Highlights for the First Quarter 2012
• Multifamily same-property NOI increased 8.3 percent compared with first quarter 2011
• Multifamily same-property revenue increased 6.0 percent compared with first quarter 2011
• Ended the quarter with multifamily same-property physical occupancy of 96.0 percent
• Acquired the 350-unit Colonial Grand at Brier Falls in Raleigh, North Carolina, for $45.0 million
• Commenced development of Colonial Reserve at South End, a 353-unit apartment community located in Charlotte, North Carolina
• Entered into a new $500 million unsecured revolving credit facility; and
• Standard & Poor’s upgraded the company’s senior unsecured notes rating to BBB-
And CLP hits it out of the park too, with a 20% increase in Funds from Operations, from this time last year. This multifamily rental business, just like AEC (which I touched upon earlier this week) has been graced by the wonders of high occupancy, rising rental rates, and cheap property to pursue growth by.
And so naturally, the stock is off more than 2%, with idiotic algorithms and fund managers who don’t understand how REITs function selling the name, because of the $0.07 loss taken on the shares.
I don’t care about the loss. I encourage the loss. When the company is taking a loss, they aren’t paying taxes. When they aren’t paying taxes, I’M NOT PAYING TAXES. Meanwhile, the pool of money allocated for dispersion to unit holders, sometimes referred to as “that stuff I get paid with” swells enormously. It’s huge growth, and it’s uninterrupted and tax free, from corporate accounts to me.
Just like AEC, they are pursuing a strategy of growing their revenues through a combination of expansion into younger properties and strategic sales of assets to make their network of properties more closely knit (and subsequently more efficient with management/maintenance staffing).
In the words of CEO Thomas Lowder:
“Rental rates have been increasing, turnover has remained steady and occupancies have remained high. We are excited about heading into the spring leasing season with this level of operating momentum, and as a result have increased our same-property NOI growth assumptions included in our 2012 guidance. At this point in the cycle, we remain focused on unlocking the value of our land through developing and simplifying the business through selective commercial dispositions.”
Here are the company’s goals for 2012, as laid out in their earnings release:
• Multifamily same-property net operating income: growth of 6.00 to 8.00 percent.
o Revenue: Increase of 4.75 to 5.75 percent
o Expense: Increase of 2.50 to 3.50 percent
• Development spending of $125 million to $150 million.
• Acquisitions of $100 million to $150 million.
• Dispositions of $100 million to $150 million.
• Land and for-sale residential property dispositions of $5 million to $10 million.
• Corporate G&A expenses of $23 million to $24 million.
The company is worth about $12 a share right now, meaning it’s trading at less than 2X that. And there is absolutely no way people are adequately reflecting the true earnings potential of these REITs into their considerations right now. I’m pretty sure you can’t trade at a multiple of a loss.
Plus, if CLP manages to follow through on their earnings goals above (and I firmly believe they will), then they may very well have to start expanding into new properties outright without accompanying disposition of assets, just to keep from posting an earnings gain…
One day, after these companies have had their fun, and fueled their aggressive growth with tax free revenue and dirt cheap loans, they will simply allow their depreciation schedules to expire without adding more properties. When that happens, the earnings surprises that will hit the market will absolutely floor small minded fund managers, who will then pay great sums to have “those smart REIT investments” in their catalog of 1% allocations.
To date, I’m up about 13% in AEC and 30% in CLP, and I’m more than happy to keep holding.
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