Good morning, ladies and gentlemen. Welcome to the MAA First 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, May 2nd, 2019. I will now turn the conference over to Timothy Argo, Senior Vice President, Finance for MAA. Please go ahead.
Thank you, Chris. 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, Tom Grimes, our COO, and Rob DelPriore, our General Counsel. 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. 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. 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. During this call, we will also discuss certain non-GAAP financial measures.
A presentation of the most directly comparable GAAP financial measures, as well as reconciliations of the differences between non-GAAP and comparable GAAP measures, can be found in our earnings release and supplemental financial data, which are available on the For Investors page of our website at www.maac.com. I'll now turn the call over to Eric.
Thanks, Tim. Good morning. We're off to a good start for the year, as the first quarter's growth and effective rent is the highest that we've captured over the past eight quarters. Resident turnover remains at historically low levels, and rent growth on renewal transactions continue to be strong. The increase in combined new and renewal lease rates on a lease-over-lease basis was 240 basis points ahead of the performance in Q1 of last year. We're, of course, just now entering the important spring and summer leasing season. We certainly like the trends that we're capturing as the compounding benefit of steady rent growth continues to make a growing and positive impact. Strong expense control continues to be evident, particularly in the areas of repair and maintenance cost and utility expenses.
Our property and asset management teams continue their record of innovation and expanding use of new technology while also continuing to leverage the benefits of the larger scale of our platform. Beyond these encouraging trends with the same store portfolio, our new development portfolio, our current lease-up property portfolio, and our redevelopment pipeline all continue to come online and will make increasing contributions to FFO over the next couple of years. Our high-growth Sun Belt markets continue to capture steady job growth and solid demand for apartment housing. As pressures surrounding high housing costs and related cost of living challenges continue to influence population growth and migration trends across the country, we continue to favor our regional focus. Across our portfolio, average rent as a percentage of monthly income continues to hover in the 20% range, a very affordable relationship.
We believe that through the full cycle, our regional markets will drive job growth and a resulting demand for apartment housing that will outperform other regions of the country. As recapped in our recently published annual report, after two years with a heavy focus on significantly retooling and integrating our operating platform, we believe that MAA is now even stronger and better positioned. We're excited to now be fully focused on capturing the opportunities associated with the enhancements that were made. We look forward to continued positive momentum over the coming year. With that, I'll turn the call over to Tom.
Thank you, Eric, and good morning, everyone. Our operating performance for the year started off well. We've continued momentum and rent growth, strong average daily occupancy, and improving trends. Effective rent growth per unit was 3.1% for the quarter. This is the fourth straight quarter of improving ERU growth. For perspective, in the first quarter of 2018, this number was 1.4%. It's 1.7% in the second quarter, 2.1% for the third quarter, 2.4% in the fourth quarter, and now up 70 basis points sequentially. Said another way, in the last year, we've doubled our effective rent growth rate. We're pleased with the positive trend of this steady compounding driver of long-term revenue growth. This, of course, is led by a steady momentum in blended lease-over-lease pricing. Blended lease-over-lease rents for the quarter were up 3.9%, which is 240 basis points better than this time last year.
Average daily occupancy remains strong at 95.9%. Expense performance was steady for the first quarter, up just 2.1%. Marketing growth rate stands out in our report, but that was a result of a credit in last year's numbers. Adjusting for this anomaly, marketing expenses would be flat with prior year. As a reminder, our annual operating expense growth rate since 2012 has been just 2.4%, well below the sector average. The favorable trends continued into April. We're on track for another month of strong blended lease-over-lease pricing. April blended lease-over-lease rents were up over 4%, which is well ahead of the 2.8% posted in April of last year.
Average daily occupancy for the month continued at a strong 95.9%. Our 60-day exposure, which represents all vacant units and move-out notices for a 60-day period, is 8.4%, which is in line with last year. On the redevelopment front, in the first quarter, we completed about 1,700 units, which keeps us on track to redevelop 8,000 units in 2019. This is one of our best uses of capital. On average, we spend $6,100 per unit and achieve an additional 11% in rent, which generates a year one cash-on-cash return in excess of 20%. Our total redevelopment pipeline now stands in the neighborhood of 16,000-17,500 units. The latest market delivery information is in line with our prior forecast. Job growth in our markets is expected to be 2.1% versus 1.6% nationally. As long as demand remains strong, we expect the positive rent growth will continue to build.
