continue.

On the ones that we're optimistic about, but not quite as optimistic, are places like Atlanta and Jacksonville where we've seen some recovery. We've seen some nice rent growth beginning there. But the job creation has -- the job-creation engines in theirs have been a little slower than the Texas or North Carolina stub.

So those would be our little slower community -- or excuse me, markets, if you will, but those are places that developers are staying out of right now, too. So it just takes a little bit to get going, and both are forecast for about 1.5% job growth next year.

Okay. And then, sort of last question, when you think about the transaction markets across all of the markets that you are actively involved in today, which markets do you feel that you could find ample amount of similar product as your own at north of a 6 cap rate today after CapEx?

We continue to look in a lot of the existing markets that we're in, Dallas, and Austin is getting a little pricey, to be honest with you. It would be probably hard to find the quality there that we'd like at that kind of cap rate pricing.

But we're looking at some opportunities currently along the mid-Atlantic area in Virginia where we've been doing more, and we've got some things there teed up that we're hopeful we'll get under contract that would be in that price range.

And then, we continue to be very much committed to continuing to look for opportunities in some of the secondary-market segment, Charleston, Savannah. Most all these secondary markets, we feel like that somewhere between 5.75% to 6.25% is still pretty achievable.

Having said that, I will tell you that we are seeing more capital coming into these markets. So I mean, I think the pricing environment, even in the secondary markets, is starting to get a little bit more frothy than it was last year. And I think that folks are just getting tired of paying forecasts in some of these coastal markets and I think they're starting to come into some of these Sun Belt markets and in some secondary markets.

And so for us, it continues to be a challenge to use our relationships, use our market knowledge, and use our execution capability in terms of how we perform for sellers to capture the deals that we feel good about and pricing we feel good about, and hopefully get the growth that we've outlined in our guidance for the year.

Okay, and then just one quick one for Al. The additional disclosure on same-store with [bulk] cable netted goes away next quarter, right?

I'm happy to announce that's going to be gone, right.

Okay, so just one number next (multiple speakers) quarter. Thanks, guys.

Rich Anderson, BMO Capital Markets.

Good morning, everyone. Let me ask the stupid question first. Why is your fixed-charge coverage ratio greater than your interest-coverage ratio?

Because -- your debt service coverage ratio, I think, is what you're talking about. Because it includes amortization in that debt service.

For us -- typically, it is not that way, but for us, most of our debt is not amortizing, so -- and when you look at our fixed-charge coverage, we have no preferred. And so, you can walk through that.

Got it, got it. Thanks.

Eric, you talked about supply not being an issue for 2012, but I didn't really get the sense that you were speaking about out years. I know you're not providing guidance for 2013 and 2014, but what would you say you guys are doing, assuming supply will come online sooner in your markets versus some of the other northern markets? Do you guys have a plan at work now to be prepared for what will inevitably be some supply pressure in your markets?

What I would say is the best thing we can do to prepare for 2014 is not built up a big development pipeline right now ourselves. So that, to be honest with you, is probably the most important thing that we're doing right now is we continue to be very tentative about committing to new development ourselves.

I mentioned the Charleston opportunity that we are going to get going on this next year. We don't have anything else teed up at the moment in the way of new development, and I would be very cautious about doing so at this point.

Having said that, the other thing, frankly, that we're looking to do to prepare for that environment is being sure that we're getting our balance sheet and our capacity to grow as strong as we can get it. Because in one sense, as an owner of a bunch of assets, you always worry about new development coming in in a bigger way, but as someone who has a balance sheet that -- and a platform that we'd like to see continue to grow in a healthy way, I think that it provides opportunity and that's our whole model is primarily being an opportunistic value investor and looking for opportunity as the merchant builders get cranked up and looking for opportunity to put the capital out on a real advantageous basis.

And so, a little supply and more supply probably creates more opportunity for us in that regard.

