Mid-America Apartment Communities Inc (MAA) 2013 Q2 法說會逐字稿

Good day, everyone, and welcome to the Colonial Properties Trust second quarter earnings 2013 conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session.

(Operator Instructions)

Please note this conference call may be recorded. I will be standing by if you should need any assistance.

It is now my pleasure to turn the conference over to the Interim Chief Financial Officer, Brad Sandidge.

Welcome to everyone joining us today. I'm Brad Sandidge, Interim Chief Financial Officer. Jerry Brewer, our EVP of Finance and Investor Relations is on vacation this week, but will be back in the office next Monday. If you have any follow-up questions regarding our second-quarter results after the call, please feel free to give me a call.

We released our earnings this morning via Business Wire. A copy of this earnings release may be found on our website. Let me remind you that much of the information we discuss on this call, including answers we give in response to your questions, may include forward-looking statements regarding our beliefs and current expectations with respect to various matters. These estimates are based on a number of assumptions, any of which unrealized could adversely affect their accuracy. Please see our latest SEC filings for the detail and explanation of risk.

Any non-GAAP financial measures we discuss are reconciled to the closest GAAP measures in filings that can be found on our website. In addition, this call will include some prepared comments related to the pending merger of MAA and Colonial. However, because we are currently in the SEC review process of the joint proxy statement and prospectus related to the pending merger, Management will not field questions related to the proposed merger. The Q&A at the end of the call will be limited to the latest results of our operations.

In connection with the proposed transaction, the Company will include a definitive joint proxy statement of MAA and Colonial and a registration statement filed with the SEC that will also serve as a prospectus for the Company. Investors are urged to read the joint proxy statement and prospectus and other relevant documents filed with the SEC if and when they become available, because they will contain important information. You may obtain a copy of the joint proxy statement and prospectus filed with the SEC at the SEC's website, www.SEC.gov, or on the Company's website, www.colonialprop.com, or by contacting the Company's Investor Relations department at 1-800-645-3917.

The Company and its directors and executive officers, and other members of Management and employees, may be deemed to be participants in the solicitation of proxies in respect to the proposed transaction. You can find information about the Company's executive officers and directors in the Company's definitive proxy statement filed with the SEC on March 13, 2013. This shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sales securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration of qualification under security laws of any such jurisdiction. No offering of securities shall be made, except by means of a prospectus meeting the requirements of Section 10 of the US Security Act of 1933 as amended.

Tom Lowder, our Chairman and Chief Executive Officer, will lead today's call. Paul Earle, our Chief Operating Officer, is also here to field questions.

As you all know, we announced a definitive merger agreement with mid-America in June. However, on this call, we will only be addressing our quarterly results and will not be discussing the proposed merger or taking questions about the merger. Our comments and questions that we'll take at the end will only be limited to our business developments and financial results for the second quarter.

Now I'll turn the call over to Tom.

Thank you, Brad. Welcome to everyone joining us.

Before discussing our results for the quarter, I want to provide a quick update on the progress of our pending merger with MAA. During the SEC review process of the joint proxy statement and prospectus -- and we expect to have the definitive proxy mailed out to our shareholders as soon as that process is complete. We continue to believe that the transaction will close at some point in September. Planning for the integration of the two companies is well underway. Already, a lot of hard work has been put forth by the men and women of MAA and Colonial. Extra effort is needed to integrate these two companies while continuing to focus on our daily operations. Neither team has shied away from this challenge. I appreciate all the extra effort and the commitment from each of the men and women towards the creation of what we believe will be the preeminent Sunbelt multifamily REIT.

The directives for this year have been to advance the Company, fortify the balance sheet, and enhance the portfolio. With our continued execution of commercial dispositions, multifamily recycling, generating value through our development pipeline, and solid performance in our core portfolio, we're on track on all of these directives. Our multifamily same-property NOI increased by 4.4% for the second quarter, which was on top of a strong comparison from last year. In the second quarter, we continued our recycling program with the acquisition of one newly-developed mid-rise apartment community in Dallas, and the disposition of two wholly-owned multifamily properties in Asheville and Richmond that had an average age of 54 years. We continue development on four apartment communities that will add another 1,028 units to the portfolio.

As previously announced, we have completed the sale of Three Ravinia, an 814,000-square foot office building in Atlanta for $144 million in proceeds during the quarter, reflecting a cap rate of 7.9%. This transaction puts the percentage of our NOI going forward from the core multifamily business at 95%. We also completed the sellout of the remaining condominium units at Metropolitan Midtown in Charlotte and continued to reduce our for-sale residential land inventory as well. Brad will give you more details on this in a moment.

These dispositions, together with the improvement of our core earnings and development properties coming online, have led to a significant improvement in our balance sheet. We also declared our regular quarterly cash dividend of $0.21 per share for the third quarter, which was paid yesterday. And lastly, we announced the merger of MAA.