Our teams are pleased to have the work of 2017 and 2018 in the rearview mirror. We're encouraged with the momentum and rent growth and excited to have our transformed platform fully operational. Al?
Thank you, Tom, and good morning, everyone. I'll provide some additional commentary on the company's first quarter earnings performance, our balance sheet activity, and then finally on updated guidance for the remainder of the year. FFO of $1.58 per share for the first quarter was $0.11 per share above our guidance for the quarter. Excluding two items not included in our forecast, a gain on the sale of a land parcel and the preferred share adjustment, which we'll discuss more in just a moment. FFO for the quarter was $1.51 per share, which was still $0.04 per share above the midpoint of our guidance. Operating results were $0.02 per share favorable to our prior forecast, with positive contributions from both same-store revenue and expense performance during the quarter.
A continued strong occupancy supported the favorable rental pricing trends outlined by Tom, while favorable repair and maintenance and utilities costs offset continued pressure from real estate taxes during the quarter. The real estate tax expense growth of 6% for the quarter includes the impact of some timing of appeals, and we still expect our total costs to grow in the range of 3.75%-4.75% for the full year. Favorable performance for interest expense and other income during the quarter, primarily related to our recent bond deal and casualty gains, combined to add the remaining $0.02 per share to FFO for the quarter. We also sold a small land parcel located in Atlanta during the quarter, which was acquired in the Post-merger. The parcel was not a viable development for us and was sold as an alternative use.
Given significant uncertainty regarding ultimate closing of the sale, the gain of $0.08 per share was not included in our original guidance for the year. In addition, we incurred non-cash expense of about $0.01 per share during the quarter related to the mark-to-market adjustment of our preferred shares, which, consistent with our practice, was also not included in our forecast. During the quarter, we completed a significant portion of our financing plans for the full year with the issuance of $300 million in new 10-year public bonds at an effective rate, including the impact of settled swaps of 4.24%, and with the closing of an additional $191 million of fixed-rate mortgages priced at a very attractive 4.43% for 30 years.
The proceeds were used to pay down our unsecured line of credit, which will be used to provide the majority of financing needs for the remainder of the year. We continue to make progress on our development pipeline, funding $15 million of construction costs during the quarter. We expect to fully complete two communities this year and also likely start additional projects as part of our $100 million-$150 million total projected funding for the full year. We continue to expect the combined stabilized NOI yield on our development pipeline to be in the 6%-6.5% range. Our balance sheet remains strong. We ended the quarter with low leverage with 32.6% debt to total assets with over 85% of our debt fixed or hedged against rising interest rates at an increased average maturity of eight years.
At quarter end, we had over $967 million of cash and funding capacity under our line of credit. Our current forecast is leverage neutral. We are revising our FFO guidance for the full year to reflect first quarter performance, as well as our updated projections for transaction and debt financing plans for the remainder of the year, which are now expected to reduce FFO by about $0.03 per share compared to our previous forecast. Just as a reminder, we do not forecast any future non-cash adjustments to the valuation of our preferred shares. FFO for the full year is now projected to be $6.11-$6.35 or $6.23 per share at the midpoint, which is an $0.08 per share increase of our previous guidance. We now expect net income per diluted common share to be $2.19-$2.43 per share for the full year.
We're certainly encouraged with the strong first quarter performance. We still have a very important leasing season ahead of us, a busy leasing season ahead of us. Our comparisons do become a bit more challenging over the remainder of the year. We are maintaining our previous same-store guidance. We plan to revisit these projections with our second quarter earnings release. That's all that we have in the way of prepared comments. Chris, we'll now turn the call back over to you for questions.
Certainly. At this time, if you'd like to ask a question, please press star and one on your touch-tone phone. You may withdraw yourself from the question queue at any time by pressing the pound key. Once again, to ask a question, please press star one now. We will pause a moment to allow questions to queue. Our first question comes from Nicholas Joseph with Citi. Please go ahead.
Thanks. Al, you mentioned the current development pipeline has an NOI yield of about 6%-6.5%. How does that compare to the new starts expected this year and the recent land acquisitions?
You're talking about the new Phoenix deal that was a pre-purchase that we announced, Nick? Is that with the comparison of that?
No, the development starts for later in the year, and then the land that you acquired in Orlando. Are you also underwriting the 6%-6.5% for that?
Right. That was the intent of the comments to say, really, we've got the current deals we have underway as well as the ones we plan to start later this year. All of those will be in the range of 6%-6.5% in general, the total pipeline would obviously be in that range as well. None we see at below that low end at this point.