Then beyond that, of course, it's just making sure that we have our operating platform as finely tuned as we can and be sure that as we face competition from lease-up properties that we've got our people and processes teed up so that we can be very competitive in those environments. We think that -- we know how to do this. We've been doing it in this region for 18 years. So we know how to operate and compete against supply pressure when it does come in some of our markets.

What's the reason to even do -- what does one new development really get you? I mean, if you're saying that you're hesitant about new development, why even bother with one? Is it really going to move the needle?

It's like any other. Why buy one property? I mean, it's -- we found a very unique situation in a submarket of Charleston, Mount Pleasant, that has got great downtown access. It is a great area.

We're going to invest $32 million. It's 118 -- that works out to about $118,000 a unit. You put a 6 cap on that, which I know this submarket in Charleston would command for this quality of product, you put a 6 cap on the first-year stabilization and our investment basis of $118,000 a unit goes to $154,000 a unit. So, we see it as a tremendous investment opportunity for $32 million worth of our shareholder capital.

So it's the same basis that compels us to go out and buy properties. This is -- and important to note, we're not staffing up. We're not adding one dollar of overhead to do this. And I think that that is the model that we continue to believe in.

What I wouldn't -- I would be a little bit reluctant to do right now -- it would take a very unique situation that we could underwrite very comfortably -- to commit to delivering a bunch of units in 2014. I just -- I think that if we found an opportunity that really -- very compelling, like this deal in Charleston, we might do one, but it would have to underwrite very, very conservatively.

And then, on the investment-grade rating process, I guess -- it seems to me that the conversation about Fannie and Freddie exiting the multifamily lending business is kind of off the table now. Would you say you are -- when you guys started, that was the primary focus, to become less tethered to Fannie and Freddie, if I remember correctly. Would you say your motivation to get investment-grade rated is even stronger today, despite the fact that all signs are pointing at Fannie and Freddie maintaining a very significant role in the multifamily business?

Rich, this is Al. I would say it is the same, because our goal all along has really been about balance in our capital structure.

And we love our relationships with both Fannie and Freddie. They're very good contracts and they will likely be part of our business for a long time.

I agree with you there is -- some of the risks are going away in their business, or some of the thought processes.

So I would say what we're doing right now is aggressively trying to get into a balanced position where we're -- get our investment grade and, at one point in time, have about half of our debt secured, half of our debt unsecured, and we would expect both Fannie and Freddie, if they're still a strong part of the business, to be a part of that secured portion, along with other people, life companies, commercial banks, some secured, and then certainly on the unsecured public bonds and larger credit facilities and those things.

So, the goal for us was to have multiple sources instead of being so focused on one or two sources. Over the long run, we think that's obviously the best choice for a company and to provide the growth because we're looking to put up some significant growth in the next few years and that's the best way to support that.

So when I look at your metrics that you're targeting for the end of year, I mean, it looks pretty good in terms of having a deeper conversation with the other rating agencies. Would you say, though, that you might be held to a higher standard because of the nature of your markets? Do you think that that plays a role and that you probably have a bigger hurdle to jump than some of your other peers?

I would say almost the opposite, Rich. If you look at the stability of our cash flow over the last five, seven years, it's one of the more stable cash flows in the sector.

And so, we don't think that we need to apologize to anybody for our markets. We think that they produce the kind of performance that matches up very well for either a creditor or for a shareholder looking to have a secure, steady-growing dividend.

Look, if I'm moving to Little Rock, I'm renting from you.

We have got a place for you, Rich.

We've got something for you.

Okay. Thanks.

Paula Poskon, Robert W. Baird.

Good morning, everybody. Eric, what's your strategy for increasing the disposition volume? Is it a function of the spread in cap rates between asset qualities? Is it the assets themselves, the age, CapEx required? Is it the market or submarket dynamics? Is there a particular theme in the strategy there in how you're identifying the assets, and why now?

What I would say is that, first and foremost, our objective is to ensure that our portfolio of investments are generating the best margin -- overall margin performance that we can get -- operating margin that we can get.

