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Associated Estates Realty Corporation (AEC)

Q2 2012 Earnings Call

July 25, 2012 2:00 PM ET


Jeremy Goldberg – VP, Corporate Finance and IR

Jeff Friedman – Chairman, President and CEO

Lou Fatica – VP, CFO and Chief Accounting Officer

John Shannon – SVP, Operations

John Hinkle – VP, Acquisitions


Jana Galan – Bank of America/Merrill Lynch

David Toti – Cantor Fitzgerald

Eric Wolfe – Citi

Alex Goldfarb – Sandler O’Neill

Jeff Donnelly – Wells Fargo

Dan Donlan – Janney Capital Markets

Wilkes Graham – Compass Point

Paula Poskon – Robert W Baird



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Good afternoon, and welcome to the Associated Estates Second Quarter 2012 Earnings Conference Call. My name is Amy, 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. Please note this event is being recorded.

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

Jeremy Goldberg

Thank you, Amy. Good afternoon, everyone, and thank you for joining the Associated Estates’ second quarter 2012 conference call. I’d like to remind everyone that our call today is being webcast and will be archived on the Associated Estates’ website for 90 days.

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, other members of our management team are available for the Q&A.

Before we begin our prepared comments, we would like to note that certain statements made during this call, including answers we give in response to your questions, 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 projections. 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’ second quarter earnings release and supplemental are available in the Investor Relations section of our website, and they include reconciliations to non-GAAP financial measures, which may be discussed on this call.

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

Jeff Friedman

Thank you, Jeremy. We appreciate everyone taking the time to participate on our call. If in the long run the stock market is a weighing machine, why then do we continue to trade at such a discount? Is it because 40% of our NOI comes from the Midwest? Is it because we are a small cap company?

It can’t be, because we haven’t executed on our strategic objectives, we have, year in and year out. It can’t be because we haven’t been clear about how we plan to execute, we have, as demonstrated by our 2010 acquisitions, our 2010 equity raises, the limited use of our ATM and by allowing our internal growth from our 2010 and 2011 acquisitions to prove that we once again delivered on what we said we would do.

A long-term property level performance has led most of the publicly traded apartment REITs. Since 1998 when we decided to expand outside of the Midwest, we have repeatedly demonstrated our ability to recognize when to buy and when to sell. Our portfolio today is among the youngest of all of the apartment REITs. Our properties outside of the Midwest are in many of the strongest and fastest growing submarkets in the country. Our Midwest properties continue to produce strong results. Still, our stock trades at a discount.

We’ve repeatedly explained that we will not lever back up and that we need to raise $0.50 of equity for every dollar we spend. We said on our earnings calls in February and April that the midpoint of our acquisition guidance of $75 million could be accomplished while staying in our targeted debt-to-book value range of 48% to 52%, without needing to issue any additional equity.

In a very short period of time, we were able to tie up both marketed and off-market deals that we expect will generate strong returns for many years to come. These properties were under managed and we bought them below replacement cost. We are at a point in the cycle at these properties where we expect strong operating performance for quite some time.

Our re-entry into Raleigh-Durham is consistent with our objectives on all fronts. So why does our stock continue to trade at such a discount? We have delivered sector-leading results over multiple cycles. We have been clear about our strategy. In our case, the market has not been efficient and there is a major disconnect between our stock price, our multiple and the value per share.

Our job is to narrow that gap. We are confident that our continued execution will do just that. We are focused on the long term and every decision we make, every step we take is with that in mind. We have a strong experienced management team committed and focused on creating long-term value and sustainable and predictable earnings. We can’t be swayed by opinions about where we should buy or build and where we shouldn’t.

Would we have wanted our stock price to be higher when we did the follow-on last month? Absolutely. We expect our acquisitions to more than make up for the FFO and NAV dilution associated with our recent follow-on.

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