Good morning, ladies and gentlemen. Welcome to the MAA Third Quarter 2019 Earnings Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, the Companies Will Conduct a Question and Answer Session. As a reminder, this conference is being recorded today, October 31, 2019.
I will now turn the conference over to Tim Argo, Senior Vice President, Finance for MAA.
Please go ahead.
Conference. Good morning, everyone. This is Tim Argo, Senior Vice President of Finance for MAA. With me are Eric Bolton, our CEO Al Campbell, our CFO Rob Del Priore, our General Counsel Tom Grimes, our COO and Brad Hill, EVP and Head of Transactions. Quarter.
Before we begin with our prepared comments this morning, I want to point out that as part of the discussion, company management will be making forward looking statements. Quarter. Actual results may differ materially from our projections. We encourage you to refer to the forward looking statements section in yesterday's earnings release and our 34 Act filings with the SEC, which describe risk factors that may impact future results. Quarter.
These reports, along with a copy of today's prepared comments and an audio copy of this morning's call will be available on our website. Call. During this call, we will also discuss certain non GAAP financial measures. A presentation of the most directly comparable GAAP financial measures and supplemental financial data, which are available on the For Investors page of our website at www.mac.com. I'll now turn the call over to Eric.
Quarter. Thanks, Tim, and appreciate everyone participating in our call this morning. Performance during the important Q3 leasing season was strong quarter. With continued solid momentum in rent growth and high occupancy, reflecting strong demand across our Sunbelt markets quarter. We believe at this point in the cycle, our best strategy remains a focus on pushing rent growth.
Quarter. We're happy with the performance on rent trends and are encouraged with the momentum that will carry into next calendar year. Quarter. While we're currently in the process of compiling a detailed outlook surrounding the new supply pipeline in 2020 and the impact at each of our locations, call. At this point, we expect the elevated new supply levels will likely persist in 2020.
There's simply too much capital available to developers at this point quarter. We expect any sort of meaningful pullback. However, I also believe it is unlikely that we will see new supply levels meaningfully pick up call from the current trends as rising costs among other things will keep new development from accelerating. Quarter. As we finalize our property budgeting process, I'm sure we'll have markets that will likely experience some increase in new supply next year quarter and some markets that will experience a decline in new deliveries.
We will have more to report on our specific expectations for 2020 quarter. We're releasing 4th quarter results, but at this point, we do not have any heightened concerns surrounding next year's leasing environment. Quarter. And while new supply remains elevated, we continue to see strong demand fueled by job growth across our markets quarter. With growing population shifts and increased migration to the Sunbelt, we closed on the disposition of our property located in the Little Rock, Arkansas market quarter and expect to close on the sale of the 4 remaining properties in that market before year end.
Quarter. Based on current contract pricing, we expect to capture a 5.4% cap rate on this portfolio of properties that has an average age of 21 years. Call. We're currently negotiating several one off property acquisitions and are hopeful that we'll close on 1 or more of these deals by year end. Quarter.
As has been the case over the past few years, each of the opportunities we are underwriting are new properties and initial lease up. Quarter. The acquisition market remains very competitive, but we continue to see a high volume of lease up transactions and expect that we will have some success with acquisitions over the next 2 months. As noted in our supplemental schedules to the earnings release, we now have 6 new development projects underway and expect to start an additional 2 projects located in Orlando and Houston before year end. And finally, we continue to capture quarter.
Great performance out of our redevelopment pipeline. In addition to our Berry earnings accretive unit interior upgrade program, call. We are planning to initiate in calendar year 2020 more extensive redevelopment efforts at several of the legacy Post property locations. Call. We believe our expanding focus on redevelopment initiatives will generate very accretive returns on capital and further boost earnings growth from our existing asset base quarter.
I want to send a big thank you to our team of associates for their work and great results over the busy summer leasing season. Quarter. We are building positive momentum across multiple fronts of our platform and I appreciate all the hard work and great progress. Call. I'll turn it over to Tom now.
Thank you, Eric, and good morning, everyone. Our operating performance for the Q3 was strong and exceeded our expectations. Quarter. With the steady demand for apartments and our enhanced platform, we have continued momentum in rent growth, strong average daily occupancy quarter and improving trends. Same store effective rent growth per unit was 3.9% for the quarter.
This is the 6th straight quarter of year over year improving ERU growth. As a result, our year over year same store revenue growth was 4%, quarter. The highest it's been since 2016. Revenue also increased 200 basis points sequentially. Quarter.
The acceleration in revenues was widespread across our markets. The year over year revenue growth rate for the 3rd quarter quarter exceeded the year over year growth rate in the 2nd quarter in 16 of our 21 markets. Quarter. Revenue performance was led by a steady momentum and blended new and renewal lease pricing, up 4.9% for the quarter, quarter, which is 190 basis points better than this time last year. The improvement in blended pricing seen in Atlanta, Austin, Nashville quarter in Dallas was particularly impactful.
In addition to the great traction and blended lease over lease pricing, quarter. Average daily occupancy during the quarter remained strong at 96.1%. Same store operating expenses were in line with our guidance, quarter. As we have mentioned on prior calls, we have captured the benefits of the improved expense management platform quarter. On the post portfolio, the comparisons are now more normalized and year to date expense growth is now 3%.
