M/I Homes Inc (MHO) 2013 Q1 法說會逐字稿

Good afternoon. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the M/I Homes First Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. I would now like to turn the conference over to Phil Creek. Please go ahead, sir.

Thank you very much for joining us. On the call today is Bob Schottenstein, our CEO and President, Tom Mason, our EVP, Paul Rosen, President of our Mortgage Company, Ann Marie Hunker, VP and Corporate Controller, and Kevin Hake, Senior VP. First to address Regulation Fair Disclosure, we encourage you to ask any questions regarding issues that you consider material during this call, because we are prohibited from discussing significant non-public items with you directly. And as to forward-looking statements, I want to remind everyone that the cautionary language about forward-looking statements contained in today's press release also applies to any comments made during this call. Also, be advised that the Company undertakes no obligation to update any forward-looking statements made during this call.

With that, I'll turn the call over to Bob.

Thank you, Phil. Good afternoon and thank you for joining us for our call today. We are very pleased with our first quarter results and our continued improvement in profitability, margins, revenues, and sales performance. We reported $4.6 million of net income for the quarter, a significant improvement over last year's first quarter loss of $3.2 million and our fourth consecutive quarter of net income. Our results are a reflection of improving housing conditions, combined with strong performance and solid execution by our M/I Homes team throughout our markets.

2012 was a turnaround year for our Company, as well as the other homebuilders, as we came off the bottom, with nationwide new home sales increasing by nearly 25% over 2011. The stronger demand and improving conditions experienced by our industry and our Company in 2012 has clearly continued, and in fact has gathered additional steam as we move into the 2013 spring selling season. Company-wide, our sales and traffic have been strong. As we previously announced earlier this quarter, our January and February sales were very good, increasing by 33% over the same two months in 2012. March was even a stronger month, as we sold over 448 homes or a 44% increase over March of 2012. And March of this year was our best sales month since March of 2005.

For the quarter, we sold 1,047 homes, 37% better than last year's first quarter and our best sales quarter since the first quarter of 2006. As a result of our strong first quarter sales, we're ahead of plan in virtually all of our markets. Conditions in the field continue to be very good. In addition to the higher quantity of traffic, the quality of traffic is also improving with buyers having both a greater sense of optimism, as well as a greater sense of urgency, no doubt, fueled by the historically low interest rates, limited inventory, both new and used, and the fact that we are also seeing rising prices in many markets and submarkets. The strength of our first quarter sales has resulted in an equally strong first quarter backlog, comprised of 1,385 homes, 48% better than a year ago, with a value of $401 million, 60% better than a year ago.

We're also pleased with our margins for the quarter. Gross margins equaled 20.1% and our SG&A expense ratio equaled 15.3%, both of these representing 200 basis point improvement over last year's first quarter. And our operating margin of 4.8% is the highest level we have achieved since 2006.

During the quarter, we successfully opened 15 new communities and ended the quarter with 135 active communities. As we have previously disclosed, we expect to open 65 to 70 new communities this year and are on track to do so. The net result of these new community openings will be an increase in our total community count at year's end of 25% more than at December 2012.

Over the past several years, our new communities have performed very well and have been an important part of our return to profitability. We are excited about our new communities this year, as we continue to focus intensely on premier locations in the better submarkets. And as we continue to strategically deploy more of our business towards our South and Mid-Atlantic regions, many of our projected new communities are located in the markets within these regions.

Our balance sheet and liquidity remain strong and we took steps during the quarter to strengthen it further and to allow for further growth opportunities for M/I Homes by issuing $86 million of subordinated convertible notes with a 3% coupon and $58 million of additional common shares for a total net proceeds of $138 million. These proceeds contributed to our cash position of $273 million at quarter end, with zero outstanding borrowings on our $140 million credit facility and enabled us to maintain a net debt to capital ratio of 38% at the end of the quarter. This despite growing our total inventories by more than $20 million during the quarter. Substantially all of the increase in inventories was in homes in backlog that are under construction.