All right, perfect. How does that compare to cap rates in those markets today?
I would tell you, Nick, for the quality of assets that we're looking to develop, those cap rates are going to be 4.75%, 4.5%-4.75% is routinely what we're seeing today.
Thanks. Eric, you mentioned the strength in the markets. I'm wondering if you're seeing from new residents, and I'm sure you track where they're moving from, any population flows or any change in trends from the Northeast or other high tax states, just driven by the change in tax laws.
I'm going to let Tom answer that.
Nick, certainly we're seeing some shift in change. We're seeing strength in the Sun Belt. Honestly, the best explanation I've seen of this is, a third-party firm tracks U-Haul rentals, and it costs 25% less to move back up north than it does to move to the Sun Belt. We don't have specific information on exactly that, but the trends are positive.
I would tell you, Nick, that we continue to think Nashville is going to continue to see some migration inflows, if you will, coming out of the Northeast, particularly as the AllianceBernstein move begins to shape up. I think the Raleigh area continues to attract a lot of particularly technology-based jobs, both from the Northeast, West Coast. Of course, Austin has been doing that for some time. I think that we don't particularly track exactly, as Tom says, where people come from, necessarily, but just anecdotally, based on the information, the conversations we're having with residents, we are seeing growing evidence that folks are moving out of some of these higher cost areas of the country.
In Phoenix, Denver, Dallas, Austin, we see inflows from California, as you would expect.
Thanks.
Our next question comes from Trent Trujillo with Scotiabank. Please go ahead.
Hi, good morning. Thanks for taking the questions. Within the last month, a roughly $1.5 billion suburban Class A Sun Belt portfolio traded for what looked like a high four cap rate. How interested were you in that portfolio, and how do you view the pricing with respect to, I guess, one, other transactions you're seeing in the market, and two, perhaps as a validation of the value of your portfolio?
Honestly, Trent, we didn't look at it. That's not really what the asset quality that we're looking to add to the portfolio for the kind of growth rate we want to achieve, organic growth rate we want to achieve going forward. This is older portfolio than typically we take a look at. Having said that, certainly based on the pricing that we are seeing, that pricing is in line, maybe a little bit aggressive. Routinely, the new product that we're looking at still in lease up or just recently stabilized in the markets throughout our region are trading anywhere from four and a half to 4.75 cap rates. A high four, call it a five for that portfolio was probably about right in line with the market.
It just depends on, frankly, what sort of upside opportunity they saw in the portfolio from either a CapEx redevelopment or operating perspective.
Thank you for that. Quick follow-up. I think we all appreciate the year-over-year and even sequential improvement in rate growth, which is great at a fundamental level, but it doesn't seem to be translating yet into accelerating same-store revenue growth, at least sequentially. Maybe if you could talk about how the improved pricing will flow to the bottom line, and then considering some persistent supply pressures in some of your larger markets, how confident are you that this improving spread can persist and what that may imply for the rest of the year? Thanks.
We feel pretty good about the ability for these rent growth trends to continue based on everything that we're seeing. Supply levels, while they remain high in a number of markets, they don't appear to be getting any higher, if you will. I would suggest that we're at a point broadly where supply levels are likely to show stability to slight moderation over the next, call it, couple of years. As long as the job growth continues to be as robust as it is, I think that sets up for the ability to sustain the kind of trends that we are seeing. The ability for that rent growth trend to ultimately make its way to the overall revenue line, if you will, is a function of also the other two variables and how they're performing, namely occupancy and fees or other income.
We saw affected daily occupancy trade off a little bit from last year. As we contemplated in our guidance for the year, we think that's the right trade-off to be making at this point in the cycle, and are comfortable with that assumption and are comfortable with what we're seeing. I think that as we get later in this year, and particularly into next year, the occupancy performance likely starts to stabilize on a year-over-year basis, and therefore, the rent growth trends start to drive more directly to the bottom line. To some degree, the other area that we've seen underperform in terms of rent level or in terms of growth year-over-year in the revenue area is other fees and the fee area in general.
Because turnover is so low and people are staying put, we're not seeing termination fees and other kinds of related fees associated with the move-ins and move-outs like we've seen in the past. The occupancy variable year-over-year and the fee variable year-over-year has worked against, if you will, the rent growth variable, to result in the revenue performance that you see. We think those other two variables of fees and occupancy probably start to stabilize going into next year, and the rent growth becomes more impactful.
That's very helpful. Thank you very much.