And we think that one of the things in this region of the country that is important in terms of driving continued improvement in your operating margin is continuing to cycle out of investments that, either due to CapEx requirements or due to changing neighborhood issues or whatever the issue may be, that would suggest that revenue growth and/or ultimate overall cash flow results, margins, are going to have peaked out and that we could redeploy that capital in something more attractive.

And so, the objective is just to continue to ensure that five years from now we have got a portfolio of investments that is operating with the highest operating margin we can capture, and in order to be where we want to be five years from now, we have to take actions today. And having said that, we've gotten to a point now with our -- some of the metrics that Al mentioned in terms of our balance-sheet coverage ratios and earnings coverage and things -- dividend coverage that, frankly, we can afford to be a little bit more active in our recycling effort than we've been in the past.

And I think that, obviously, the market is pretty good right now. There is a lot of capital looking for good investments, and as I mentioned a moment ago, a lot of this capital is coming into our region in some of these secondary markets in a more active way. And so, we just see it as a window of opportunity to start to cycle a little bit more aggressively than we had been in the past, and we think that by doing so that we buy ourselves some good performances down the road.

Okay, great, thank you. And I know we talked a lot about the potential, or the lack thereof, of moveouts to home ownership. What about trends in moveouts to rent increases? What are you seeing there? Is it worsening? Are you able to backfill with higher-quality tenants? Can you just kind of characterize what's going on there?

Yes, I would say it's improving on the worsening standpoint, if that makes any sense. It's up. It's up by about 200 folks, or up about 9%, but is a very calculated moveup, and it's running at about less than -- or about one person per property per month moves out for a rent increase, and we're backfilling. The average for the year was like 11% or 12% rent increase on that.

So, it is -- we are definitely getting more active in our willingness to push our residents and actually force some level of turnover. We believe some is healthy and good. We don't think we're past that threshold, but it is up and it's intentionally up.

Thanks, Al.

That was Tom.

Tom, (multiple speakers) sorry about that. You guys sound a lot alike.

(Multiple speakers). Al doesn't want to be associated with any Tom answers. I'm three IQ points lower.

Sorry about that. My apologies. And then, longer term, how do you think about what your rent to income ratios could ceiling at in your markets? And if the current rate of growth were to continue, how long would it take to hit that ceiling?

If all things remain the same right now, we'll never hit that ceiling because essentially what it was, it was about 18% pre-recession, if you will, that 18% rent income ratio. And then, it went -- it moved up to about 19.5% in peak period. It has since dropped substantially the last two years in a row and is now 16.4%.

So, in other words, our affordability is getting better and better even as our rents go up and up because we're, I assume, reloading with a better level of clientele. So if the current trend continues, it never hits it.

Where that bottoms out and starts turning the other way, where affordability really gets constrained, I'm not sure yet. We haven't seen that happen.

Does that imply a possibility of stronger-than-expected rental rate pricing power?

It is. It implies that affordability won't be a factor in that. I think that really comes down to what is the job growth and what is the supply level.

Fair enough. That's all I have. Thanks, guys.

Michael Salinsky, RBC Capital.

Good morning. Al, first question for you, just on the guidance. How much, because you talk about the elevated acquisition activity for the year, how much ATM issuance have you assumed? Is that kind of built into the guidance already?

Yes, I think if you take a look at the acquisition, $300 million acquisitions, $100 million disposition, $80 million development funding, throw in $15 million to $20 million in equity funding for our joint-venture acquisitions, you're going to back into a need somewhere $150 million to $200 million, Mike, and we certainly have an ATM program in place.

We have about 1.7 million shares remaining, and we'll certainly look to keep one in place and look at other alternatives as well. But that's the need, and we'll give you more on execution as the year progresses.

That's helpful. And the guidance also for 2012, can you give us a sense of what you guys are thinking in terms of occupancy? Also, what kind of renewal growth you've built in, whether you see that trending a little bit lower as the year progresses, and also what your expectations are for new lease increases in 2012.