Now, I'd like to talk a little bit more about our specific regions and the performance within those regions. I'll begin with the Midwest region, which consists of our markets in Columbus, Cincinnati, Indianapolis, and Chicago. Deliveries in the Midwest were flat for the first quarter compared with last year, while our new contracts or sales in this region were up 3% for the quarter. Out of the 627 homes that we delivered in the first quarter, the Midwest region accounted for 232 or 37% of the total. This ratio is particularly interesting, in that it has continued to decline, down from 40% of total deliveries in 2012 and down from 53% of our deliveries in 2009. This has occurred as we have expanded our geographic footprint and as I noted earlier, continued to strategically shift and deploy more of our business to our South and Mid-Atlantic regions.

Our sales backlog in the Midwest was up 14% from the end of the first quarter last year in dollar value and we increased our controlled lot position in the Midwest by nearly 1,500 lots or about one-third more than a year ago. We ended the quarter with 61 active communities in the Midwest.

Market conditions in our Midwest markets continue to vary, but all are improving. Chicago continues to be one of M/I Homes' best-performing markets. This despite generally slow macroeconomic conditions and lagging job growth within Greater Chicago. Indianapolis has picked up in both margins and sales activity and the Columbus market also continues to show improving -- to show signs of improvement. Cincinnati is a bit challenging, but we have successfully opened several new communities there and are beginning to see signs of tangible improvements in Cincinnati as well.

Next is our South region, which is represented by Tampa and Orlando, Florida, as well as Houston, San Antonio and our newest market, Austin, Texas. We saw significant improvement in our Florida markets during 2012 and that improvement has clearly continued into 2003, as we are -- 2013 rather, as we are achieving solid results in both Tampa and Orlando. We have grown our position in both of these markets have improved our positions there and have found very good opportunities for investment in new communities.

In the South region, we delivered 191 homes during the first quarter. This represents a 44% increase over last year's first quarter. New contracts or sales in the South region increased 77% in the quarter and the South region accounted for 36% of total company-wide sales, making it our largest region for sales for the second consecutive quarter, an indication, one, of our successful expansion outside the Midwest, and two, our growing and strengthening presence in Texas.

Let me make an additional note about Texas. We're very excited about our operations in Houston, San Antonio, and our newest market, Austin. We continue to make very meaningful progress in these markets and are excited about opening our first communities in Austin on time and as scheduled early in the third quarter.

The dollar value of our sales backlog in the South region at the end of the quarter was 150% higher than a year ago and we increased our controlled lot position in the South region by a very significant 4,000 lots or 171% more than a year ago. We had 39 communities in the South region at the end of the quarter, a 26% increase year-over-year.

Finally, our Mid-Atlantic region, which is represented by our markets in Washington DC, Charlotte, and Raleigh. In the Mid-Atlantic region, our sales were up 52% for the quarter, compared with 2012 and our backlog value was up 67% at quarter end from a year earlier. We delivered 204 homes in the Mid-Atlantic region for the first quarter, 45% more than last year. Our North Carolina markets, Charlotte and Raleigh, have been performing very well. Charlotte has experienced improved margins and a strong increase in sales activity. Raleigh continues to be one of M/I Homes' top markets. Washington DC, likewise, continues to be a healthy housing market, as apparently it's had very little deterioration from the sequestration and we've experienced improved sales there over the past few months.

We ended the quarter with 35 active communities in the Mid-Atlantic region. Our total controlled lots in that region at quarter's end increased by more than 10% from last year.

And with that, I'll turn things over to Phil to discuss our financial results.

Thanks, Bob. New contracts for the first quarter increased 37% to 1,047, with a net absorption rate of 2.6 sales per

community per month, versus 1.9 a year ago. Our traffic for the quarter increased 8%. Our sales were up 42% in January, while our traffic was down 8%. Sales were up 26% in February and traffic was up 2%. And our sales were up 44% in March and traffic was up 30%.

