Colonial Properties Trust's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Colonial Properties Trust (CLP)

Q2 2012 Earnings Call

July 26, 2012 2:00 PM ET

Executives

Jerry Brewer – IR

Tom Lowder – Chairman and CEO

Reynolds Thompson – President and CFO

Analysts

Jana Galan – Bank of America/Merrill Lynch

Derek Bower – UBS

Rich Anderson – BMO Capital

Eric Wolfe – Citi

Andy McCulloch – Green Street Advisors

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Colonial Properties Trust Second Quarter 2012 Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded Thursday, July 26, 2012.

I would now like to turn the conference over to Jerry Brewer, Executive Vice President-Finance with Colonial Properties Trust. Please go ahead, sir.

Jerry Brewer

Thank you, and welcome to everyone joining us today. We released our earnings this morning via Business Wire. A copy of this earnings release may be found on our website.

Let me remind you that much of the information we discuss on this call, including answers we give in response to your questions, may include forward-looking statements regarding our beliefs and current expectations with respect to various matters. These estimates are based on a number of assumptions, any of which, unrealized, could adversely affect their accuracy. Please see our latest SEC filings for the detail of explanation of risk. Any non-GAAP financial measures we discuss are reconciled to the closest GAAP measures in filings that can be found on our website.

Tom Lowder, our Chairman and Chief Executive Officer, and Reynolds Thompson, President and Chief Financial Officer, will lead today’s call. On the call, they will discuss our business developments, financial results for the second quarter, and our updated guidance for 2012. After their comments, we’ll open up the call to take your questions. Paul Earle, our Chief Operating Officer, is also here to field questions.

I’ll now turn the call over to Tom.

Tom Lowder

Thank you, Jerry, and again welcome to everyone joining us. Higher quality Sunbelt multi-family portfolio coupled with solid fundamentals resulted in another quarter of strong operating results. As I’ve discussed on our quarterly calls this year, 2012 initiatives are to grow the company, achieve investment grade rating and improved our portfolio.

During the quarter, we were able to execute on all of these objectives. We grew our core business by increasing our same-property net operating income by 7.3% as compared to last year. We acquired one asset in Dallas for $29.8 million and began two new developments, one in South Orlando in the Lake Nona sub-market and the second phase at Colonial Grand at Ayrsley in Charlotte, North Carolina. We now have seven multifamily developments under construction, representing over 2, 000 units and of total investments of approximately $250 million.

As I mentioned on our last call, S&P upgraded our unsecured debt rating to BBB- and we are scheduled to meet with Moody’s next month. Our improving operations, coupled with the progress on our balance sheet, yielded a debt-to-EBTIDA ratio of 7.8 times and a fixed charge ratio of 2.3 times for the second quarter. Our leverage was 45.2% as of June 30. We’ve been able to achieve all of these balance sheet ratios while we are in the midst of the development pipeline I’ve previously discussed. This pipeline will begin delivering income for us in 2013, which will further improve our ratios.

All of these improved balance sheet ratios in the more simplified business will help us in our discussions with the rating agencies and hopefully allow us to regain our investment grade rating with both Moody’s and Fitch in the near term. As we announced earlier this month, we had exited the 18 assets DRA/CLP Office joint venture. This was our largest remaining joint venture and was the significant step in simplifying our business in shifting our assets to multi-family. This joint venture was highly leveraged and we were able to renew $111 million of secured financing that was scheduled to mature in 2014. We planned to transition management of these properties to a third-party over the next 60 to 90 days, which will allow us the opportunity to further simplify our internal structure. Following this transaction, multifamily assets now represent approximately 86% of our net operating income bringing us closer to our target mix of 90% multifamily and 10% commercial. We have additional commercial assets being marketed for sale that I will discuss at the end of the call.

Now Reynolds will provide more details on our operating performance and other activities during the quarter. Reynolds?

Reynolds Thompson

Thanks Tom. FFO for the second quarter was $0.32 per share consistent with the year ago and up from $0.30 per share in the first quarter. Our second quarter same property net operating income increased 7.3% and revenue increased 4.9% versus the prior year. Multifamily same-property physical occupancy was 96% at the end of the quarter. New lease rates were up 3.9% and renewal rates were up 6.6% in the second quarter for a blended growth rate of 5.1%. July new lease rates are up 3.3% today. Renewal letters are going out at 6.5% consistent with the second quarter. Average revenue per occupied unit reached $928 during the second quarter of 1.9% sequentially and up 5.8% from the second quarter of 2011. Revenue per occupied unit is above our prior peak in all of our markets except for Phoenix, which is less than 1% below the prior peak. Rents as a percent of income were 15.9% for the quarter, 400 basis points below our prior peak of approximately 20% in 2008.

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