I'll just tell you what the revenue performance is based on largely, Mike. It's really about pricing next year.

We've assumed that the year 2012 is going to look a lot like 2011 in terms of the trends. We expect prices in total combined new leases and renewals to go up between 5% and 6%. And we've put, to your point of occupancy, we believe occupancy will be pretty stable and will be where it is right now through the year with some seasonal impacts, so maybe the second and third a little stronger, on the quarters.

But I think what we have dialed in is a little bit of dollar vacancy loss increase as we expect to have a little more churn during the month or during the quarter as turnover picks up a little bit because, as Tom mentioned, we're going to be pushing on price this year, and so it'll be a little bit -- call that 20 to 30 basis points of occupancy. And so, that gives you the foundation of what we're seeing for revenue growth next year.

That's helpful. Couple of -- did you give the new lease rates for the fourth quarter?

The new lease rates for the fourth quarter, were they around (multiple speakers)

On a year-over-year basis, for the fourth quarter they are up 4.5%.

Okay, that's lease over lease or was that year to date?

That's year over year.

Okay, so that makes sense. You talked on the last call a little bit about potentially harvesting an asset or two from one of your joint-venture funds there. Is that still on the table for 2012?

Yes, we're looking at it, Mike, with our JV partner and sort of reassessing that. We may -- initially, we got the sense that there was a high level of interest from our partner in doing that, in actually selling them, but frankly, certainly, the values have moved up significantly and we're maybe also looking at considering just a refinancing and pulling some proceeds out on that -- under that method as well.

So, we don't have a specific disposition target right now for those assets that I mention, but we are looking at it.

That's helpful. Next question, in terms of performance, if you look at some of the newer product in the portfolio versus some of the older -- maybe, call it, like Class A versus Class B, are you seeing any noticeable trend favoring either/or or is it -- or are you getting pretty consistent rent growth across both?

Mike, the real variance there is market and submarket. We have got older assets that are just killing it in places like Austin, and it really has to do more with the location in the broader markets than age.

Okay, and I realize you guys have -- final question, I realize you guys have stepped up your disposition activity for 2012. Just curious, just given the comments about the frothiness of investors looking for product in that market, why not sell a bit more and use a little less ATM issuance at this point, just given where pricing is?

We may very well do that, Mike. We've put our guidance out built on those assumptions that I've -- we've put there, but I can tell you if we see the opportunity to move a little faster and do more on the disposition side that makes sense, we'll do it.

And I think that we're seeing more and growing evidence that investors have an interest more and more in some of these markets, and so we may very well do more than the $100 million that we've assumed. As pointed out, that's a pretty significant step up (multiple speakers), twice what it was last year and a lot more than what it was in years past.

And so, I expect that we'll be at least at that $100 million level and maybe a little more, and we'll just see how the year plays out.

Fair enough. Appreciate the color, guys. Thanks.

Dave Bragg, Zelman & Associates.

Good morning. Just wanted to ask you to elaborate a little bit more on how you get to that rent-growth outlook for the year that you mentioned. Assuming that -- or knowing that your portfolio saw about 1% job growth last year, what sort of macroenvironment underlies the outlook for 2012? Is it the same amount of job growth or better?

Dave, this is Al. Probably similar to a little better. I think what we're seeing in our markets, we're expecting job growth to be a little bit better than last year, but fairly close overall, but some -- but beginning to pick up a bit.

So our underlying assumption is a slightly favorable market, so we've assumed that we continue to have similar trends as last year. The trends were good in 2011. We expect that to continue, but we're going to continue pushing price and, as we talked about, have a little bit of impact on occupancy.

So all that rolls together to be the performance that we put in the guidance, 4% to 5% on price, 20% to 30% on vacancies as we give up.

I can tell you, Dave, I mean, if you look at U.S., at least the latest information that we have here talking about job growth stats, nationwide it's a little over 1%, 1.3%.

