Good morning, ladies and gentlemen, and welcome to the MAA Third Quarter 2018 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, November 1, 2018. I would now like turn the conference over to Tim Argo, Senior Vice President, Finance for MAA.
Please go ahead.
Thank you, Chris, and 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 Del Priore, 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 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 These measures can be found in our earnings release and supplemental financial data, which are available on the For Investors page of our website at I'll now turn the call over to Eric.
Thanks, Tim, and good morning. The demand for apartment housing across our footprint remains strong and shows no signs of moderating. High demand and low resident turnover have supported our ability to capture strong occupancy and positive rent growth Despite the high levels of new supply in several of our markets, on a blended lease over lease basis as compared to the prior in place leases, Rents grew by 3.1% in the 3rd quarter. This is 60 basis points better than the same time last year. While we've not yet wrapped up our budgeting efforts for next year, we do expect that strong demand will offer the opportunity For continued positive momentum in rent growth during 2019 despite the new supply headwinds.
As part of our fall budgeting process, we perform a robust and detailed assessment of the new supply outlook across our portfolio. Supplementing the information from 3rd party research, we do a property by property and immediate submarket review to consider specifically How new supply is likely to pressure leasing across our portfolio in the coming year? Tom will share more in his comments, But our early assessment is that the 2019 new supply pressures at a portfolio level will likely moderate slightly from the volume of new deliveries in 2018 and support continued improvement in new lease rent growth in 2019. We continue to capture good results from the various expense synergies and new initiatives coming out of our merger with Post Properties, primarily in the area of repair and maintenance costs. As we approach the 2 year mark since our merger, we do expect that we'll begin to see some of the initial lift from expense synergies start to moderate on a year over year basis As we move into 2019, during the quarter, we did see some pressure from real estate taxes and hurricane cleanup.
Al will speak to this in his comments, With cap rates compressing further over the past year, as our annual tax bill started coming in over the last couple of months, The corresponding impact on real estate taxes has been evident. As noted in our updated guidance for the year, we pulled down our expectation for property positions and do not expect to close on anything between now year end. Significant pools of private capital continue to aggressively bid up pricing. As it has been for years, our capital deployment protocols are built around a goal to be earnings accretive in fairly short order. Today's pricing for stabilized properties or even those still in initial lease up are rarely meeting our earnings accretion goal at this point.
On the development front, we're continuing to find opportunities that we believe will offer attractive and accretive NOI yields. As noted in our earnings release during the Q3, we started construction on a Phase 2 expansion at our Sync 36 property in Denver, Bringing our current development pipeline to $148,000,000 We currently have additional sites either owned or under contract in Denver, Houston, Fort Worth and Orlando that are currently in predevelopment.
We hope
to get started with these projects at some point during the coming year. In addition to this development pipeline, we have another 5 properties representing over 1600 units currently in their initial lease up and all performing in line with our expectations. In addition to our new development and lease up pipelines, We continue to capture strong returns on our redevelopment pipeline with over 6,500 units redeveloped so far this year, generating very attractive returns on capital. We have another roughly 20,000 units that we expect to redevelop over the coming 2 to 3 years. In summary, the revenue momentum that we expected from improving pricing trends this year and the work completed towards stabilizing our operating platform are all coming together as expected.
It's been a busy and transformative 2 years for MAA as our team worked to integrate the former Post portfolio, Operations and associates. We've retooled or replaced essentially every system in much of the technology platform of the company. As you might imagine, this has created a lot of demands on our team, while also fighting the headwind from higher levels of new supply. I'm happy to report that the systems and associated policy and procedural transformation work along with all staffing changes and integration activities are now complete. The MAA operating platform and the balance sheet are stronger than ever.
I'm proud of the work and results accomplished by our folks. We're very excited to now move forward with more opportunity to grow higher volume from our existing portfolio of properties. Our lease up, development and redevelopment pipelines are all poised to drive higher value over the next couple of years. We look forward to finishing 2018 on a strong note and continuing the momentum over the coming year. And that's all I have.
I'll turn it over to Tom now.
All right. Thank you, Eric, and good morning, everyone. Our operating performance for the Q3 came in as expected with building momentum and rent growth, Continued strong occupancy and improving trends that support our outlook for the year. The integration work on the operating was evident in our leasing momentum during the quarter. We saw blended lease over lease performance of the combined portfolio Growth 3.1% in the 3rd quarter, which is 60 basis points higher than the same time last year.