Our active communities increased 11% from 122 at the end of March last year to 135 this year. To break down by region, it's 61 in the Midwest, 39 in the South, and 35 in the Mid-Atlantic. During the quarter, we opened 15 new communities, while closing 11. Our current estimate is to end the year with about 25% higher community count than we began 2013, opening more than 65 new communities. We project that our Southern region, led by our growth in all three Texas markets, will add the most new communities in 2013.

We delivered 627 homes in 2013's first quarter, up 24% when compared to 2012's 507 deliveries. And we delivered 65% of our backlog this quarter, compared to 75% a year ago. Our average closing price for the first quarter was $284,000, up 14% from $249,000 for last year's first quarter and a 4% increase from $273,000 in 2012's fourth quarter. Revenue increased 45% in the first quarter, compared to last year, as a result of the increase in deliveries and also the average closing price increase, along with strong results from our Financial Services operations.

In the first quarter, we recorded pre-tax charges of $900,000 for impairments. These first quarter charges were for older land assets in our Midwest markets. We continue to work through these older assets. We are currently down to less than 10 older, underperforming Midwest communities. Our gross margin was 20.1% for the quarter, up 250 basis points year-over-year. Our first quarter margins benefited from our land sales and strong operating results from our Mortgage Company. We continue to deal with construction cost increases, led by lumber and drywall. Land gross profit, exclusive of the impact of impairments was $1.6 million in 2013's first quarter. We sell land as part of our land management strategy and as we see profit opportunities.

SG&A expenses decreased to 15.3% of revenue for the quarter compared to 17.9% a year ago. SG&A expense increased 24%, reflecting our volume increase, improved profitability and our plans for future growth. Revenue increased by 45% compared to a year ago.

Interest expense decreased $266,000 for the quarter compared to last year, reflecting higher capitalization due to higher land development activity and a lower weighted average borrowing rate, offset in part by higher weighted average borrowings. Interest incurred was $6.3 million for the quarter, compared to 2012's first quarter of $5.9 million. Pre-tax income from operations was $5.8 million, compared to a loss of $4.2 million a year ago.

Net income was $4.6 million versus a loss of $3.2 million a year ago. Diluted EPS was $0.11 and reflects a $2.2 million non-cash equity charge related to the redemption of 50 million of our outstanding preferred stock, which was announced in March and completed in April.

We generated $16 million of EBITDA for the quarter and covered interest 2.8 times for the trailing four quarters. We have $15 million in capitalized interest on our balance sheet, compared to $18 million a year ago. This is less than 2% of our total assets. We reported a non-cash, after-tax benefit of $1.8 million in the first quarter for a valuation allowance related to our deferred tax asset. At March 31, 2013, our gross deferred tax asset is $134 million and is fully reserved.

Given our current results and improving market conditions, we continue to review our financial projections with our auditors and believe that we will be able to reverse the majority of our deferred tax asset within the next 12 months.

With that I'll turn it over to Paul Rosen for Mortgage Company results.

Thanks, Phil. Our mortgage and title operations pre-tax income increased to $5.1million in 2013's first quarter from 2012's $2.1 million. Our first quarter results included increased income attributable to an increase in loans originated, higher average loan amounts and higher margins on the loans we sold. We also benefited from increased revenue from the servicing [tally] of our loans. The loan-to-value on our first mortgages for the first quarter was 87% in 2013, compared to 86% in 2012's first quarter. We continue to see a shift towards conventional financing. 61% of the loans closed were conventional and 39% were FHA/VA. This compares to 55% and 45% respectively for 2012 same period.

Overall, our average mortgage amount increased 15% to $244,000 in 2013's first quarter, compared to $211,000 in 2012's first quarter. The average borrower credit score on mortgages originated by M/I Financial was 734 in the first quarter of 2013, compared to 739 in 2012's fourth quarter. Our mortgage operations captured approximately 77% of our business in the first quarter, compared to 2012's 81%.