Our next question comes from John Kim with BMO Capital Markets. Please go ahead.
Thank you. On the blended lease growth, sounds like you have about 4% year-to-date through April. I realize you have tougher comps at the second half of the year, but what would get you down to the deceleration that it implies, at the midpoint of your guidance of 2.7%?
John, obviously, what we're talking about is we're very encouraged with what we've seen all the way through April, as Tom talked about, it would take a number quite lower than that to get us down. I think what we're saying is as we look at the next few months or the next two quarters, that's when we face the biggest part of our exposure, the vast majority of our leases. At this point, we certainly believe and expect to continue to push pricing. The question is going to be, are we going to be able to hold occupancy while we're doing that?
We think at this point we will, as we talked about in our guidance, we're leaving ourselves room to work through those two quarters, and then we'll have more to say about that and more clarity at the end of the second quarter.
Okay. Occupancy, that's more of a same-store revenue concept rather than the blended lease growth rate. You're saying if you have additional vacancy, that might impair your-
Yeah. I'm saying-
It would offset the rent growth.
It would offset the rent growth. In other words, we're going to continue pushing price, and we believe we can hold that occupancy at strong 95.9. That's the question as we hit the busy leasing season.
John, if your point is, are we likely to continue to perform at the upper end of our pricing assumptions, lease-over-lease pricing assumptions that we put out there? The answer would be yes. We think that the pricing trends are likely to continue, which would put us more likely than not, well above the midpoint in terms of our assumption for pricing trends alone.
Right.
This quarter, you broke out revenue enhancing and redevelopment CapEx. Can you just remind us what constitutes the difference between the two?
Yeah. We just wanted to give more information there and really provide as much clarity as we could there, John. Revenue enhancing is the more typical CapEx that you do, the normal that you would do every year in a portfolio to continue to maintain it.
Recurring.
I'm sorry?
That's recurring.
Yeah, recurring. I'm sorry. I say redevelopment. I apologize. Recurring is the typical. Redevelopment is the capital that we measure and we add our returns, our growth on it. We've talked about. As Tom talked about, it's one of the best uses of our capital that we have. We've had a program going on for many years now. We're able to spend fairly limited amounts of capital on interior units and produce really strong returns. That's really the difference. On redevelopment, we have redevelopment, we have revenue enhancing, then we have recurring. We just want to give you clarity of those three buckets. Revenue enhancing is additional capital that is not specifically measured, but it's things that we do think add to the value of the community over time. Those are the three buckets.
Are the redevelopment units kept in the same store pool? Because I noticed this quarter you have units.
Yes, they are. We've approached it because we don't force turns. We do them on turn. I think over time, we feel like that's the best thing to keep it in the same store portfolio. If we have a situation where we did an entire community at one time, forced a turn, we felt like it was going to be extremely disruptive, we would pull it out. I think we have done in the past. The current pipeline that we're doing, we don't expect that, and we're not taking it out of same store.
Thank you.
Our next question comes from Austin Wurschmidt with KeyBanc Capital. Please go ahead.
Thanks. Good morning, everyone. Just curious what you guys would attribute the lease rate success that you've achieved thus far in the year to, whether it's operating on a single revenue management system, is it you're starting to see increased contribution from the redev, or just maybe a more benign supply environment. Can you kind of break out the pieces of that and tell us what do you think's driving the success you've had so far?
Sure, Austin. I think at a macro level, we've certainly shifted from a ramp-up in supply and a stabilization of supply. We feel like we've got our legs under us from a market standpoint, and they're a little more stable, though still high, and we can push on that. The other piece of the puzzle is really the improvement, I would tell you, in the Post portfolio. That is our systems and being operating on one system. Let me give you an example of that. In first quarter of 2017, the gap between blended lease-over-lease rates in the Post portfolio and blended lease-over-lease rates in the Mid-America portfolio was 290 basis points. That was sort of at our first quarter of having the Post portfolio. That gap has closed to just 50 basis points, and that's a result of both portfolios climbing over that timeframe.
When you look across markets, is it fewer concessions, maybe in some of those Post markets that had supply? Where are you seeing the success in driving blended lease rates?
I mean, early on, the first thing to take was renewal rates, where we moved those from four to close to six now. Now it is new lease rates coming to bring stability. Just on a year-over-year basis, it's primarily the new lease rates, though we're still up a little bit in renewals going back to 2017. It's really both on the Post portfolio.