Quarter. As a reminder, our annual operating expense growth since 2012 has been just 2.4%, well below the sector average. Quarter. This is reflective of our long term focus on driving efficiencies in our operation. The favorable same store trends continued in October.
Quarter. As we have discussed, we feel like in this part of the cycle when demand is strong, we should prioritize rent growth over higher occupancy. Quarter. Average daily occupancy for the month was strong at 95.6% as compared to 96.1% in October of last year. Quarter's blended lease over lease rents are up 4% month to date, which is well ahead of the 2.2% quarter.
Blended rent growth posted in October of last year and will support continued momentum and effective rent growth for the portfolio, which is important for quarter. On the redevelopment front, in the Q3, we completed 2,700 units, which keeps us on track quarter. To redevelop about 8,000 units for 2019, this is one of the best uses of our capital. On average, quarter. Year to date, we spent $5,700 per unit and achieved an additional 10% in rent, generating a year 1 cash on cash return quarter in excess of 20%.
Our total redevelopment pipeline now stands in the neighborhood of 14000 to 15000 units. Quarter. Our technology platform continues to expand. Our overhauled operating system and new website have aided our ability to attract, engage and create value for our residents. The results are evident in our blended pricing traction.
Our test on smart homes are going well. The technology has been installed at 15 communities with minimum disruption and has been well received by our residents. Call. We're also exploring a range of AI chat, customer resource management and prospect engagement tools. Quarter.
Our teams have handled the busy season very well and have us well positioned to move forward. We're pleased to have the integration work of 201720 team in the rearview mirror. We're encouraged with the momentum in rent growth and excited about the opportunities ahead. Al?
Call. Thank you, Tom, and good morning, everyone. I'll provide some brief commentary on the company's Q3 earnings performance, balance sheet activity and then finally on our updated quarter. Reported FFO per share of $1.72 for the 3rd quarter included a couple of significant non core items outlined in the release, Which added $0.16 per share of non cash earnings to FFO. Excluding these items, FFO for the quarter was $1.56 per share, quarter, which was a $0.01 per share above the midpoint of our guidance and analyst consensus.
This outperformance was primarily a result of the continued favorable pricing trends as outlined by Tom, quarter, which produced the acceleration in total revenue growth for the quarter. Overall, operating expenses also remained well under control. Real estate taxes and repair and maintenance expenses quarter. These are partially offset by reductions in marketing and a moderation in personnel costs. We quarter.
We expect real estate taxes to continue producing some expense pressure for the year as aggressive final valuations received in certain markets will produce quarter. The top end of our range outlined for the full year. Repair and maintenance expenses for the Q3 were impacted by difficult prior year comparisons quarter. Our projected increase in a range of 3.25% to 3.5% for the full year.
We continue to make progress
on our development lease up portfolio during the quarter, $31,000,000 toward the completion of our current pipeline. This brings our year to date funding to $72,000,000 with $125,000,000 to 150,000,000 Total Funding Projected for the Full Year. During the Q3, we were fairly active on the financing front. We reopened the bond series initially issued in February To issue an additional $250,000,000 of unsecured notes and effective interest rate of 2.9% over the remaining term of about 10 years. We used the proceeds to pay off a $150,000,000 variable rate term loan, which was due early next year, utilizing its low rate environment to fix more quarter.
To extend the maturity of our debt portfolio, which is now 7 years on average. The remaining proceeds were used to pay down our line of credit quarter, excuse me. Finally, we are increasing both our FFO and same store guidance for the full year to reflect the strong Q3 performance. Quarter. We're now projecting FFO per share for the full year to be in a range of $6.46 to $6.54 per share or $6.50 at the midpoint, which includes the $0.16 3rd quarter favorable non core items and $0.02 per share related to the 4th quarter land sale gain mentioned in the release.
Our updated 4th quarter guidance assumes no further impact from the share valuation or activity from the unconsolidated affiliate. We're now projecting our same store revenues, expenses and NOI to all grow in a range of 3 percent to 3.5 percent for the full year, which produces a 25 basis points increase in our same store NOI expectation for the full year at the midpoint. This adds about an additional $0.02 per share to full year FFO, Q3 and Q4 combined, which is partially offset by a And that's all that we have in the way of prepared comments. So Chris, we'll now turn the call back over to you for questions.
Quarter. Once again to ask a question. Quarter. And our first question comes from Trent Trujillo from Scotiabank. Please go ahead.
Hi, good morning. So just looking at your blended lease rate growth, it was 4.9% for the quarter, down a little bit from the intra quarter update in August. So there was some seasonal slowdown in September. It sounds like you're continuing to focus on rate growth over occupancy and it sounds like demand has held up well. So do you but do you expect some level of moderation for the rest of the quarter?
And I'm mainly asking because you're starting to lap some of the improvements from the legacy Post portfolio. So with some more difficult comps ahead, what kind of trajectory do you see from here?
Yes. Trent, I would expect it quarter to moderate seasonally, but with October, we were 180 basis points better than last year. I would still expect us to run With a reasonable cushion over prior year's blended pricing, but you will see it moderate just as seasonal demand patterns come down.