We discussed our rationale for this transaction on the joint call on June 3, so I won't cover a lot of that ground again. I will simply highlight that the two companies have a shared vision for creating the preeminent Sunbelt-focused multifamily platform. We expect to contribute value to the new MAA because of all the hard work the Colonial team has put forth. Over the past few years, we've simplified the business and made our Company stronger. Our team will continue to work diligently to bring about a successful integration of the companies and help realize value for our residents, shareholders, and employees.

Now Brad will provide more details on our operating performance during the quarter, and I'll come back at the end with some closing remarks. Brad?

Thanks, Tom.

FFO for the second quarter was $0.31 per share, compared with $0.32 per share a year ago. Year to date, FFO was $0.64 per share versus $0.61 per share for the same period a year ago. Our second-quarter same-property net operating income increased 4.4%, while revenue increase 4.3% and expenses increased 4.1% versus the prior year. The increase in revenues was primarily driven by our higher average revenue per occupied unit of $978, which is up 4.6% from the second quarter of 2012 and 1.9% sequentially. Year-to-date, same-property NOI increased 5.6%, while revenue increased 4.8% and expenses increased 3.4% versus the prior year. Atlanta, Charlotte, Dallas, and Raleigh all posted revenue growth above 5% for the quarter. Financial occupancy decreased 30 basis points from last year to 94.9% in the quarter.

Renewal rates were up 7% in the quarter, while new lease rates were up 3.6%, resulting in a blended rental rate growth of 5.2% for the quarter. New lease rates were up 5.1% in June, in line with historical seasonal trends. Month-to-date, new lease rates are up 3.2% and renewal rates are up 7.3% for July, for a blended rate of 5%. Our asking rents today are 4.5% higher as compared to the asking rate a year ago today. The increase in expenses to the quarter and year-to-date was primarily due to an increase in property taxes, as we had previously anticipated.

Rents as a percent of resident income were a healthy 15.6% for the quarter. Resident turnover was 61.5%, which is still below our long-term average. Move-outs related to home buyers for the quarter was 16.1% and move-outs related to home rentals was 6.1%. Although new supply is ramping up in Austin, Charlotte, Dallas, and Raleigh, we experienced strong revenue growth in all of those markets during the quarter. These same markets also experienced some of the best job growth. Overall, job growth in our markets averaged 2.5% in the last 12 months versus the national average of 1.6%. Across our markets, there are 11.6 new jobs for every unit of expected delivery in 2013.

As Tom mentioned, we have four apartment communities under construction, totaling 1,028 units, with a total projected investment of $142 million. During the quarter, we completed a lease-up for both Colonial Grand at Double Creek in Austin and Colonial Grand at Lake Mary II in Orlando. To date, we have delivered four new developments with over 1,100 units with stabilized yields ranging from 7.5% to 8.5%.

As part of our multifamily recycling strategy, during the quarter, we purchased the newly-developed Colonial Reserve at Frisco Bridges, a 252-unit apartment community in Dallas, for $36.2 million. We acquired the property upon completion of construction with 30% of the units leased at the time of acquisition. We sold three older apartment communities. The first was Colonial Reserve at West Franklin, a 332-unit apartment community, for $23.8 million, representing a cap rate of 6.5%. West Franklin was a 49-year-old property located in Richmond, Virginia, with an average monthly rent of $704 per unit.

We also sold Colonial Village at Pinnacle Ridge, a 166-unit apartment community in Asheville, North Carolina, for $13.4 million at a 6% cap rate. This was a 65-year-old property with an average monthly rent of $741 per unit. Colonial Grand at Huntcliff, a 358-unit apartment community in Atlanta, Georgia, was sold for $41.1 million. We were a 20% partner in the joint venture, and received net sale proceeds of $2.3 million from the sale after the pay-down of our pro rata share of the $24.4 million of debt on the property. Huntcliff was 16 years old with an average monthly rent of $769 per unit.

We continue to reduce our land inventory with the sale of the Regent Parks II for-sale residential land in the quarter. The joint venture received gross sale proceeds of $6.2 million, and we held a 40% interest in that joint venture. On the commercial side, we sold Three Ravinia that Tom mentioned earlier. The property was unencumbered and sold for $144.3 million. Proceeds were used to reduce outstanding debt, which helped improve our balance sheet. We also completed the sellout of the remaining four condominium units at Metropolitan Midtown in Charlotte, North Carolina, for an aggregate sale price of $2.4 million. As a result of the sale of the final units, we recorded an impairment of approximately $800,000, or $0.01 per share in the quarter.

At quarter end, our debt to gross asset value was 42%. The recurring fixed charge ratio was 2.6 times for the quarter, and debt to recurring EBITDA was 7.2 times. We have no remaining consolidated maturities for the year, and our line of credit balance at the end of the quarter was $105 million.