This brought our year to date blended rent increase up to 2.8%, which positions us to be well within the 2.25% to 2.75 Blended rent increase range for the year that we established to meet our revenue guidance range. This Steady positive trend in blended pricing drove our sequential average effective rent per unit up 130 basis points from Q2 to Q3. This is the highest sequential increase we've seen since the post merger. As a result, revenues also increased 130 basis points from the Q2 to the Q3. While elevated supply levels have pressured rent growth in several of our markets, particularly Dallas and Austin, We're still seeing good revenue growth in a number of our markets.
Phoenix, Orlando, Richmond and Jacksonville were our strongest revenue growth markets. Expense performance has been steady in both portfolios. In addition to the real estate tax pressure and storm costs, Personnel and marketing were affected by a 4% increase in move ins during the quarter. Despite these pressures, overall expenses within the same store portfolio We're up just 2.3% for the quarter. The favorable trends continued into October.
All key indicators are trending ahead of last year. Overall, same store October blended lease over lease rates were up 2.3%, which is 90 basis points better than October of last year. Average daily occupancy for the month was a strong 96.1%, which is 20 basis points better than October of last year. Our 60 day exposure, which represents all vacant units and move Notices for a 60 day period is just 6.1%, which is 50 basis points lower than last year. We are in good shape as we head into the slower winter leasing season.
Our focus on customer service and retention, Coupled with strong renter demand, continued to drive down resident turnover. Move outs by our current residents remains low. Move outs for the overall same store portfolio were down 30 basis points for the quarter. Move outs to home buying and move outs to home renting were essentially flat, representing less than 20% and 7% of our turnover, respectively. On a rolling 12 month basis, turnover remained at our historic low of 49.2%.
The steady low level of turnover was achieved while increasing renewal rents by a strong 6%. Momentum is building on the redevelopment program across the legacy Post Portfolio, through the Q3, we have completed 2,300 units and expect to complete 3,000 this year On the post portfolio, on average, we're spending $8,900 per unit and getting a rent increase that is 11% more and a comparable non redeveloped unit. As a reminder, we have identified a total of 13,000 post units that have compelling Redevelopment Opportunity. For the total portfolio, we've completed 6,500 units and we expect to complete over 8,000 interior upgrades For the year, on the legacy MAA portfolio, we continue to have a robust redevelopment pipeline of 9,000 to 12,000 units. On a combined basis with the legacy Post portfolio, our total redevelopment pipeline now stands in the neighborhood of 19,000 to 22,000 units.
Our active lease up communities are performing well and in line with our expectations. Post South Lamar and Ackland at Westin Stabilized on schedule during the Q3. Our remaining current pipeline of 5 lease up properties are on track to stabilize on schedule. As part of our budgeting process for 2019, we're taking a deeper look at the supply affecting our markets. We take third party data and then cross Check.
This supply with our own asset by asset information. Performance by market will vary, but at this point, we believe Overall, our markets will improve modestly with some decline in deliveries. Our Dallas In Austin, assets are expected to remain challenging with supply levels in the 3% to 4% of inventory range. We expect Charlotte to soften as supply picks up near our assets. We expect the strength in Jacksonville, Orlando, Tampa and Phoenix to continue as all currently show supply decreasing.
While we have not completed our budgeting process, Assuming the demand side of the equation remains strong, at this point, we expect to see the positive momentum in rents realized in 2018 to continue into 2019. We are pleased to have the merger integration wrapped up and we are encouraged with building momentum in our revenues. I'm proud of the effort and hard work our team has put in over the last 2 years. We're glad to have this work behind us and look forward to finishing well in 2018 Moving on to 2019. Al?
Okay. Thank you, Tom, and
good morning, everyone. I'll provide some additional commentary on the company's 3rd quarter earnings performance, balance sheet activity and then finally on guidance for the remainder of 2018. As Eric mentioned, overall performance for the quarter was essentially in line with expectations. FFO growth of $1.50 per share was in line with the midpoint of our guidance. Total revenue growth for the same store portfolio of 2% for the quarter was Our year to date revenue growth of 1.8% is in line with our full year guidance and strong occupancy levels and blended lease over lease pricing performance As Tom mentioned, same store operating expenses during the quarter were slightly impacted by cleanup costs from Hurricane Florence and increased pressure on real estate taxes.
These pressures are expected to continue into the Q4, which I'll discuss a bit more in just a moment. However, despite these pressures, overall operating expense growth of just 2.3 still remains below our long term average growth rate. FFO results for the 3rd quarter were also slightly impacted by the market to market valuation of our preferred shares, which produced $400,000 of non cash expense for the Q3. Another valuation has been volatile over the last few quarters as we expected. The 3rd quarter adjustment brings full year impact to $300,000 of non cash expense, which is pretty near our estimate
of no debt impact for the
full year. We completed 1 development community during the quarter, Post Centennial Park, a high end community located in Atlanta. We also began the construction of an expansion phase of the community acquired last Quarter, same 36, which is located in Denver. Phase 1 of this community contains 3 74 units, which remain in lease up. In the second phase, we'll add another 79 units, which are expected to be completed by the Q4 of next year.