And that's Primarily on new lease rent. On renewal pricing, it continues to hold up pretty strong above 6%, correct. Call.
Okay. Thank you. And then on the Arkansas disposition, I guess, on the transaction market, the Arkansas disposition, you pointed to roughly a 5.5% cap last quarter, maybe 5.4%, you just cited in the prepared remarks is within the realm of that. But are you seeing improved pricing for assets Such as those that you're seeking to sell and does that at all inspire you to look at additional potential 13. If you can get good pricing on older assets that maybe need higher levels of CapEx.
Trent, this is Eric. I'll let Brad talk about cap rates a little bit. But I would tell you on your point about dispositions broadly. We believe very much in the importance of cycling out of some of our investments every year. And we had targeted earlier this year to pull the trigger on this Little Rock portfolio and that's what's happening.
And I'm sure as we go into next year, We'll have something similar that we'll tee up. We don't have any significant need or desire to do anything Bigger than that. It really is just part of a normal discipline to continue to look at our the yield we're getting off our existing portfolio call. And always look to pull off the bottom, if you will, every year a little bit of the capital that we have invested in the assets are unlikely to create go forward performance that is as compelling as alternatives. And so we'll just stick to that discipline as we head into next year, but nothing more significant than that.
Brad, do you want to add?
Yes. So Trent, this is Brad. Just to give you a little bit of insight into what we're seeing in the transaction market. Certainly, Little Rock is A smaller market within our Sunbelt focus and it's certainly indicative of The demand for assets within our footprint. We had over 25 different buyers bid on those assets, which were All completely qualified buyers for those.
So we were certainly excited about the participation that we had there. Cap rates in our markets continue to be very, very strong. And I think we're certainly seeing that in Little Rock, which is Certainly a smaller market for us, but the demand for those assets is extremely strong and we don't see anything changing deck going forward.
All right. Thank you.
And our next question comes from Nick Joseph from Citi. Please go ahead.
Thanks. Maybe just following up on Trent's first question. In terms of blended lease rate Growth. Is the guidance increase based only on better than expected 3rd quarter results or is there an improvement to the 4th quarter as well versus what you previously expected?
Nick, this is Alan. As you look at the full year, of course, our guidance is for 4.25 blended. Obviously, that's coming off of what we saw in 3rd quarter. So that's planned. Seasonally, we do expect something different for the Q4.
As Tom's point earlier, we still expect a pretty healthy Over the prior year in terms of quarter over quarter our growth, so we seasonally will come down, but still have a strong
So positioned. I'll add one point to that, Nick. We've been running about 200 basis points better than last year so far this year. We're forecasting closer to 100 basis point spread in Q4 just as those comps have got a little bit tougher As we started to see that pricing power late 2018.
Thanks. And then what was new and renewal lease rate growth for the Q3?
Nick, for the Q3 new and lease new was 2.7, renewal was 7, which gives us the 4.9.
Quarter. And then just finally, I know there are smaller markets, but what's driving the strength in revenue growth in Birmingham and Huntsville?
Quarter. Birmingham and Huntsville and Huntsville running for 2 years has really been on a strong job growth trajectory, Primarily Driven by Aerospace and Tech. It is a quiet little pocket of Northwest Northeast Alabama that's just been Doing very well. And if you look back through the quarters in the last 2 years, you'll see that strength has been there. And then Birmingham has just picked up a little bit With the job growth during the year along with a little less supply, it's been a good spot for us as well.
Quarter. Thanks.
And our next question comes from Austin Wurschmidt from KeyBanc Capital Markets. Please go ahead.
Hi, good morning, everybody.
I was wondering if you could provide a breakout of the year to date lease over lease pricing for the legacy MAA portfolio versus the post portfolio.
I can give you a quarter to date real quickly and that would be for The new lease for blended, it's 3.8% for Post and 5.3% for Mid America, significant improvement on the Post side.
Quarter. Pretty similar year to date, 5.1 MAA and 3.8 post for blended.
Call. Thanks guys. And then, so next year really is the 1st year that you'll have a full year of post renovation hitting that renewal period. I'm just wondering how you're thinking about the potential increases on those renovated units after that first, I guess, renewal versus a non renovated asset.
No, the renovated quarter. On a renewal basis, they've really come in at very similar levels. There's almost no delta between that because that's a new resident coming in. It's not like the old resident got the renewal bump and then the improvement. So we've seen real consistency on the renewal front.
That's held up quarter. Quite well this year across the portfolio in both AB as well as post and MAN quarter. And renovate and non renovate.
Understood. And then just last one. Can you remind us of the increases that you're targeting on Smart Home Investments and what you expect that contribution to be to same store revenue as you roll into 2020 versus the contribution in 2019.
We're in the process of planning that at this point. We've got early tests that give us Hope that by market we'll be able to get a good bump on the revenue enhancement side, but really haven't nailed that down as it quarter. Comes to implementation and forecast for 2020 and then there are also some expense savings to consider in that equation.
And this also this is Al.
