Associated Estates Realty Corporation Q1 2010 Earnings Call Transcript

Associated Estates Realty Corporation Q1 2010 Earnings Call Transcript
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Associated Estates Realty Corporation (AEC)

Q1 2010 Earnings Call

April 27, 2010 2:00 pm ET

Executives

Jeff Friedman - President & CEO

Lou Fatica - CFO

John Shannon - SVP of Operations

Patrick Duffy - VP of Strategic Marketing

Jeremy Goldberg - Senior Director of Corporate Finance and Investor Relations

Analysts

Paula Poskon - Robert W. Baird

William Acheson - Benchmark

Andrew DiZio - Janney Montgomery Scott

Buck Horne - Raymond James

Haendel St.Juste - KBW

Presentation

Operator

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

Now, I’d 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, Andrea. Good afternoon everyone and thank you for joining the Associated Estates first 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 May ‘11.

On the call today, prepared remarks will 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, Swarup Katuri and I are 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 risk and trends could be found in our filings with SEC and we encourage everyone to review them. As a reminder Associated Estates first quarter earnings release and the supplemental financial booklet are available on the Investor Relations section of our website at www.associatedestates.com and they include reconciliation 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 and thanks to everyone for your continued interest in Associated Estates. Let me take a few minutes to explain how we prepare for this call. Although this quarterly calls typically last 30 to 45 minutes. We spend the lot of time making sure what we’ve say is pertinent, succinct, and helps the listeners and participants be in a better understanding of our business.

By the time we get the actual quarter end numbers there are really no surprises for us because we've known how we’re doing throughout the quarter. From the last few years our guidance and expectations for our portfolio have been the most aggressive of practically all of the other apartment REITs.

This year our same community NOI guidance for the year of negative 3.3% was the second best. I must admit there is the point each quarter for me when we see the proof when we had the actual numbers, where I can savor feeling of knowing that we once again net our aggressive goals and this quarter it was no different.

Our first quarter results are right inline with our budget and our 2010 guidance. Might also add now that we had visibility into the second quarter, that our leasing activity for the first five months of the year is also consistent with our budget. This strong performance is the result of a well position portfolio improving market conditions and a very dedicated and well prepared team of professionals running our properties and supporting our business.

Everyone in the apartment business expected 2010 to be a transitional year, with proving fundamentals relating to household formation, propensity the rent and relativity few new units coming online. One can't call it a sea change or an inflection point until we look in the rear view mirror. Based on what we see, the Associated Estates portfolio has clearly hit an inflection point.

John will provide more detail on a number of the metrics supporting my attestation, but let me just mention one. We carefully monitor the differential between renewal leases and new leases. For us, this reached an unprecedented high of 950 basis points in December of 2009.

During the first quarter we increased rents on renewals by 1.6% and new leases were down 5.2% from expiring leases for a difference of 680 basis points. A 2.7% improvement from December, this differential has remained steady for April and based on what we are assume for May the trend continues to be positive. The pricing power will return when the US economy begins to add jobs.

Our guidance for the year has remained the same. You will not we have once again included no acquisition or dispositions in our guidance. We haven’t acquired property in two years. First was because we weren't willing to overpay. Then they were no deals that met our criteria coming to market. This is year we want share what to expect. However we are beginning to see and here about more deals being available.

This increase in deal flow is probably the biggest positive surprise we’ve seen so far this year. Many of these deals will sell it prices significantly below the highs and below current replacement cost. So although we haven’t revised our acquisition guidance, because of uncertainties relating to timing and pricing. We are fairly confident we will make some good buys in 2010. Our policy is not to discuss our specific acquisitions or dispositions until we close.

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