In the first quarter, we renewed our primary MIF Credit Agreement. The maximum availability was increased to $80 million with the option to add an additional $20 million and that expires March, 28, 2014. At March 31, 2013, we had $39 million outstanding under the MIF Credit Agreement and $14 million outstanding under our separate $15 million repo facility, which expires November 12, 2013.

In the normal course of business, we receive inquiries from investors concerning underwriting matters on specific mortgages they've purchased from us. We thoroughly review and respond to each inquiry. And even though we are not required to do so, we routinely engage an independent third party to review the files and information related to the origination of each mortgage. Our reserve at March 31, 2013 with respect to these matters was $2.7 million, compared to $2.3 million at December 31, 2012. M/I Financial has not repurchased any loans this year.

Now I'll turn the call back over to Phil.

Thanks, Paul. As far as the balance sheet, we continue to manage our balance sheet carefully, focusing on investing in new communities, while also managing our capital structure. Total homebuilding inventory at March 31, 2013 was $578 million, an increase of $88 million above a year ago. Our levels are higher, primarily due to higher investment in our backlog. Our unsold land investment at quarter-end is $255 million, a 2% increase compared to last year's $249 million. And compared to a year ago, raw land and land under development increased 24% and finished unsold lots decreased 13%.

At March 31, we had $130 million of raw land and land under development and $125 million of finished unsold lots. We own 2,500 unsold finished lots with an average cost of $50,000 per lot. And this $50,000 average lot cost is 17% of our $290,000 backlog average sale price. And the market breakdown of the $255 million of unsold land is $89 million in the Midwest, $84 million in the South and $82 million in the Mid-Atlantic.

Lots owned and controlled at March 31 totaled 16,400 lots, 46% of which were owned and 54% under contract. We own 7,500 lots, of which 41% are in the Midwest, 36% are in the South and 23% in the Mid-Atlantic. And our owned and controlled lots of 16,400 is an increase of 58% versus a year ago. We believe we have a very good solid land position. 37% of our owned and controlled lots are in the Midwest, 40% of our land is in the Southern region and 23% is in the Mid-Atlantic.

During 2013's first quarter, we spent $44 million on land and $16 million on land development for a total of $60 million. About 13% of our land purchases were in the Midwest, 67% was in the South and 20% in the Mid-Atlantic. And as to the type of our 2013 land purchases, about 54% were raw land deals, 20% were finished lot pickups and 26% have been bulk finished lot purchases.

Our estimate today for total 2013 land purchase and land development spending is approximately $275 million to $325 million and this includes the $60 million we spent in the first quarter. At the end of the quarter, we had $76 million invested in specs, 184 that were completed and 432 specs were under construction. This translates into about five specs per community. And of the 616 total specs, 233 are in the Midwest, 196 are in the Southern region and 187 is in the Mid-Atlantic. And at March 31, 2012, we had 499 specs with an investment of $66 million.

We've continued to focus on managing our leverage and liquidity and balancing this with our land position niche. During the quarter, we further strengthened our balance sheet by issuing $86 million of 3% convertible debt and raising $55 million of equity, while also announcing the planned redemption of 50 million of our preferred stock, and we completed that redemption in April.

Our financial condition continues to be strong with $273 million of cash at quarter end. Also at March 31, the Company had no borrowings under our $140 million credit facility.

This completes our presentation. We'll now open the call for any questions or comments.

(Operator Instructions) Alan Ratner, Zelman & Associates.

Hi, guys, good afternoon. Great quarter. Congratulations.

Thanks, Alan.

