Sales to Condo Converters Boost Gables' Q1 Income

Sales to condo converters were particularly robust and profitable. For example, Gables made a 75% return on investment from the sale of a Tampa multifamily property. While condo converters' interest in acquiring residential rental properties at premium prices boosted income, "on the flip side, it makes acquisition very challenging," said David Fitch, CEO, during a conference call.

During first quarter the company also gained $5.8 million from the sale of its investment in Rent.com to eBay, which acquired Rent.com, and $5.1 million in proceeds from an insurance settlement associated with previous water-infiltration issues at its Gables State Thomas Ravello community in Dallas. That gain was offset by $1.8 million of estimated costs associated with a preliminary agreement to settle a class action suit leveled in Florida. The suit, of which Gables has been named a party, alleges that fees charged when residents terminate their leases prior to the end of the term or terminate without sufficient notice are not in compliance with state law.

The preliminary agreement to settle is subject to court approval once it is finalized between the parties and published to the class. The $1.8 million represents an estimate of $1.2 million in plaintiffs' attorneys' fees and other costs of the settlement and an estimate of $600,000 for the amount of contested fees Gables expects to be substantiated by eligible class members who elect to make a claim, payable if and when proven according to procedures included in the settlement. The proposed settlement caps Gables' liability for contested fees at $3 million, according to a Gables statement. Of the financial charge on the first-quarter balance sheet, Fitch said, "I'll not be able to comment beyond what's in the press release for obvious reasons." For more on the granting of class certification for the plaintiffs' charges, click here.

Gables has "essentially completed" its strategy to reposition assets in "established premium neighborhoods," which called for the disposition of lesser quality assets and concentration on high quality product in eight key markets. It has $800 million in the acquisition and development pipeline and the majority of that is focused on growing its foundation in Washington, DC and San Diego. "We intend to grow the company to between $3.5 billion and $4 billion by 2009," Fitch said. The company also anticipates overall revenue growth of between 2% and 2.5% this year.