As previously reported, we were named in 2010 as defendants in lawsuits with respect to condominium units at Mira Vista at James Island in Charleston, South Carolina. All 230 units were sold in 2006, with Colonial recognizing gains of $9 million. In May, we reached an agreement with the plaintiffs to settle the Mira Vista litigation for a total payment of $3.3 million. As a result of the settlement agreement, we have recorded a charge of $1.6 million, or $0.02 per share, in the second quarter.

Finally, we recorded $1.2 million of transaction costs related to the merger with MAA in the quarter.

I will now turn the call back over to Tom for some closing remarks. Tom?

Over the past 4.5 years, we've made significant strides in achieving our objectives of becoming a simplified and stronger Company. To highlight a few statistics of how far we've come since 2008, our net operating income generated from our multifamily portfolio is now 95% as compared to 75%. We have only four joint ventures remaining, as compared to 82 joint venture properties, which represents less than 1% of our GAD as compared to 16% in 2008. Our debt plus preferred to GAD ratio has improved to 42% from 59%. Fixed charge coverage is down 2.6 times as compared to1.6 times, and our debt-to-EBITDA ratio has improved to 7.2 times versus 10 times in the fourth quarter of 2008.

I thank our board for their support and strategic counsel over the years in guiding the Company. I also thank our employees for their hard work in the process of reduction, restructuring, renewal, and redemption as we significantly remade the Company over the last several years.

By exiting joint ventures, selling non-core properties, executing a multifamily asset recycling strategy, and getting us back to investment grade rating, our team has much to be proud of. As we move forward with remaining work to ensure the successful integration with MAA, I'm confident we will bring that same level of diligence and commitment to creating, with MAA, the preeminent Sunbelt-focused multifamily REIT. I also thank the shareholders, bondholders, lenders and analysts who have worked with us through this renewing of the Company. We appreciate your support and investment with us.

As Brad mentioned earlier, because of the pending merger with Mid-America, we're limiting our Q&A session today to matters of our second-quarter results. As most of you know, we're currently in the SEC review process with respect to the joint proxy statement and prospectus relating to the merger. Until the SEC review process is complete and we've begun the shareholder solicitation process for our special shareholders meeting, we're going to refrain from addressing merger-related questions or comments.

Leo, we'd now like to open up the call for questions.

(Operator Instructions)

Nick Joseph, Citigroup

It's Michael Bilerman with Nick. Tom, just from a timing perspective, when do your lawyers tell you the SEC will complete their review process, just so we get a sense of when that process may start?

Couple of weeks.

A couple weeks from today?

Yes.

And then is the plan -- just because, if you go back, we obviously had the MAA/CLP merger call, where a lot of questions regarding process were deflected to when the proxy came out. Now we have the proxy out, but you're in the review process and not going to answer anything. Are you going to hold a call on the day that you get clearance so that analysts and investors can ask questions about the process? About why a cash bid was turned away, and how you thought about it? So that we can appropriately -- and shareholders can appropriately understand and vote?

We will be available for those questions at that time, Michael.

I mean will you hold a public call for analysts and investors? Wouldn't that be appropriate in the public domain, just like this would be. Because we're going to get down to a shareholder vote in September, and there won't be a chance for analysts and investors to ask things in a public domain?

There is not a planned call at this moment.

Okay. I would -- my vote would be to have one. So if others would like that, that would be helpful for us to understand, really, the process to get your views in an open dialogue about why you went the route that you did.

Hopefully, the disclosures that we're making in the prospectus will answer your questions.

They didn't. That's why I was asking. So I guess you won't answer that, but the disclosures were not sufficient to really understand why the Company turned down the 2650, or didn't engage with a cash buyer to see if there was additional value, or a play that bid off of MAA to a greater degree.

I assume that's your comment, not a question, Michael. And as I mentioned before, we're not going to discuss that on this call.

(Operator Instructions)

Tony Reiner, Imperial Capital.

In follow-up to the previous call, I need a better answer as to why you won't comment on the process. You can't just say you're not going to comment. That isn't fair. That isn't right. There's no other forum to do it. This is the only forum there is to do. Can you please answer why you won't talk about the process or another offer that you had? At least give me that answer.

I appreciate your comments and your question. As we explained before, we're still under review by the SEC, so --

This is not an SEC question, all due respect. This is a process question.

Well, I appreciate your opinion.

It's not an opinion. It's a matter of fact.

Again, thank you for your comment. Do you have a question?

It appears that we have no further questions. I'd like to turn the program back over to you.

That concludes our call for the day, and we appreciate everybody's time. Thank you.

This does conclude today's conference call. You may now disconnect your lines and everyone have a great day.