Associated Estates Realty CEO Discusses Q3 2010 Results - Earnings Call Transcript

Associated Estates Realty CEO Discusses Q3 2010 Results - Earnings Call Transcript
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Associated Estates Realty, Inc. (



Q3 2010 Earnings Call

October 26, 2010, 2:00 pm ET


Jeremy Goldberg - Senior Director of Corporate Finance & IR

Jeff Friedman - Chairman, President and CEO

Lou Fatica - VP, CFO and Treasurer

John Shannon - SVP, Operations

Patrick Duffy - VP of Strategic Marketing


David Toti - FBR Capital Markets

Bill Acheson - Benchmark

Eric Wolfe - Citigroup

Paula Poskon - Robert W. Baird

Andrew McCulloch - Green Street Advisors

Tayo Okusanya - Jefferies & Company

Andrew DiZio - Janney Capital Markets

Buck Horne - Raymond James and Associates



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Good afternoon and welcome to the Associated Estates Third Quarter 2010 earnings conference call. My name is Tina and I will be the operator for your call today. At this time, all participants are in listen-only mode. Following prepared remarks by the company we will conduct a question-and-answer session, and instructions for asking questions will follow at that time.

Now, I would like to turn the call over to Jeremy Goldberg, Senior Director of Corporate Finance and Investor Relations, for opening remarks and introductions. Please go ahead.

Jeremy Goldberg

Thank you, Tina. Good afternoon everyone and thank you for joining the Associated Estates third quarter 2010 conference call.

I'd like to remind everyone that our call today is being webcast and will be archived on the Associated Estates website through November 8



Prepared remarks will be presented by Jeff Friedman, our President and Chief Executive Officer, Lou Fatica, our Chief Financial Officer, and John Shannon, our Senior Vice President of Operations. Additionally, Patrick Duffy, our Vice President of Strategic Marketing, Jason Friedman, Vice President of Construction and Development and I will also be available for the Q&A.

Before we begin our prepared comments, we would like to note that certain statements made during this call will be forward-looking statements that are based on the current expectations and beliefs of management. These forward-looking statements are subject to certain risks and trends that could cause actual results to differ materially from projection.

Further information about these risks and trends can be found in our filings with the SEC and we encourage everyone to review them. As a reminder, Associated Estates' third quarter earnings release and the supplemental financial booklet are available on the Investor Relations section of our website at and they include reconciliations to non-GAAP financial measures, which maybe discussed on this call.

At this time, I will turn the call over to Jeff Friedman.

Jeff Friedman

Thank you, Jeremy. Thanks to everyone for your interest in Associated Estates. Today, in addition to providing the details relating to our third quarter, we'll share some perspective on market conditions our expectations for the balance of the year, and some long-term priorities.

I grew up in a small southern town on Saturdays and during the summers; I would ride downtown with my dad. Most mornings his dad, my grandfather would take me to breakfast across the street, and we'd sit at the counter at the back of the drugstore afterwards and before I took a bus to work we would walk back to my dad and grandfather store. On our way people would talk to my grandfather, they would always ask him how the business (Inaudible), and he would answer back, business is tough but we'll be okay.

One day I asked my grandfather, how tough things were? He paused for a second because he wasn't sure why I was asking, I told him, I heard him tell people the business was tough, and I wanted to know what he meant. He told me business was fine. But that the reason he said the business was tough was that no one wanted to hear that his business was good. I think of that story every day. And when people ask me how the business? I want to say business is really good.

But I think of my grandfather and I say business is tough but we are going to be okay. The fundamentals of the apartment business continue to be strong, demographics, trends relating to the size and make up of households and the financial flexibility that comes with renting versus owning, are all positive factors driving demand.

The remaining driver will be when we start to add jobs. And that's when we'll begin to see rents approaching the peak of the past. As most of you know, we have been back to the equity market with follow on offerings three times this year. We've used the proceeds to pay down debt, pay-off high coupon perpetual preferred and to buy properties in strong markets at prices below replacement costs.

As we talk to investors over the last few years, we repeatedly heard that as a small cap company, even if they liked our story, it was hard to invest in our name, hard to accumulate a position. As a result of our sector leading performance, clearly communicating our objectives and our recent stock offerings, our list of shareholders now includes most of the dedicated REIT investors, names focused on long-term and consistent performance and our average daily trading volume is three times what it was at the end of the fourth quarter of 2009.

These offerings and how we use the proceeds combined with our performance have gone a long way towards working our way back to investment grade readings and as a result of the increase market cap, we expect to be added to the MSCI REIT Index soon.

Our business is tough. But we remained focused and we positioned the company to take advantage of what we believe to be a disconnect between the current apartment pricing and the expectations for future apartment performance. We have a team of highly trained professionals that have successfully navigated through the most difficult times together and in spite of the market we had continued to put up the best numbers. Cap rates are low, but so are long-term bond. We all expect inflation to reappear but we don't know when.

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