So, Bob, I know you guys are really excited about Texas and I'd love to dig in a little bit more on what you're seeing there,

because one of the things that we've admittedly been a bit surprised at is looking at some of the other public builders' results in Texas this past quarter too. And, yeah, admittedly, we're a little bit surprised, because it has been weaker than we were expecting and when you look at the demographics there, you look at the job growth, everything would suggest that the activity there should be much stronger than it has, at least looking at some of the other public results. So we'd love to hear kind of what you guys are seeing. I know you are still in the early innings of your ramp-up there, but would love to get your thoughts on the Texas market in general.

Your point about early innings is apt. First of all, we are very excited. We think that our decision in 2010 to open up in Texas was sound. If we had to do it again, we absolutely would do it. Making decision to open up in Houston in 2010, followed by an opening in San Antonio in 2011, followed by an announcement of an opening in Austin in the middle of last year, we're really just getting started. In terms of playing the percentage game, you're going to see some, I think, fairly stunning growth in terms of our operation there, because we are coming off start-ups effectively. We did two small acquisitions, one in Houston and one in San Antonio.

But we feel great about our leadership team and our people in the field. We feel -- we're very excited about our product, a little more of a move-up product and we think that we have secured positions in some very strong communities in Houston and San Antonio, as well as our first openings in Austin. And there's just -- as we look at the various kinds of operational metrics, people, product, place, as well as the macro market, we just have a lot of reasons for being optimistic. Admittedly, we are just getting started, but we've got a lot of momentum and we feel like we are operating with -- I don't want to over-sell it, but we do feel like we are operating with quite a bit of a tailwind.

Okay. That's good to hear. And if I can ask a second one, just kind of thinking about the price versus volume dynamic, your order growth this quarter is probably going to be among the highest in the industry and we've heard from several other builders that they are kind of in some cases pushing price a bit harder to actually slow absorptions, where they might be running low on lots. And I look at your absorption rate right now, 7.9% for the first quarter. You're not that far off from levels you were seeing kind of in the 2002, 2003 time period, when there was a more normal market. So where do you guys stand in that equation? Are you actively pushing pricing in an effort to slow absorptions anywhere or do you still feel like there's runway to go on the absorption front, without necessarily having to push price too hard?

You know, and there's others sitting around the table here that can chime in as well, but I can't really say that there's any community where we're raising prices to slow absorptions. We're raising prices where we think the market calls for that. I think raising prices to slow absorptions is a little bit of a slippery slope. You don't know what's going to happen tomorrow. And it's not about giving things away, it's a fine line. Every submarket within every market is different. We've had these conversations before. We're also dealing with price -- with raw material increases. That's not you don't raise prices just to deal with raw material increases, as much as you raise prices to meet the market.

The markets are improving and I can't say this about every one of our communities, but we've been able to raise prices successfully in a majority of them and I'd like to think that we'll continue to have pricing power.

If things continue to stay on their current trajectory, we'll be able to continue to see some pricing power throughout the year. But I can't honestly say that we've raised prices to slow absorptions in any community. I don't know if Phil or any others here with me want to add anything to that.

Right. I appreciate that. Thanks, Bob.

(Operator Instructions) Alex Barron, Housing Research Center.

Hey, thanks guys. And good job in the quarter.

Thank you.

I wanted to, I guess, focus a little bit on SG&A leverage, because I feel like that's an issue that's been on a lot of my clients minds. And I wanted to see if you could share your thoughts on what you guys feel this year. I feel like last year was kind of a transition year for you guys where you got passed the breakeven point. And I am wondering if we could hear some of your comments on what we should expect out of corporate SG&A versus the homebuilding SG&A?

Hey, Alex. Yes, obviously we're very focused on the cost side also. Our comment at year end was that we expected to get continued SG&A leverage, that's what we're able to do. If you look at last year, we ended the year with SG&A in the 15%,15.5% range. The first quarter was low 15%, about a 200 basis point improvement. With our backlog being as strong as it is, we continue to feel that we're going to get more leverage on that, working very hard. And in particular, and you saw the details of the release, some of our selling expenses weren't quite as high as we thought they would have been, primarily because the markets been a little bad and haven't been able -- been able to do some of the advertising and concessions and some of those things. So not making any projections publicly about it, but again, it's our plans to continue to work on the cost side and try to get more leverage.