I appreciate that. Just last one for me. Al, when you kind of strip out those one-time items in the first quarter, and you look at what drove the beat versus your internal guidance, what line items would you attribute that to?
We would put it to really two major groups. $0.02 per share. If you strip out those kind of unusual items, you get to about $0.04 per share outperformance from our guidance. $0.02 of that was operations, which was same store, pretty evenly spread between revenue and expenses, I would say. We are encouraged with both sides of that performance. The other $0.02 was interest in other income. That was a little favorable to what we expected, primarily related to the timing of the bond deal we did. A little better on interest rate than we had thought there. We had other income from a casual gain that we had during the quarter that had some income from that. That was really the insurance proceeds over the cost of the books that we wrote off for that casualty loss. Those are the primary pieces.
Thank you.
Our next question comes from Rob Stevenson with Janney. Please go ahead.
Good morning, guys. Tom, any markets that performed notably above or below expectations on a year-to-date basis?
Nothing really stands out on the below expectations. Dallas, we expect it to be challenging, but it's coming along honestly. On the above, we're quietly pleased with how Austin's coming along.
Any markets, or which markets, I guess, would you expect that you could see positive new lease growth in 2019 on at this point?
See positive new lease growth?
Yeah, obviously the renewals have been pretty healthy.
You know.
new lease option.
I would tell you, Nashville begins to look better in the back half of the year, I think. Supply is moderating a little bit there, as Eric mentioned, AllianceBernstein just moved in. Nashville is a booming market, and that has the potential to exceed our expectations, I think.
Okay. Last one for me. Where are you guys in the sort of technology spend? It seems like all the large apartment guys these days are in an arms race to get to being able to have Alexa rent their units rather than have people at the locations, and all of the automation that they wind up putting in to make leasing able to do from phones, et cetera. How far down the road are you guys in terms of where you want to get to over the next couple of years, and what's the spend and what's the trade-off in terms of expenses that you could take out of the business from that?
Yeah, Rob, we're currently testing, working on, and evaluating pretty much everything that you've heard out there. SmartRent, smart homes, enhanced residential services portal, tech mobility, leasing automation in those service features. We're still at the point where we're not talking about it a ton. We're really trying to find out exactly what those economics are. Early results are good, especially on the smart home testing. We think that they have the potential to make a difference. We're really in the testing phase at this point, and we'll have more to share as the year winds on, I would say.
Al, what are you spending this year on that, roughly?
The majority of our spending that is doing that is we're a part of this real estate technology venture fund that you probably saw in our 10-K, Rob. We're a part of that with some of our peers that really is an investment that's designed to view all of these companies that are coming forth and select the winners and be a part of that discussion when it happens. In terms of our normal spend, our investment in driving that technology right now, that's normal spend. That's part of our overhead or our G&A that we've budgeted this year, that we've talked about, always improving our platform. We are testing these programs this year, as Tom talked about, and probably roll out a little bit more next year when we drive these programs through the portfolio.
Yeah. Rob, some of that investment is bundled in the total IT overhaul that we did as part of the merger. Things like maintenance mobility, and the resident portal improvements, those were embedded in the transition that we just went through. The most direct spend is on the smart home, where we're rolling units out at about $1,000 a unit or so. We've got plans to test that this year.
Okay. Thanks, guys.
Our next question comes from Hardik Goel with Zelman & Associates. Please go ahead.
Hey, guys. Thanks for taking my question. One of the things I wanted to ask about, I've got two for you, is G&A. We know G&A is going up a little bit. We discussed that last quarter. Looking at the cadence of G&A typically, the first quarter was still a little heavier than guidance would imply. Are you guys still in line with your initial guidance range?
We are. That's a great question. I'll point you to one of the things that we talked about and put out as we came out of year-end and discussed our guidance for the year is one of the presentations that we had done. We were out doing roadshows and some of the conferences. We put a slide that talked about that we expected first quarter to be the highest.
quarter for that. There's several expenses that fall in the quarter. It's some leadership conference things, some year-end audit things, a few things that typically in the first quarter. We had expected first quarter overhead to be about 28% of the year. Came in right in line with that, and so we feel very confident with our full-year projection. I think what you should put in your model, you're thinking for the next three quarters, obviously, to get to our full-year run rate's more like 24% of the total of our guidance for the year.
Got it. Yeah, I saw those. I just wanted to confirm. The second one I have for you is on your same-store expense growth estimates. You guys talked about revenue, but on expenses, it seems like it would be pretty tough for you guys to not come in at the low end of your guide on expenses, given that you guys outperformed even though taxes were higher. Is there a tax headwind through the rest of the year, or what do you expect on the expense side?