I'll just add. We certainly We expect that to grow towards the back of the year. So certainly very minimal impact in the first half of the year with a little bit more
in the back half
as we roll this out, as Tom mentioned. Quarter. Got it. Thank you.
And our next question comes from Haendel St. Juste with Mizuho. Please go ahead.
Hi, Zack Silverberg here for Haendel. You guys have delevered from 5 times to 4.7 quarter. Over the past year, where do you see your optimal leverage level at this point in the cycle? And what is your view on using more leverage to acquire assets given the low cap rate environment.
Well, I'll start with that and we feel pretty good about where our leverage is. We worked very hard over the last several Bringing it down. Right now, we're about 32% debt to gross assets, as you said, high 4s and debt to EBITDA is a very good place to be, particularly given the low risk or lower comparative risk of our strategy. So we don't see any need to do anything significantly different in that. As we look at our plans over the next year or so, we also don't We see a huge need for marginal capital.
We have and when you look at our acquisition plans or development funding and asset sales that we quarter. Combined with the internal free cash flow that we do, it's a pretty leverage neutral plan at this point. So we like where our leverage is. No need to do anything significant really Either way or the other, but we are very happy to your point that we have a lot of capacity. We have a $1,000,000,000 credit facility.
If things do change and there are opportunities to jump out, we certainly that's one option that we could use To fund that, we feel very good about that. We could put a significant amount of assets on our balance sheet pretty quickly and not do harm to our revenue.
I'll also point out one of the other things that's worth noting is while the leverage has come down, the cost has come down, the duration has moved out. And our duration on our debt quarter. Portfolio now is longer than it is out beyond anything we've ever had in our 25 years. So it's approaching it's around 7 years, a little over 7 years. So We're pretty pleased with where that's gotten to.
And on the development front, just seeing development starts this quarter was the projected yield or IRR and how do you guys are you guys inclined to ramp up development to quarter. And do you see any potential opportunities in the market?
Well, right now, I mean, the 2 new deals will start Between now year end, in addition to what we already have listed in supplemental, these are going to be stabilized yields north of 6%, 6% 6.5% is where we still believe we're going to end out in terms of stabilized NOI yields. Call. We believe that we're pretty comfortable carrying 3% to 4% of enterprise value in terms of the development pipeline, which puts our number somewhere kind of the $500,000,000 to $700,000,000 range. That's about as far as we think we'll take it at any point in time. But we're pretty comfortable with what we have right now.
And obviously, those kind of yields is still pretty attractive.
Quarter. Thanks, guys.
And our next question comes from John Kim from BMO Capital Markets. Please go ahead.
Thank you. Eric, in your prepared remarks, you mentioned a more extensive redevelopment program next year. Can you elaborate on that at all? Will the unit number of units you're redeveloping increase versus what you've done historically? And also The dollar amount, will that change versus 2019?
Well, I'll start and then Tom can have any details. I mean, we will continue with the redevelopment. When I make reference to that, I'm really referring to the kitchen and bath upgrade initiative, the unit interiors, if you will, and that program will continue next year As we've been doing for the past number of years, what's going to be different is we are stepping up more extensive repositioning efforts at some of the legacy 3rd locations. We have a portfolio of about 10 properties that we've initially identified that we believe offer superior location value And given all the new supply that's come in around some of these locations at much, much higher rent levels, we see a real opportunity to go in and do a more extensive amenity upgrades and some other repositioning CapEx spend that we think really elevates property to a completely different price point. And the market certainly offers that opportunity we think based What we see happening around these locations.
And so in aggregate, that's about we think it will be roughly about $20,000,000 spend next year That we'll work on that over the course of next year and really begin to harvest the opportunity from that in terms of rent growth and revenues in 2021 and beyond. But that was one of the real aspects of this merger with Post that we were very drawn 2 was great real estate and great locations that has only gotten better as a consequence of a lot of this new supply that's coming to the market.
Will those ten properties be taken offline or will they remain in the same store pool?
No, John. We've done these kind of repositions On assets before and what we found is the level of disruption for the exterior work is really minor and it allows us to do the work around the resident. We're not forcing turnover in this case and most of these were already underway on the kitchen and bath. So It stays in the same storm.
Okay. It sounds like you're not that concerned about supply next year, but I'm wondering call. What you may be concerned about on the demand side? It looks like the homeownership rate ticked up in the Q3 nationally and obviously we have more attractive mortgage rates. Quarter.
So, can you comment on what you've seen as far as move out to homeownership and anything else on the demand side that you think maybe?
Well, we haven't really seen any changes quarter. Of note on the demand side, it continues to be quite strong. Our move outs due to home buying, move outs to home renting have been very consistent now for the past 2 or 3 years, And we haven't really seen any change in behavior. We continue to not be worried about single family either as a for sale or for rent product. Quarter.
I think that we're just in a completely sort of different mindset now as it relates to how people approach their housing. Having said that, you're right, we're not particularly nervous about supply picture next year. To me, the thing I'm more nervous about long term is to what degree does job growth or the broader economy began to slow down due to various factors that we all read about. Call. And I think that obviously with employment levels being as robust as they are right now, there's more risk to Job growth moderating and there is accelerating from where we are right now.