We have added, compared to a year ago, about 15% more people. Our headcount is up, due primarily to our growth in Texas, so that's impacting that. But we were pretty pleased with our volumes and our leverage improvement in the first quarter.

Right. No, definitely there's progress there. It's just, I guess, compared to your peers your ratio still seems a little high. The average this quarter is probably closer to about 13%.

Keep in mind, Alex, that three of our 12 markets we're just getting started in.

Right. So I guess that's where the opportunity is, right?

We think there's opportunity, yes.

Okay. How about any comments you can offer on the direction of gross margins. It seems like you guys, I think, have a bit of a longer land position than other people, so you should benefit from that. But given that you've been raising prices, just kind of, what do you think is going to happen to the gross margins here, also versus people's concern about rising cost? What's going to play out, higher margins or lower margins?

Well, we don't have any guidance on where margins are headed. But based on what we know today we certainly wouldn't expect them to go down. And a lot of the improvement on margin has, over the past couple of years have been fueled by the increasing number of new communities that make up a greater and greater percentage of our closing volume and that percentage continues to rise, particularly as we open up this year, somewhere between 65 and 70 new communities that are being underwritten based on current conditions and current expectations. So, I don't know if you want to add to that.

Yeah. I don't think that -- again, we are dealing with cost increases, couple of markets had been hit a little harder than others. Like Bob says, you always try to raise prices wherever you can, based more on market conditions than anything. We did get a benefit in the first quarter from our very strong Mortgage Company results. We also got the benefit the first quarter in our margins with our land sales, which opportunistically we do see some land sales continuing.

We're trying to work hard every day increasing margins. Our average sale price in backlog actually went down about $3,000 at the end of the first quarter versus where it was at the end of last year. We think that was a little more of a mix issue. When you look at these 15 communities that opened in the first quarter, it just so happened that the mix of more of those communities, which we also have been good to have even stronger sales than we thought in those new communities opening, the majority of those 15 new communities were in the more affordable price points. So that's what kind of had our backlog dip $3,000 down. But still feel very good about the $290,000 average sale price in backlog and, again, continue to work very hard on improving our margins.

And if I could ask one last one, any update on the timing of reversing the deferred tax assets?

I think Phil commented on that that he hoped that a majority of this might be reversed within the next 12 months.

Do you just want a little more information on it or what?

I'm sorry?

Do you just want a little more information on it or what?

Well, I just got late on your call. So I was --

Yeah. It's our view based on our results and our projections and continuing to talk to our auditors that we think that the majority of that asset will be reversed in the next 12 months. I mean, really, as you probably know, the evaluation is based on the combination of past results and future projections. And right now, the evaluation is a little more heavily based on past. But as we continue to make income, we can heavily weight it a little more on future projection. So, again it's just a matter of time. But we're thinking the majority of that asset we'll get back in the next 12 months.

Got it. Great. Thanks, guys.

Thanks, Alex.

Joel Locker, FBN Security.

Hi, guys. Nice quarter, just on the SG&A front, but --

Thank you.

But basically on the -- you mentioned land sale profits of $1.6 million, did I hear that right?

Yes, you did.

And then -- so, basically if you exclude the land sales, the impairments in the financial service income is home building gross margins were 18.3%?

That sounds a little low to me. But if you take those things out, the margins would be a little south of 20%.

But I just took the $5.1 million, the $1.6 million and then added back the $900,000 for the impairment to get to, I think 18.27%. But I was just curious like, they were down a little bit sequentially and was wondering if you're just -- it feels like some markets are a lot different than others, just based on -- talking to NDR and you guys are kind of in similar markets versus out West, it's almost like a different country, and if you're seeing -- just as much pricing, cost pressure as you are with pricing and I guess the question on that is, where are you seeing the most ability to raise prices on your home?

