Q2 2004 Summit Properties, Inc. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good day, everyone, and welcome to the Summit Properties second quarter 2004 earnings release conference call. Today's call is being recorded. At this time, I'd like to turn the call over to the President and Chief Executive Officer, Mr. Steve LeBlanc. Please go ahead.

STEVEN LEBLANC, PRESIDENT, CEO, DIRECTOR, SUMMIT PROPERTIES INC.: Thanks, Steve, and welcome everyone. Good morning and welcome to our 2004 second quarter earnings conference call. We had a blowout second quarter. But, first, let me let you know that we're going to make some forward-looking statements and opinions. These are based on our beliefs. Some will be right and some will be wrong. Results may not be what we expect. Please form your own opinions. This call is being web cast on web page www.summitproperties.com. We've organized this call as follows:

I'm going to give a very, very short two-minute presentation that will allow us to quickly open it up for Michael Schwarz, our COO, Gregg Adzema, our CFO, and me to field your questions. We think that's the best use of all of our time. As we said last quarter, we truly believe the national economy has turned the corner, and we believe our five markets are absolutely leading the recovery. They've created over 166,000 jobs, and we know our communities are outperforming in our markets. Let me highlight just a few of the numbers. Same story NOI was up 3.2% year-over-year and 4.8% sequentially. In its increase in every one of our five markets, other property revenue is up 14% year-over-year and 10% sequentially. Acquisition yields are 20% above pro forma led by Land's Down [ph] at over 7%. Disposition prices are 21% above expectations at the beginning this of year.

This is led by both increasing NOI and lower cap rates than we originally expected. Those cap rates should average in the low 5% range and those sales will deliver a 15% [inaudible] RR [ph]. We are very excited about 2005 when, by the year end, 65% of our NOI will come out of D.C. and southeast Florida, two of the best apartment markets in country. These blowout results and our [inaudible] concensus by $0.2 a share and our 5% FFO increase for the year has led us to substantially increase our guidance for every metric of performance. The trend is our friend. Now is the time that our class A communities and our five markets will outperform, and we expect to continue this outperformance well into the future. Now, let me turn the call over to you so we can field your questions. Steve.

OPERATOR: Thank you. Today's question and answer will be conducted electronically. To ask a question, press the star key followed by digit 1 on your touch-tone phone. Please make your sure your mute function is turned off so your question will register in the queue. Again, that's star 1 if you'd like to ask a question. We'll go first to Rob Stevenson of Morgan Stanley.

ROB STEVENSON, ANALYST, MORGAN STANLEY: Good morning, guys.

STEVEN LEBLANC: Good morning, Rob.

ROB STEVENSON: Mike, can you talk about where you guys see the expense pattern trending here? I mean, you cut basically your gross assumptions on the expense side from 3% to 4% previously to 1% to 2% now. What's behind that and how sustainable is that going forward?

MICHAEL SCHWARZ, COO, EXECUTIVE VICE PRESIDENT, SUMMIT PROPERTIES INC.: Thanks, Rob. Good morning. Several things behind expenses. First, we are -- we are now fully implemented on our purchase-to-pay system, and it is extracting a bunch of efficiencies across a number of line items on our operating statement. That's sustainable. That's a payoff -- we've invested about $3 million in that system. We look to save $1 million in its first year, with more efficient buying, centralized buying, and better pricing power. We just renewed our property and casualty insurance effective May 1st. Great renewal. Gregg can talk about that a little bit later on, but great renewal, and that's what led to some of the sequential declines from the first to the second quarter. And, then, property tax assessments are coming in better than expected, Rob. So, the big drivers cutting operating expenses from 3% to 4% to the 1% to 2% are, I believe, sustainable property tax savings and sustainable property and casualty savings, along with these efficiencies I talked about on the purchase-to-pay system.

ROB STEVENSON: Do you think that there's -- the municipalities and all are not going to really go after you guys hard on the property tax side, considering the rebound in operating fundamentals and the record prices at which you're selling assets for?

MICHAEL SCHWARZ: They've been behind, Rob; and, so, they were overvaluing these properties in the past several years. Our operations are going to catch up, and I don't believe, right now, we went into the year thinking property taxes were going to be up 4%. I think that that's cut now to probably 2-1/2% to 3%.

ROB STEVENSON: Okay. And, then, could you talk about where concessions, turnover, bad debt expense were during the quarter, where they're sort of trending these days?

MICHAEL SCHWARZ: A lot of questions. Let me start with -- let me start with writeoffs or bad debt expense. Bad debt expense, as we talked about last quarter, trending very well. Last quarter, dropped from 0.6% in the fourth quarter to 0.4% in the first quarter. It's down again in this quarter to 0.3% of revenues. A great trend there. Concessions. I'd rather talk about concessions. We've gone to net effective pricing. So, net effective pricing is up. We have pricing power in every one of our markets. That's one of the most encouraging things about this quarter -- was we've had broad-based revenue gains. Every single market shows sequential increases, and for the first time in 10 quarters, we've got average rent per occupied home up sequentially, so we're very encouraged on that front. Other income, another leading indicator up 14% year-over-year and 10% sequentially. So, just a very broad-based recovery.

ROB STEVENSON: Okay. And what about the unit turnover?

MICHAEL SCHWARZ: Turnover is down year-over-year 3%. Up sequentially from 46% to 61%, but year-over-year second quarter of last year is 65%, 62% this quarter.

ROB STEVENSON: 65% last year, 62% this quarter?

MICHAEL SCHWARZ: That's right.

ROB …