So it's something we're going to continue to watch and monitor. I will say this that From a regional perspective, we continue to believe if you want to begin to dial in expectations regarding a recession quarter. Our expectations regarding a slowdown in the broader employment markets, we continue to believe that these Sunbelt markets will hold up better Than most other regions of the country, for all the reasons that you know regarding affordability and just the favorable employment picture that we think continues to fuel growth in the Southeast will in a recession, we all sort of suffer a little bit, But in a recession, I would tell you that our region of the country, we believe on the demand side of the equation holds up a lot better than other regions of the country.
Quarter. Great. Thank
you. And our next question comes from West Colliday from RBC Capital Markets. Please go ahead.
Good morning, guys. If we were to make the assumption that job growth will be at least comparable to this year when we look to next year, would you assume the strategy would be to remain push rate over occupancy?
Call. Yes, we do. We think at this point in the cycle, that that's the thing to do. I think the thing you have Appreciate that. At least the way we look at it is the variable that really drives revenue over time Better or more so than any other variable is rent growth.
And we think when you can get rent growth, you better get it. And even if that comes at expense of a little short term pressure regarding higher vacancy from a year over year perspective. We think that's the right trade off to make. Quarter. And so at this point in the cycle, that's exactly what we're doing.
Okay. And then looking at development, looks like you started one in Orlando this quarter. You're going to 1 next quarter in Orlando. Is that more of a high conviction call on Orlando? Is that just where the opportunities are falling right now?
Call. It just happens to be 2 opportunities that fell our way. 1 is we're self developing in Downtown Orlando, which is the one that As noted in the supplemental and then the other opportunity is in more in a suburban location. It's with a developer. We've got it's really a prepurchase of something that the developer is going to build for us, if you will.
And we're structuring it initially as a JV. They'll build it out and then upon stabilization, we'll take them out. So just happen to be I mean, we like Orlando a lot and continue to feel very good about the prospects of that market long term, but just happens to be Where these two opportunities popped up.
Got it. Thank you.
Quarter. Our next question comes from Drew Babin from Baird. Please go ahead.
Call. Hey, good morning.
Good morning, Jim.
Quick question. It was good to see revenue growth kind of accelerate sequentially in Charlotte. Quarter. And I guess going to the other kind of post legacy heavy markets, Atlanta and Dallas, I think you mentioned that leasing spreads were pretty strong in the Q3 in both of those. Are we at the point where we might really see those markets take a sharper acceleration into next year?
And I guess how should we think about quarter. Some of the CapEx plans you're talking about, how do they kind of fit in and might they kind of throw some fuel on that fire in the next year?
Yes. I mean really what I want to hit on Drew is sort of the current momentum and I would expect to see Atlanta, Austin and Nashville continue to improve based on what we've done this far. Quarter. We'll continue to improve based on what we've done thus far. And then Dallas is a place that is improving, but it'll run quarter.
A little bit weaker than its peers right now. The additional redevelopment that we touched on earlier, the repositioning of the community packages in the exterior of the building that benefit will really come in 2020 excuse me 2021.
Edna's exterior innovations, you're mentioning that in the context of Dallas?
Yes. Those The 10 properties we're looking at, there are a couple in Dallas.
Okay.
They're spread across the footprint though, quarter. Primarily, as Eric mentioned, in the Post portfolio.
Okay. Thanks for that. And then the retail acquisition made in quarter at one of your existing properties. What was the size of that? I didn't see an amount in there.
Is it relatively nominal in terms of the amount spent?
Quarter. Yes, it's pretty small. It was 14,000 feet, so acquisition there. It's really ground floor retail Of an asset that we currently own, that we just feel that it's better to own and control the retail of assets It's on the ground floor. So yes, it's pretty small.
Okay. And then last one for me. Al, on the balance sheet, I know this is asked A different way earlier. The leverage ratio where it is, is it where it is because that's exactly where you want it to be? Or Is it where it is because it's become very difficult to acquire properties in your markets?
And there's obviously still going to be assets like Little Rock that makes sense for disposition. Might we see that leverage ratio tick up at the margin a little bit next year with redevelopment, development type needs? Call. Is that something that you're okay with?
Well, I'm saying, first of all, we hope we have the opportunity to invest in very high quality investments that do need additional capital We're certainly comfortable with that if we need to. I would say we're comfortable where it is. We feel like we have good access to capital in all pieces of capital, Drew, and so we will look to protect somewhere in that range, but know that we have the flexibility to add to that leverage quarter. Very sizable amount if necessary and available to have good use for it. So we've built that flexibility to have it for quarter.
So we're not we're going to protect it, but use it when necessary.
Great. I appreciate the detail. That's all for me.
Call. And our next question comes from Rich Anderson with SMBC. Please go ahead.
Thanks. Good morning, everyone.
Series. Good
morning. So I appreciate the pushing rent at the expense of occupancy sort of mindset in the current environment. And obviously, you've determined that the economics of that strategy are the best way to go. But at what point, and do you have an occupancy level in mind where you have to kind of flip the switch fact the other direction. I know you lost a little bit of occupancy relative to a year ago in Q3.