Our markets, it's 1.5%, so we do think that the job growth opportunities in our markets are going to surpass the national norms. We hope that that does translate into pretty good growth on new lease pricing, and I would think that as we have seen over the last quarter and into January, above 4% on new lease pricing year over year, I would expect that we'll continue to see that play out at that level, maybe a little bit better, and of course that also pulls up our ability to get that much more aggressive on our renewal pricing as well.

So, anywhere in that 4% to 6% range, I think, for both of them is perhaps where we think we will play out over the course of the year.

That's helpful. One other question for you, Eric, just to follow up on your comment on the pricing environment getting frothy or more frothy. How do you think that a sustained low interest rate outlook could impact that going forward? Does it get more frothy from here, and how would you expect that to play out within your markets in terms of that spillover from core to secondary?

I think that the low rate environment and continued strong fundamentals coming out of the apartment business is going to continue to attract a lot of capital, and I think that there's a lot of evidence that suggests that the multifamily business is going to be, compared to other sectors in the commercial real estate area, is going to be pretty darned good for the next several years.

And I think that's just going to continue to bring capital, and as is always the case, when capital starts to come into the sector, we saw it really cause cap rates to fall and values to rise pretty dramatically in a lot of the much more favored institutional markets on the coast. It really began to change, really, in the fourth quarter as we saw some of the larger markets in the Sun Belt, Dallas and elsewhere, starting to really see the activity, but we're starting to see it now in some of the secondary markets as well.

So I think you're going to see some cap-rate compression begin to take place between the secondary and larger markets, certainly over the course of this year, and I think it's a good thing for, obviously, our values and what I think the market is going to continue to just be very favored in apartments in general.

So you'd expect to see that relative compression, but would you expect to see compression in both, on an absolute basis?

Yes, absolutely. Both being both large and secondary markets, you're talking about?

Right.

Yes, absolutely. Absolutely. You get a really nice asset and a nice location in Charleston, South Carolina, or Savannah, Georgia, it's getting a lot of interest right now, a whole lot of interest.

Okay. Thank you.

Andrew McCulloch, Green Street Advisors.

Good morning. You guys saw the year-over-year revenue growth slow fairly materially from 3Q to 4Q. Can you explain what's going on there and what gives you confidence that that revenue growth will again reaccelerate through 2012, as your guidance suggests?

Oh, sure. I mean, that is just the sort of the normal seasonality that we see of -- I mean, traffic was great in the fourth quarter compared to fourth quarter, but it was down 15% from third quarter. So, units sat a little bit longer and occupancy fades a little bit, and we have got -- we were at 95.5% at the end of January, exposure is 8.5, and I mean there is just nothing on the horizon that makes us don't think that the seasonal patterns that have followed through the fourth quarter will pick up again.

Andy, and I would add to what Tom said, that -- I tell you, last year, fourth-quarter 2010, we were still very, very focused on occupancy, and we were beginning to get a little bit more aggressive on pricing certainly at that point.

But in the fourth quarter of 2011, we were much more aggressive than we were in 2010 as it relates to renewal pricing and new lease pricing. So the difference, and -- because it is obviously Q4-Q4, same seasonal pattern, is just we gave up and we were comfortable giving up a little bit of -- 60 basis points in occupancy to get the pricing performance that we're getting, and believe that that's the right trade-off to make for the long-term benefit.

Thanks. And then, just one question, to follow-up on Mike's question on the recent ATM usage. It looks like the average issuance price in 4Q was at or below NAV. Can you talk about the thought process there? Are you continuing issuing equity?

Andy, this is Al. Yes, we talked about we issued $65 million at about -- just somewhere near our NAV, maybe slightly below NAV, and we put that money --

That's consensus NAV.

Yes, that's consensus NAV, put it to work immediately, and very high-quality deals where the net present value over the whole period is very accretive where the cash flow in terms of FFO is accretive in the first year of ownership. So, we certainly think that's a good use of capital.

Also, and I guess the benefit is helping you delever the balance sheet as well?