There's two things I think are important to consider there. This is Al. I'll start with that. Really, R&M was favorable during the first quarter, and utilities costs. I say R&M, repair and maintenance, excuse me. Utilities costs. Repair and maintenance was really favorable in the first quarter. We got some remaining synergies from the post-merger, which were good to see. We're glad to get that, but I think we expect that. We've come to the end of that. We expect for the remainder of the year for those costs to be more normalized, call it in the 3% range. On the utilities, they were lower than expected because we had a mild season in the first quarter, mild seasonal cost structure in the first quarter. I think that'll normalize more as we go into the year.
I would tell you, as we look at the remaining three quarters of the year, you should consider something more in that 3% range for everything together. Taking the first quarter performance and that together, we probably are going to be below the midpoint of our current guidance, but still in that guidance for the year.
Got it. Thanks. That's helpful. That's all for me.
Our next question comes from Drew Babin of Baird. Please go ahead.
Hey, good morning.
Good morning.
Wanted to talk about capital recycling. It sounds from the way that fundamentals are unfolding across Sunbelt, potential for distressed acquisitions, things like that, might not be there yet, as it really has not been for a couple of years. I guess I was hoping on an update on, are you seeing that anywhere? Are you seeing developers maybe looking to sell more assets? How is your pipeline looking as it pertains to the things I just mentioned?
Drew, this is Eric. Our deal flow continues to be incredibly high. We are looking at more deals on a quarterly basis now than we have over the last five years. There is a lot of opportunity that continues to come into the market. We continue to see what we believe to be incredibly aggressive pricing that continues to, in our mind at least, make it a little bit more difficult to pull the trigger on some of these opportunities that we are looking at. We are staying active. We are in conversations on two or three opportunities right now that I hope will come together over the course of this year.
We are optimistic, but we are also staying disciplined, and I think that given the operating environment that we are in and what appears to be the prospect of sort of stable interest rate environment going forward, the sector continues to attract a lot of capital, and we see values holding up quite well. If anything, value is going up a little bit as a consequence of improving NOI performance. We are patient, and we are going to remain that way. We have got dialed into our assumptions this year, as you know, call it midpoint, about $100 million of dispositions, which we think is important to maintain that discipline, and we will be working through that process later this year. We have got the funding that we have identified as it relates to what we do think we will do on acquisitions and development funding. We have got sort of sources and uses of cash sort of identified.
Obviously, just recycling with what we have, a combination of dispositions and free cash flow. We certainly do not see any needs for equity this year. I am continuing to be hopeful that the acquisition environment will become easier. At the end of the day, our focus is really built around trying to ensure that we are going to create a stabilized NOI yield that is accretive to our existing portfolio and create a return on capital that will be accretive to our shareholders versus what we expect to get out of the existing portfolio. Today's pricing, it continues to be a challenge.
Having said that, as we continue to roll in some of these technologies and some of these other operating focus items that we've talked about, we think that's going to continue to work in our favor to perhaps start to make some deals a little bit more compelling as we go into the year. Deal flow is high, pricing is still aggressive.
Thanks for that, Eric. On the disposition side, remind me, are those likely to be just non-core assets or potential exits from some smaller markets? I just forget if that was mentioned on the last quarterly call.
We're taking a look at that right now and trying to finalize that. More likely than not, these are going to be We really approach it on an asset-by-asset basis and look at situations where we think the go forward after CapEx NOI growth rate is likely to show not the kind of growth trajectory consistent with the rest of the portfolio. More often than not, that translates into some of the older assets that we've had. We very much like the footprint that we have. As I mentioned earlier, we like broadly the markets that we're in, but just given the history of the company and when you think about where some of the older assets are, there probably are a few outlier smaller markets that you'll continue to see us exit from.
Thanks, Eric. Then just one question for Al on the balance sheet. There's another three-year secured mortgage executed during the quarter. I was curious whether that was on a set of properties that was previously encumbered by secured debt. Also too, I think last quarter, there was a $300 million very short-term unsecured term loan. I guess my question is, does the new secured mortgage kind of directly replace that or pay that down? What are the moving parts there?