I'm just wondering quarter. What that number is where you say, perhaps this isn't working as well and we have to kind of reassess?
Call. Well, at the end of the day, Rich, it's all about trying to manage revenue performance and optimize revenue results. 3rds. And we're trying to optimize revenue results both near term and long term. And I think that if we find ourselves quarter.
And we see evidence that we're creating more turnover as a consequence of being too aggressive with our rent practices, particularly on renewals. Then it's an easy call to make at that point to back off a little bit on the prioritization of rent growth And call back some of the occupancy, again, in order to protect an overall revenue result that we're after. But I would tell you that, call. Again, as I mentioned earlier, I think that the variable that drives revenue results and value over the long haul is rent growth. And it's very easy to get consumed by the sugar high of year over year gain in occupancy to boost revenues.
Call. And while you're enjoying that short term phenomena, you are giving up long term performance opportunity. And so I think it's a trade off that Jeff be very call flow about. And right now, we think the right thing to do is protect longer term revenue performance through gaining as much rent growth as we can And tolerate a little give up on current opportunity on revenues through higher vacancy.
Okay, great. And speaking of the renewal of 7%, I think you said in October, I might have missed that, but I think it's in the range. That's kind of way, we'll call it above average relative to your peers by perhaps Is that achievable in the future? Where is that coming from? Is it tied in with the post merger or is that a natural level of renewal activity that you think is something you can repeat for the proceeding.
Rich, I'll tell you 6% to 6.5% has been pretty natural and steady. When I think when we did the first set of renewals On post, we got a bump, but we're long over with our pricing system and platform in place on that property. And so that is a fairly consistent number across the property in 6%, 6.5%. We're excited with 7% or 7.2% in October. I'm certainly won't promise that to you going forward, but we're at a point where People appreciate where they're living, where our resident where our teams are taking very good care of the residents.
There's a hesitancy to move And it's a pain to move. And as long as we create value for folks, housing markets are getting more expensive everywhere. We're able to put through a fair increase and we've been able to do that pretty consistently.
Yes, I just moved to it. It is a pain. And question. The last question, perhaps Eric. Your cost of capital today is at a level you haven't seen before probably in the history of your company, both on an absolute relative basis, premium to NAV and a cash flow multiple that is very much comparable to your peers, which hasn't always been the case in history.
How is that changing your approach to External Growth. I know you said you think you'll have some opportunities to acquire some lease up assets in the near term. But Is your narrative changing from an external growth standpoint? Or are you kind of applying the same process and just considering this cost of capital decline is icing on the cake.
No, I mean, I think that To a large degree, our approach and our thoughts about deploying capital remain consistent with what we've always done. Clearly, we think about our cost of capital as a key component to deciding can we put Capital out. I will say that we like where the balance sheet is at the moment. Call. As Al was talking about earlier, we like our leverage.
We like where our capacity is on the balance sheet. Call. And having said that, if we find strong evidence Going forward that we're going to be able to put some more money to work than what we've assumed, then we will think about other forms of capital other than debt quarter. In an effort to keep the balance sheet strong, we're not going to materially weaken the balance sheet in an effort to capture growth. So, we all understand that quarter.
At some point, equity has to factor into the equation. And if we feel like that we can, With a high degree of certainty, put that capital to work, then we wouldn't hesitate to move in that direction. But I'm not going to go ask for capital and hope that we can put it to work. I've got to be very, very confident we can put it to work.
Call. Great color. Thanks, Eric. Thanks, everyone.
You bet.
And our next question comes from John Guinee from Stifel. Please go ahead.
Great. Thank you. Two questions. Your peers are spending a lot of time and effort and dollars Aggressively dealing with rent control. Is there rent control show up anywhere in your markets, maybe D.
13. And then the second question is, it looks like you're building your last two most recent announced developments at about 270,000 a unit. What do you what kind of product are you building there? Is it a wrap product or a podium or what are you building in Denver and Orlando?
Well, I'll take the first part of the question and Brad, you can take the second. What I would tell you, John, no, we have not really seen any Real evidence of rent control per se, certainly nothing like what we've heard coming out of California, New York Across our footprint. I mean, I think that the more often than not what we see some of the local folks doing in Nashville and some places like that is talking about requiring being more aggressive about requiring an affordability component to every new development that gets approved. So a certain percentage of the units have to be limited in terms of the rent levels relative to median com in the area and so forth. So I think that that's what we see and the only thing that we really see suggesting efforts by local officials to keep housing costs from getting out of hand, but no real rent control narrative that we're aware of.
Brad?
Yes, this is Brad Jones. So the deal that we're doing in Denver right now is a 4 story wall cut product. Costs in Denver certainly are elevated from what we've seen in the last couple of years, but That's a 4 story walk up product, surface part, elevator service. And then the project that we're doing in downtown Orlando, That's 11 story kind of high rise deal that we're doing with a structured parking component.
Call. You can build an 11 storey concrete with structured parking for $270,000 a unit?
Yes. So that deal
we're using kind of a different construction technique by FinFrock, which is a design build Firm. They have done this a number of times throughout the Florida market. And it's really a proprietary system that those guys use and they're able to build part of the product off-site and really bring it on-site and erect it. And it keeps the construction time period a little bit more concise, Reduces the timeframe there, interest costs, things like that. And then they also guarantee the cost of it.