Absolutely. There is a little bit of that. There was just not much of it, though. If you think about it, $65 million on $101 million of assets, you're pretty close to our leverage, but [it is going to be] a little bit of it helped our leverage.

Great. Thank you.

Tayo Okusanya, Jefferies & Company.

Good morning. Just two quick questions. First of all, to just round out the acquisition and disposition activity, could you talk a little bit about what cap rates you expect to make acquisitions at? What cap rates you expect to make dispositions at? And then, specifically for the dispositions, what markets you're looking at to dispose of assets?

Acquisitions to dispositions (multiple speakers) -- oh, cap rates you're talking about. On the acquisition and cap rates, you're talking -- we've been buying deals, Tayo, around 6% in most of the markets on a stabilized basis, and we talked about the ones we disposed of this year at 6.7% on average, the three that we did.

So we would consider something like that, as we're going forward, to be pretty reasonable. In terms of our estimates, we probably in our model actually have 6% on deals we're buying and 7% on deals we're disposing, something like that.

It's [always] the same (multiple speakers)

I think we'll hopefully do better on the disposition than the 7%. Certainly that's what we've been doing, but that's the way it modeled.

And then, in terms of the markets, we've got a couple assets in Atlanta. We've got one in Dallas, and those are just cycling out of some other product that has either been in the portfolio a good while or we picked up years ago. And we've got a couple of assets, little bit of an outlier for us, up in Cincinnati that we will -- that we're going to move out of as well.

Okay, that's helpful. And then, one other question, when I took a look at -- your earnings grew for 2012 versus 2011. It's pretty strong, but the basic assumption around dividends is that they're going to stay flat year over year. Just kind of curious about that.

We look at our dividend with the Board once a year, and we -- as you may know, we increased it at our last Board meeting on December 1 and set the dividend, really, for the year. We will look at it again at the end of this year. We don't have any plans to look at it over the course of the year, and so that's really the way we've looked at it.

And I'll say it was a 5.1% growth over the previous year when we updated in December.

Great. Thank you very much.

Paula Poskon, Robert W. Baird.

Eric, given the favorable outlook and the positive fundamental for the whole sector, why do you think the stock is trading at such a huge discount to the peer group?

I think it's -- the discount is obviously in the multiple, and I mean, there is an implied cap-rate difference as well.

But Paula, I think it continues to come back to this, I think, belief that our markets, particularly our secondary markets, tend to not be as strong in this particular phase of the cycle relative to the coastal markets and the markets that most of the sector tends to be heavily invested in. And so, it is just a question of the expectations for performance over the next year or two.

And I think that whether it be organic growth out of same-store NOI or overall FFO performance, and we get that and I understand that perspective. But our thesis is that if you look at our performance historically, the -- our ability to drive internal growth and overall FFO results has been pretty darn competitive with the sector over a long period of time, and it ebbs and flows at different points in the cycle, but on average it's been pretty close.

And I think that what the market has to just ask itself is, given the delta or given the difference in terms of implied performance expectations as reflected in the pricing difference, whether it's defined as a multiple or implied cap rate, I mean, you're right. The gap is fairly material at this point.

The question is, are they going to outperform us that much over the next couple of years or next three years or whatever the horizon is? And history would certainly say that's not the case. I would believe, and I'm pretty confident, that that will be the case going forward. I mean, I certainly believe that we've got the portfolio, we've got the balance sheet, and we've got the platform in such a place that we're going to be very competitive in terms of our ability to deliver results over the next year or two that will be pretty competitive with this sector.

But we like what we're doing. We like the strategy. We like the focus that we have, and at the end of the day, our focus is just to continue to -- if we can add record earnings again in 2012 over what we did in 2011, which was a record, and just keep making record earnings every year and keep funding a secure and growing dividend, I think over time it all takes care of itself.

Thanks.

Thank you, and I'm showing no additional questions at this time.

Okay. We appreciate everyone joining us this morning, and if you have any follow-up calls, you know where to reach us. Thank you.

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