I wouldn't necessarily put it direct, but I think overall, if you think about what we had outlined last year as our financing plans, we had said we're going to do about $600 million, $300 million more in the 10-year, maybe 30-year in the I mean, $300 million in the 30-year. I think if you look back last year, the markets kind of collapsed in terms of public bond financing and at the late in the year. What we did is we moved early in the year. We saw an opportunity in the secured market to do 30-year. We did two deals and combined over $300 million at a very attractive rate. They are secured with seven properties, for this one we just did, and I think similar number of properties for the first one. I wouldn't directly relate them.
I'd just say it's part of our long-term plan. We were able to adjust and just continue to perform on pushing our duration of our maturities out a little further, get some 30-year debt in there, but also not get too much secured debt is good. We obviously are very glad we've done that. We're glad to continue to increase our relationship with the partners we have there. I think you'll see us manage our balance sheet. 90% of our NOI is still unencumbered, unsecured right now, you'll see us continue to protect that, but within the proper parameters, do both types of debt over time. That was a piece of the overall plan. On the $300 million term loan, we'll likely pay that off this year.
As you heard us talk about, we're now thinking about part of our plans for this year is maybe potentially do another bond deal late in the year because the market's wide open and really to handle that and to bring some of the future maturities forward potentially.
Great. Thank you. Great quarter.
Our next question comes from John Guinee with Stifel. Please go ahead.
Great. A few curiosity questions. Looks like you sold one acre of land on Peachtree Road in Atlanta for $9 million. Is it really only one acre? When is land worth $9 million an acre in Atlanta? Also, any more color on the Poplar Avenue office building?
John, this is Eric. Yeah, this acre of land-
That's less than an acre, actually.
It's actually less than an acre. Candidly, it's right on Peachtree Road, right next to Lenox Mall. It's the heart of Buckhead. This is a residual piece of land associated with a condominium development that Post had done many, many years ago. The site is incredibly tight, will be incredibly difficult, we thought, to do multifamily on. We were approached by someone who has a different plan for how they intend to use that land. We worked it. We were cautiously optimistic, but frankly skeptical that we would get it done. Therefore, it wasn't in our guidance, but we were most happy to get that done in the first quarter. It is just what you're reading. It was a big win for us. The Poplar Avenue site, we've been in the same office building for 24 years. I had owned the building.
It was part of the IPO. We long outgrew that space and had our corporate staff split into two different locations for the last five years. We finally had an opportunity to get everyone back together in a new building in close proximity to our old location. We don't own it. We're just renting office space. We sold it, and I'd rather use that capital in apartments. We've been in it for a long time, and glad to be gone.
Okay. The second question, Sync 36 in Denver. It looks like phase 1 cost you about $280,000 a unit, but the budget for Sync phase 2 is about $310,000 a unit. Did costs really go up 10% that quickly, or are there some allocation things we should think about?
No, costs have not gone up that much. There was some allocation. When we negotiated the transaction with the developer, they had this one adjacent piece that had some unique aspects to it that created the cost numbers that you're seeing.
It's also a lower number of units, but we viewed the project as a whole, so you kind of have to put them together to think about that.
Good point
When we underwrote it, we underwrote it together, and the whole project is well in line with our hurdle expectations and our plans. It's an allocation thing, but in total, it works well.
Is it a podium or a wrap?
It's actually a surface park product.
Wow. For $300 a unit? Okay.
There's allocation in there.
The second one is a small number of units. The first phase is much larger. When you blend it down, you're going to be under $300.
You also, That's normal for Denver.
Right.
You look at cost per unit in a market like Denver, and that's pretty routine.
For a high-quality product.
Yeah.
Surface park, though.
Yeah. Yes.
Wow. Okay. Thanks. Good quarter.
Thank you.
Our next question comes from Buck Horne from Raymond James. Please go ahead.
Hey, thanks. Good morning. I just want to go back to guidance for just a second, Al, if you could. I guess you said we raised the guidance $0.08 for the non-cash gain on the land sale. I think there was also, you mentioned an offsetting $0.03 drag from just the timing of transaction activity. Can you elaborate on just the moving parts there and just the changes on the timing of acquisition dispositions that drove that change to the guidance?
Absolutely, Buck. That's a good question. The outperformance in the first quarter was $0.11 per share. We just put that performance into our-- obviously roll that in as actual performance. What we talked about was over the back part of the year, we did have some changes to our transactions and to our debt plans that cost us $0.03 per share. Net that out, it's $0.08, and I'll give you the details of that is about $0.01 for, I talked about this a minute ago, we're planning on potentially doing another debt deal later in the year to take care of some of our maybe our future financing, as well as pay down our term loan that we talked about earlier.