We now have 4 communities in active development, representing a total projected cost of 148,000,000 We funded total construction costs of about $13,000,000 during the Q3 and expect to fund the remaining $102,000,000 over the next 18 months to 24 months to complete the pipeline. We expect to stabilize NOI yield of 6.3% for this portfolio once completed and fully leased up. As Tom mentioned, our lease up portfolio continues to perform well. During the Q3, 2 communities reached full stabilization, which we track as 90% occupancy for 90 days. At the end of the quarter, we have 5 communities remaining in lease up, including the recently completed development community with an average occupancy of 66.9% for the group at quarter end.
We expect a growing contribution to our 2019 earnings stream from our lease up portfolio as 2 of these communities are projected to fully stabilize during the Q4 of this year with remaining 3 stabilizing during 2019. Our balance sheet remains in great shape. During the Q3, we paid off 300,000,000 Current year debt maturities using capacity under our unsecured line of credit. We have an additional $80,000,000 of debt maturities during the 4th quarter. And as previously discussed, we do anticipate pursuing additional financing over the next couple of quarters to refinance remaining current year and first half 2019 debt maturities.
At the end of the quarter, we had over $674,000,000 of combined cash remaining capacity under our unsecured line of credit. Our leverage as defined by our bond covenants was only 32.5%, while our net debt to recurring EBITDAre was just below 5 times at quarter end. As noted in the earnings release, we have recorded what we believe are appropriate reserves for defense costs in our Texas late fee class action lawsuits Disclosed in our recent 8 ks, we believe that our late fee policy and practices are in line with those of other Texas landlords and comply with Texas law. In addition, we have adjusted our loss reserves in our Q3 financial statements as a result of significant progress made toward the settlement of 2 legacy post properties lawsuits, DOJ case and the RC case, which was disclosed in previous filings as well. Just to note, we don't plan to provide additional commentary or specific details on any pending lawsuits during the Q and A portion of our call.
Given 3rd quarter performance and updated expectations for the remainder of the year, we are updating certain guidance assumptions. First, we are maintaining our full year guidance range for both same store combined lease over lease pricing growth, which is 2.25%, 2.75% for the year And same store total property revenue growth, which is 1.25%, 2.25% for the full year. We now expect the 4th quarter expense performance to be affected by the unforecasted expenses related to Hurricane Michael as well as increased real estate tax expense pressure due to specific pressure in Atlanta and Dallas. As final tax information was obtained for the year, very aggressive value increases in Atlanta and millage rate increases in Dallas are expected to impact our portfolio. We will continue to aggressively fight these increases, but are revising our guidance.
Real estate tax expenses for the full year to an expected range of 4% to 5 50 basis points decrease at the midpoint. The combination of these items produced a revision to our guidance for total same store property operating expenses to expected range of 2% to 2.5% for the full year and to our same store NOI guidance for the full year to a range of 1.75% to 2.25%, both representing a 25 basis points change to previous guidance at the midpoint. Other notable changes to our guidance include Our estimated range of multifamily property acquisitions for the year as well as projected full year total overhead costs, which we count as G and A plus property management expenses. Given the competitive environment and proximity to year end, we don't expect to close any additional acquisitions this year. Since our projections included primarily lease up deals heavily weighted in the latter part of the year, This change has little effect on our 2018 earnings.
Favorable impact from several items, including franchise taxes, insurance costs, legal costs, Timing of final staffing changes related to the recent integration project and other items produced the expected overhead favorability for the full year. Some of the spend impact is essentially timing related and we expect 2019 overhead costs to include less unusual and non recurring As well as more normalized staffing now that our merger and integration efforts are fully complete. In summary, net income per diluted common shares is now projected to be $1.87 to $1.99 per share for the full year. FFO was projected to be $5.99 to $6.11 per share or 6 $5 per share at the midpoint. AFFO for the full year is now projected to be $5.38 to $5.50 per share or $5.44 at the midpoint.
So that's all we have in the way of prepared comments. We'll now turn the call back to you for questions
And our first question comes from Trent Trujillo with Societe Bank. Please go ahead.
Hi, good morning. Thanks for taking the questions. First from a guidance perspective, most of the annual leasing is complete and you likely have pretty good visibility as you alluded to in prepared comments on what's left for the year. So I'm curious why you still have the relatively wide range of outcomes for FFO in the Q4. So maybe if you can frame the variability given where we are in this point in the year?