I mean, we feel really pretty good about our margins. In the first quarter, which always tends to be our lowest number of deliveries, sometimes the mix really does impact that. We feel like that our margins are getting a little better. But again, the first quarter was little more mix than anything else. Our Mortgage Company now continues to have strong results. We do anticipate continuing to sell a little land down there and to manage our land investment and those types of things. So we feel pretty good about our margins.

Right. But in your financial service income, I mean, that was much -- that was higher than I expected. Was there anything one-time in there? Or is that just a new run rate where it's much higher? And the revenues were up, I think, $800,000 sequentially, but your profit was up $1.6 million or so?

There really wasn't anything in there to -- that's a one-time and it hit to the plus side. While we have seen really strong margins and we hoped that they continue, I think we do need to say they were really strong margins and like in every business the margins will eventually tighten.

Right. And what about the diluted share count going forward? What's a good number to model? I thought it was going to be higher than the 22.7% with the convertible included?

Yeah.

Well, yeah, we did the share issuance in March, so you only have like one third to have in your numbers. But our outstanding shares at the end of the quarter were 24,173.

Right. But what about the convertible? Are you going to factor that in also, or is that going to be fully diluted?

No. There are two different ways to do EPS and you do when it's converted and then whichever way is more diluted is what you report. And it doesn't work, because our rate on converted is so low, we don't think we're going to be applying as converted method.

So will there be any dilution from it? I guess, it would if the converted method would add another about [5.3 million or 5.4 million] shares, is there any of that 5.3 million are going to be added to diluted?

No, in the calculation according to GAAP.

Right. All right. So 24.2% is a good number for us to just a regular dilution?

Yeah, I mean we have the options and stuff that are in the money now, but...

Sure, sure. That would be great. All right, that's all I've got. Thanks.

Thank you.

Daniel Conblow, Raymond James.

Hi, guys. You answered my questions. Thanks.

Thanks, Daniel.

(Operator Instructions) Alex Barron, Housing Research Center.

Yes, thanks. I was wondering, if you had any updated thoughts on redeeming the remaining preferred equity?

Well, Alex, this is Kevin and we really have -- we don't have any plans right now either on the capital issue issuing side. With respect to the preferred and doing a further redemption, we just kind of completed the deal we did. So now if we wanted to take out more we would have taken out more. I mean we're going to continue to look at it and evaluate it. We think it has some positives to it. But on a long term basis, at some point in time, 9.75 is a higher cost than we like. So at some point we will look for a better alternative to take it out. Right now we continue to need that as a source of equity in our capital structure.

And any comments along the lines?, maybe I missed it and I apologize for that because I got late on the call. Along which markets you guys are seeing the most improvement or ability to raise prices?

No particular comments on which market, Alex, other than to say that we're seeing improving conditions in every one of our markets. Some are improving more than others and some sub markets within markets are showing greater improvement within a market. All in all, we feel very pleased with our first quarter performance, pretty much across the board, as we emphasized particularly strong performance in Florida, Tampa and Orlando, as well as the very strong momentum we are now getting in our new Texas markets, as well as Charlotte, Raleigh. Chicago has had a very strong last 12, 24 months for us as well. But across the board, I wouldn't want to malign any of them.

Okay. Yeah I was about to ask the reverse question. Any of them that still seem to be running a little slow, maybe Maryland?

No, I believe we had very good sales activity in the first quarter and it really started in the latter part of last year in DC. A lot of the predictions that this sequestration nonsense which slow things down have not proved to be something that we have experienced.

All right. Thanks.

(Operator Instructions) At this time there are no additional questions.

Thank you very much for joining us. Look forward to talking to you again in the second quarter.

Thank you. This concludes today's conference. You may now disconnect.