Post Properties Inc. (PPS)

Q2 2010 Earnings Call Transcript

August 03, 2010 10:00 am

Executives

Dave Stockert - President & CEO

Jamie Teabo - EVP, Property Management

Chris Papa - EVP & CFO

Analysts

Michael Salinsky - RBC Capital Markets

Eric Wolff - Citi

Michelle Ko - Bank of America

Andrew McCulloch - Green Street Advisors

Karin Ford - KeyBanc

Presentation

Operator

Good day, everyone and welcome to the Post Properties second quarter 2010 earnings conference call. This call is being recorded. Today's question-and-answer session will be conducted electronically. (Operator Instructions)

At this time, I will turn the call over to Post Properties President and Chief Executive Officer, Mr. Dave Stockert for opening remarks and introductions. Please go ahead, sir.

Dave Stockert

Thank you very much and good morning. This is Dave Stockert, with me are Chris Papa, our CFO; and Jamie Teabo, Head of Property Management. Welcome to Post Properties second quarter conference call. Statements made on this call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. A number of factors could cause actual results to differ materially from those anticipated, including those discussed in the risk factors section of our 2009 annual report on Form 10-K.

Forward-looking statements are made based on current expectations, assumptions and beliefs as well as information available to us at this time. Post Properties undertakes no obligation to update any information discussed on this conference call. During this call we will discuss certain non-GAAP financial measures. Reconciliations to comparable GAAP financial measures can be found in our earnings release and supplemental financial data.

I'll now begin the business of this call. The company produced better-than-expected operating results in the second quarter, with FFO before impairment charges of $0.37 per share. Earlier this year, we laid out ways we intended to drive earnings in cash flow and that effort is paying off. We're taking advantage of improving conditions to push rents and occupancy.

We're stabilizing our properties and lease up in order to optimize their contribution to cash flow and are moving non-earning land assets into production or sale and mitigating the risks going forward of the condominium business , all while maintaining a strong and liquid balance sheet.

Based on performance to-date and expectations for the rest of the year, we raised earnings guidance for 2010 in a meaningful way.

Turning to same-store results, we produced 1% sequential increase in revenues in the second quarter and a 3% sequential increase in net operating income. Both, average rents and occupancy were up sequentially for the three months ended June 30. The positive sequential revenue trend continued in July.

Rents on both new and renewed leases are increasing on average compared to the in place rent roll and at 95.2% in the second quarter, average economic occupancy is as high as it has been in nearly two years. The outlook for supply and a demand in our markets remained favorable. In addition to driving revenue, we've also held the line on expenses, with particular success renewing insurance coverage and appealing property taxes.

The core portfolio which is the most important contributor to earnings and cash flow is positioned well. Building on the improving outlook for our business, we announced the development of Phase 2 of Post Carlyle Square. This project is a companion to a successful Phase I. It is located the in the submarket of Alexandria, Virginia that has been more resilient through the latest economic cycle.

Because of the strong rents at Phase I and favorable construction pricing, we expect to produce an attractive return even using underwriting that does not depend on future rent increases. This development will be a high quality addition to post Washington, D.C. footprint delivering apartment units beginning in 2012. We expect to fund the development at least initially through line borrowings and from the proceeds of condominium sales.

As conditions for multi-family strengthens across our markets, we are assessing each existing land position for future development, none though would start before 2011. Two parts of land are currently under contract to sell with closings that may occur later this year.

In our condominium business, we've so far closed 23 units at the Austin Project and recorded the impairment charge discussed in past calls in our SEC filings. The company's basis in condominiums represents less than 5% of gross asset value.

Negotiations continue on specific proposals to resolve the construction loan of the Buckhead condominium project. In the meantime, we're completing construction, furnishing the amenity spac es and opening an onsite sales office. We have a number of reservations with prospective buyers.

Finally, we're wrapping up the work on the exterior remediation program within the original budget. The company's line of credit capacity continues to be sufficient and coverage ratios are improving modestly. We've issued very little stock under the at the market equity program , mindful of the share price, cost to capital and use of proceeds.

We are comfortable with the condition of the balance sheet and with our ability to refinance debt as it matures and to fund committed investments. As we look over the remainder of this year and into next, we are optimistic about the state of our business.

That concludes our prepared remarks. Operator, please open the phones lines for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Michael Salinsky with RBC Capital Markets.

Michael Salinsky - RBC Capital Markets

Good morning, guys. Dave, I don't know if I caught this in the prepared remarks, but did you give the rates for new leases as well as renewals during the quarter. And also just if you could give us a sense of how this trended in July?

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