We also had $0.01 per share of earnest money forfeiture from that land sale that we talked about. As we talked about, didn't have it in our guidance because we were really uncertain about the closing, and we had actually included in our plans that likely it would fall apart, and we would get the earnest money forfeited. That's about $0.01 per share, actually, that comes out in the back part of the year. The remaining $0.01 is just transaction timing, acquisition, disposition plans. We continue to adjust those as we're selecting properties, and we see a little clearly the deals that we may buy in the year. That cost us about $0.01. Together, that's the $0.03. We beat $0.11 first quarter and took $0.03 out for those things.
Gotcha. That's very helpful. Thank you. Secondly, just looking at some of the activity and the added development project in the Phoenix area. It looks like you're trying to enhance or considering enhancing the presence in the Southwest a little bit further. I'm just wondering how you're thinking about your current scale in the Phoenix marketplace, or if there's anything else you want to do to optimize your scale there, or would you consider reentering a market like Las Vegas if the right deal came along?
Buck, this is Eric. I would tell you, we like Phoenix a lot. I think that both Phoenix and Denver continue to have a very promising outlook over the next, call it 10, 15 years. I think both of these markets are much more affordable than what you see on some of the West Coast markets. I think both markets are going to continue to attract a lot of job growth and population growth, migration trends. We're very comfortable continuing to scale up our presence in the Phoenix market as well as obviously in the Denver market as well. Vegas is a little bit of a different story, I think. We like very much the two properties that we have there. They're doing great. That's a market that is doing pretty well right now.
I don't see that economy as broadly diversified as I do a Phoenix and a Denver. Vegas obviously has a lot of entertainment employment base as well as military that drives a lot of it, and you're seeing some other back office call centers. I think that you don't get the wage growth in that market like you do in Denver or Phoenix. I wouldn't think that you'll see us scale up in that particular market in Vegas, but the other two for sure, we would.
Sure. Thanks.
Our next question comes from John Pawlowski with Green Street Advisors. Please go ahead.
Thanks. Tom or Al, could you remind us what the revenue lift for full year 2019 is from just the earn-in on redevelopments?
Earn-in on redevelopment?
Redevelopment is typically 25 to 50 basis points in any year, our program this year is consistent with what it was last year. I'd probably admit 25, 35 basis points for this year.
Yeah. That would be what it was if we took it out.
Right.
Since it is similar to what we did last year, it's not part of the graph. It's basically flat.
What he's asking, I think, is the built-in impact of that over time, if that's what you're asking, John, I think that's what we would say it is.
Yeah. On a year-over-year basis, we've been pretty steady at the same number of units.
Yeah. Same program.
The year-over-year change is really not meaningful at all, but the overall impact on a permanent basis is the 25-35 basis points.
If we were wrapping the program up in this year, it'd be at the higher end of that. We've had this consistent number this year as we did last year. We did ramp up in last year some from pre-Post merger, that's what we would expect is built in at this point.
Yeah. The question, to be more clear is, if you didn't do any redevelopments these last few years, how much lower would?
25 basis points. 25 to 30.
Okay.
That's kind of built in on an ongoing basis.
Okay. That kind of probably ramps next year a bit?
No. It would only ramp if we ramped our program up next year. I think right now we expect to do about the same number of units next year that we did last year and the previous year. That's probably the contribution from that program. We certainly, hopefully we have continued pricing performance and other things, but that's from that redevelopment program specifically that we expect next year.
Tom, I was hoping you could give some color on the demand side of the equation in Houston heading into peak leasing season. It's tough to disentangle what's organic structural improvement in a market versus just a market that's still just coming out of the basement a bit. How bullish or concerned or kind of middling of feelings do you have of Houston right now?
Yeah, I would say, their jobs to completions are still in a healthy range at 9:1. I would expect Houston to still be steady from a growth standpoint, John. I don't think we'll see the blended rent growth change that we saw between 2017 and 2018. Certainly one of our more stable and steady markets, but I think it was like a 800 basis point change in blended rents last year, and that'll moderate to more normal.
Does it stay in that mid 4% revenue growth range these next few years?
Far, blended's hung right in there.
Okay. Thank you.
You bet.
It does appear that there are no further questions over the phone at this time. I would like to go ahead and turn it back to the speakers for any closing remarks.
Well, thanks everyone for joining us, and appreciate you being on the call. We'll see most of you at Nareit in a few weeks, so thank you.
This does conclude today's program. Thank you for your participation. You may disconnect at any time.