So, it's a slightly different technique. They've really perfected it, keeps the cost down on that deal.
Interesting. Thank you.
Quarter. And our next question comes from Neil Malkin from Capital One Securities. Please go ahead.
Quarter. Good morning, guys.
Good morning, you. Good morning.
Not sure if you mentioned it, but the increase in total overhead, was that due to, I guess, performance better than expected or planned accruals for that or what's that related to.
Hey, Neal. This is Alan. Yes, we had a slight increase of our guidance for the year there. It's really 2 things and part of what you mentioned. We had a very good performance this year.
So some of it was our incentive plans and many of our regional operating flows were well deserved. And also we had some additional 3rd. Technology investments that we're making this year. Certainly, both are good investments for good spend. So you saw our vision, our guidance and feel good about that number for the full year.
All right, great. Makes sense. Next, the Demand is obviously very strong in the Sunbelt markets, but just in terms of forward demand or estimating that, do you guys track development, office development in your market, the pre leasing, things like that? Or do you monitor sort of relocation, headquarters relocation and things like that in order to kind of forecast what incremental demand will look like?
Yes, I mean, it's we certainly monitor and track Corporate Relocations and some of the bigger announcements that take place in a number of these markets that over the next several years are going to drive demand. And it's that's a notoriously hard thing to forecast with any real Certainty in terms of the job growth scenario. We really step back and look The macro factors and then we look at the macro factors at a market level, whether it be some of the good things happening in Nashville, Austin or Raleigh and Charlotte. And so it's we bring together a lot of different inputs in an effort to get confident that a given market is quarter. Good job growth and good wage growth, both of which are important.
The thing that's really difficult to really Wrap your head around is exactly when is the broader U. S. Economy going to materially slow down and moderate, quarter. I predict a recession, if you will, that becomes a little bit more of a challenge. And but again, from our perspective, what we Take a lot of comfort in is that were we to face a broader overall U.
S. Economy slowdown, We continue to believe that our story focused on these Sunbelt markets, particularly diversified very well in both sort of A and B product and a more affordable product in general puts us in a good position for any sort of a material slowdown. And If you go back and you look at the recession or more material slowdown periods, historically over our last 25 years, you'll find that our story tends to hold up better and we still think that will be the case the next time it happens.
Call. Fair enough. Last one for me. Given your move to push rents, does it make sense to more aggressively Pursue Acquisitions, particularly given the strong performance of your stock year to date.
Call. Well, as I mentioned, we're looking at actively looking at a couple of deals right now, one that we Expect to have hopefully under contract this week. We'll see if it gets through due diligence and actually gets done. But We're pushing as hard as we feel like we should. I think that at the end of the day, I mean, we're clearly Thinking about the spread in terms of our cost of capital and the kind of the yield that we would get, but we're also making sure that as we Deploy capital that we're really strengthening the earnings profile of the company going forward.
So we want to be sure that we're going to get point where whatever stabilized yield we're going to get out of whatever the new investment would be is going to be better, if you will, Then the go forward yield out of the existing portfolio. And so it's all about just making sure that we're adding investments that create a more robust earnings profile going forward versus the existing asset base. And we think that given what we see happening now with just continued high levels of new lease ups coming to market that we're going to see more opportunity over the coming year.
Thanks, guys. Thanks for the color.
Call. And our next question comes from Rob Stevenson from Janney. Please go ahead.
Call. Good morning. Tom, on the same store relative weakness in Dallas and Orlando, anything more than just a supply issue there?
No, I mean, frankly, job growth is great Both places, both are leading markets. In Dallas, as I mentioned, we like the traction and the improvement that we've gotten on Blended rents there and on our revenue growth, which has gone from Negative 2% in Q1, negative 0.2% in Q1 to 0.9% to 1.5% on Dallas. And then on Orlando, What we're really seeing is the B asset class is holding up quite well and a little bit of pressure on the As with new supply. Both have extraordinarily job growth stories.
What about Dallas? I mean, are you seeing any major bifurcation in terms of As versus Bs in that market?
With Dallas, there is a split there with the product and it's also an urban suburban split a little bit. Uptown is a little bit tougher than the portfolio, but places like Frisco and Plano, our A product is feeling some pressure. But the be holding up reasonably well in Dallas.
Okay. And in 2020, I mean, you've talked a little bit about this, but In 2020, are any of your markets by your data sources or estimations likely to be seeing peak deliveries in 2020? Or are we basically Has the pig mostly gone through the python in most of your markets now?
I think early to tell on that, but as Eric mentioned in his remarks. It's unlikely that we see them come down materially and it's unlikely that we'll see a huge ramp up. Market by market, we're still going by the asset by asset buildup of where supply is hitting, scrubbing that numbers, comparing with 3rd party, quarter. Running it through Brad's team too and we'll have more to say on that in our Q4 release.
Okay. Al, how significant are fees in your overall revenue number? I mean, you guys are top line $1,200,000,000 and change year to date. How much of that is fees versus just straight out rent?
