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Colonial Properties Trust (CLP)

Q3 2012 Earnings Call

October 25, 2012 2:30 pm ET

Executives

Jerry Brewer - Executive Vice President, Finance

Thomas Lowder - Chairman of the Board and Chief Executive Officer

Reynolds Thompson - President and Chief Financial Officer

Paul Earle - Chief Operating Officer

Analysts

Jana Galan - Bank of America Merrill Lynch

Eric Wolfe - Citigroup

Rich Anderson - BMO Capital Markets

Andrew McCulloch - Green Street Advisors

Andrew Schaffer - Sandler O'Neill

Presentation

Operator

Welcome to the third quarter 2012 conference call. (Operator Instructions) I would now like to turn the conference over to Jerry Brewer, Executive Vice President of Finance with Colonial Properties Trust.

Jerry Brewer

Welcome to, everyone joining us today. We released our earnings this morning via Business Wire. A copy of this release maybe 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 third quarter and our 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.

Thomas Lowder

Thank you, Jerry, and welcome to everyone joining us. The consistent message you've heard from us this year on our 2012 initiatives is to grow the company, achieve our investment grade rating and improving the portfolio. We made progress on each of these initiatives since we spoke to you to last.

We grew our core business by increasing our same-property net operating income by 8.3% as compared to last year. And we completed the development of Colonial Grand at Hampton Preserve in Tampa with a very successful lease-up ahead of our plan.

Our core growth was driven by continuing to increase new and renewal lease rates, improving our physical occupancy to 96.7% and controlling the expense. Our development pipeline continues to position us for additional growth with six multifamily developments now under construction, representing over 1,500 units in a total investment of approximately $200 million.

As the multifamily side of our business is growing, we also made further progress on reducing our commercial assets and achieving our target of having at lease 90% of our income derived from multifamily. At the end of this quarter, we had 86% of our net operating income coming from our multifamily assets.

As announced in our press release this morning, we sold another commercial asset Colonial Promenade Alabaster for $37 million. We have a number of other commercial transactions in various stages of due diligence that would get us to our 90% goal as we head into 2013. Reynolds will update you on these transactions in just a minute.

While our activity and accomplishments this quarter highlighted the benefit of executing well on these objectives by growing and improving the portfolio, we were particularly pleased to achieve our objective of an investment grade rate. In September, Moody's Investor Services upgraded our rating to Baa3 with a stable outlook. Together with the S&P upgrade in March, both rating agencies have recognized progress we've made on our balance sheet as well as in simplifying that platform.

I can assure you, that there is no intent on resting on our laurels, now that we've returned to investment grade. We will continue to improve our ratios as we execute our growth initiatives through the development pipeline, fund acquisitions with dispositions, and further simplify and improve the platform.

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

Reynolds Thompson

Thank you, Tom. FFO for the third quarter was $0.31 per share, up from $0.28 per share a year ago. Our third quarter same-property net operating income increased 8.3% and revenue increased 5.6% versus the prior year. Multifamily same-property fiscal occupancy was 96.7% at the end of the quarter and financial occupancy was 95.7% for the quarter. New lease rates were up 3.1% and renewal rates were up 5.9% in the third quarter for a blended growth rate of 4.4%.

Average revenues for occupied unit reached $942 during the quarter, up 1.5% sequentially and 5.6% from the third quarter of 2011. Revenue for occupied unit is above our prior peak in all of our markets except for Phoenix, which is approximately 2% below the prior peak. Rents as a percent income was 15.9% for the quarter.

Resident turnover was 62%, 340 basis points above the prior year. While this is an increase, the comparison is to a historically low number. The increase in turnover is primarily driven by price increases. Move-outs due to home rentals remain low at 4.9%.

During the quarter, we completed development of the 486 unit Colonial Grand at Hampton Preserve in Tampa. This development was completed below budget and had a very strong lease-up. The property was stabilized as of quarter end with 93.8% occupancy approximately one year ahead of our plan. We have six developments under construction, representing over 1,500 units in Austin, Orlando and Charlotte. The total cost is over $200 million, three projects are currently in lease-up and all six are on budget.

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