Rent is about 93% of our revenue on that. And So both reimbursements and fees make up the rest. So fees are about half of that, so 3%, 3.5% fees. So fairly meaningful, but certainly it's about rents.
Okay. And I mean from your guys' perspective, I mean are there still more fees that you guys Can grow and add to the system or is it just inflationary growth in the existing fees? In other words, are you guys in suburban locations going to start charging for parking and other sorts of stuff to continue to drive The fees at above average rent rate or we sort of settled down in terms of the fee growth in the overall composition?
Let me say something and Tom, something to add to that. I'm sure. I think what you've seen last year or so as you've seen our fees, it's kind of blocky. We have programs that go in a A significant increase and they stay stable for a couple of years as we get to new programs and rollouts. What we've seen in the last couple of years, Rob, is some fees have sort of grown less than rents.
I'd say as we move into 2020 2021. Tom has got a couple of programs, I'm sure he can talk about that. As we build out in 2020 and more productive in 2021, we'll have quarter. That line, I'm going more in line with rents, what we expect.
Yes. I think there are a few things to do, Rob. But I mean, as Al sometimes saying, it's keeping the main thing. The main thing Rents is the deal and that's going to be what drives us forward. We'll have some opportunities on the technology front going forward, But the rents will be the driver of our business going forward and the focus.
Okay. And then just one housekeeping item. I'm not sure quarter. What was the price for the rigid Chenal disposition? And then what type of sales price does
quarter. The Riggs and Chenow deal was about $45,000,000 quarter. $546,000,000 and as talked about, the cap rate was pretty similar to the overall for the whole portfolio. All the assets together are 5.4 and I think they're all pretty tight on their band.
What is the gross sales price for
all of the Little Rock portfolio or About $150,000,000 somewhere in that range. Excuse me, sorry about? $150,000,000 Okay, perfect. Thanks guys. Have a good one.
Thanks, Rob.
Call. And our next question comes from John Pelosi from Green Street Advisors. Please go ahead.
Thanks. Tom, I wanted to go back to your renewal remarks, renewal growth remarks, just so I understand it. So in a normal course of business for this year, you would have been in the 36.5 percent renewal range and then the legacy post portfolio drove you a bit higher. Is that an accurate interpretation?
Sorry, John, if I gave that impression, that's not. We just had sort of a better group. We push The renewals out at different rates for different people based on where they are to market and what the submarket is doing. And basically, we just had a higher accept rate at the higher price point. Post was Right in there with Mid America, but just slightly lower.
It is not post driving us to 7%. It was more the accept mix during the quarter. We got some of our higher asks.
Okay. Maybe then if you can give some color, theories of what's going on in the ground to lead that higher acceptance of the higher rates. So if you gave me a job and supply forecast or the actual what actually happened in 2019 a year ago. I probably would have predicted a lower renewal rate and I did. So just curious, what on the ground on the demand side is leading to that incremental lift in renewals you think?
Yes. John, I can take a stab at that. My guess would have been like yours, a little bit lower than 7%. But I think as I touched on earlier, we are platform is substantially improved. Our teams are doing an awfully fine job of taking care of our residents.
They're renewing at a higher rate. And I think part of that is because of us, but I think part of that is just quarter. Because of secular changes in society today where people are staying single longer, they're deferring marriage, they're Deferring childbirth. And thus they're and our move outs to home buying continues to drop and did again this quarter. So I think it is primarily those changes that are making the difference.
Yes. I would also add to that, John, this is Eric, that One of the things I think you have to realize is that a lot of the supply that's coming into our market, as you know, is pretty high priced product, I mean, really high priced products. And even though there may be some temporary lease up concessions, other things done, We are competing in this new with this new supply against a much higher price point product than we ever have in the past when we've seen supply pickup. In years past, in prior cycles when supply picked up, it tended to be more of a balanced price point product, whereas now given all the things that we know about reallocating to development cost and so forth, Everything is just so much more higher price right now, which I think is really also fueling an ability for us to be a little bit more aggressive on renewals and still hang on to a lot of people because you've got the hassle of moving. But if you're going to incur the hassle of moving, you got to really go to Something that is compelling, either just a far superior product at a comparable price or even at a lower price.
And I think a lot of the new product doesn't really offer that same dynamic as we've seen in past cycles.
Quarter. And Brad, one quick one for you. Curious what you saw earlier in the year when Fannie and Freddie spread gapped out. Quarter. I know they came back down pretty quickly, but within that time period, was there any interesting bifurcation across your markets in terms of the strength of the bidding tents?
No, we've really not seen much bifurcation as you mentioned there at all within our markets. I think there's just so much demand out there for assets in our region, country given The reasons that we talked about that, I think for the most part, the buyers are looking past a lot of that stuff. And we're not seeing Any type of demand being impacted by what Fannie and Freddie are doing, it seems like there's Folks have alternative sources of capital
lined up in the sense that it's not impacting at all.
Great. Thank you.
Thanks, John.
And it does appear there are
We appreciate everyone being on the call this morning, and we'll see an interview at meeting in a couple of weeks. So thank you.
This does conclude today's program. Thank you for your participation. You may disconnect at any time.