This is Alan. I can come We've narrowed it down obviously to where it was from the Q3, but just given the outcomes, it would be a big change in Occupancy, a change in transactions, we had something significant that caused us to be at the bottom end or the high end of the range, particularly, but We feel pretty good about the range.
I think one thing I'll add, Trent, is the preferred shares and that has been fairly volatile over the quarter. That can swing it quite a bit as well, which is out of our control obviously.
Okay. Thank you. And I appreciate the prepared comments on supply, But on the on your last earnings call, you mentioned deliveries in your markets were expected to drop about 18% in 2019. So what has changed since then? Is it just a function of supply being pushed out?
Because it seems like this is a pretty material change to the outlook versus just a few months ago.
I think a couple of things have transpired. One is, yes, I do think there is some delays in delivery that are at play here. But candidly, we saw some pretty radical change over the course of the year in the 3rd party research Data that we get regarding supply outlook and we go through, as Al mentioned, or I'm sorry, Tom mentioned, we go through a pretty detailed Annual process with our properties as part of our budgeting process, but and we're well into that at this point. But frankly, over the course of the summer, we saw a lot of the information that we sort of monitor and work with during the year From some of these 3rd party data sources really began to change on us quite a bit. And then as we began to dig in more to Both their information as well as dig into or start our more detailed budgeting process, we began to see that While still down, supply overall is still going to be down from everything that we are seeing.
We do think that the extent of the drop in new supply deliveries is perhaps not as great as we would have thought a few months back.
And our next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.
Hi, good morning guys. I was just curious how much moderation are you assuming in blended lease rate pricing through the balance of the year?
Awesome. This is Alan. We've assumed, as we talked about all year that we will see blended pricing Accelerate to produce our revenue performance for the year. We always had revenue performance accelerating as we saw it did in Q3. I think overall revenue went from 1.5 So to 1.8%.
So I think we saw what we expected in terms of momentum. We saw good momentum through the quarter and Tom talked about it in his comments in So I think what we always expected was to have pricing performance that was above last year's performance about 60 basis points. And we certainly that in the Q3. We've seen that so far in the Q4. And so that's what gives us a lot of confidence about our range and where we'll wind up for the year.
I'll also say it's important to recognize that as Al mentioned, our Forecast for the year was built on an assumption that blended lease over lease pricing was going to be in a range of 2.25 to 2.75 For the full year, okay. Through September year to date, we're at 2.8, above the top end of the range. So clearly, there is some moderation that we anticipate over the next quarter.
Which we projected and included I think the point in terms of our guidance is the performance over the prior year, which we're seeing and we feel very good about.
Right. And that's kind of what I was driving at. You're tracking ahead of that range. You've got a 90 basis point spread in October. Do you expect to sustain that level of a spread?
Or Could it even widen potentially through the balance of the year?
I believe it can widen, Austin. We will see. We don't want to guarantee that, but we're running 90 now and we have favorable comparisons In November December.
You may recall that candidly, in November December last year, we saw particularly in our Dallas And particularly in the Uptown submarket, we saw some fairly significant concession activity pop up, Effective late last year in November, December, which really put a big hit on effective pricing over the last 2 months of that quarter. So, and we certainly don't see any indication that that is likely to repeat this year. So, I think we would just Sum it up by saying, we think that the trends that we're seeing right now give us a pretty high level of confidence going into the final quarter of the year.
Thanks for that. And then just one more for me. With the decrease in the acquisition guidance and some of the challenges You've had sourcing new deals. Are you rethinking capital allocation at all between acquisitions and development?
Well, one thing I'll say is, I mean, we're sourcing a lot of deals. I mean, we're underwriting more than we've ever in the Q3, we underwrote more than we've underwritten any quarter over the last 5 years. So I mean, just a ton of deals out there. But as I mentioned, the pricing has just really gotten to a point that we're having a hard time justifying pulling the trigger on these deals that we're looking at. And so, yes, having said that, we are continuing to look for opportunities on the development front.
As mentioned, we started some things in the Q3. And as I alluded to, we've got a number of projects that we are Working currently either on existing owned land or land sites that we have under contract, 2 in Denver, 1 in Fort Worth, 1 in Houston, 1 in Orlando and another one in Raleigh that we might, it's probably another year and a half before we pull the trigger on that one. But yes, we've I mean, one of the things that we were looking forward to as a Coming out of the merger with Post is to sort of broaden our arsenal in terms of our ability to both recycle Capital as well as support external growth and the development capabilities that came with that merger were something that we thought Made sense for us, as at the point in the cycle we are in. So yes, you'll see the development. Right now, we're $148,000,000 development pipeline.
I certainly expect that's going to grow over the coming year, but also we're going to be we're not going to go crazy with it. I mean, I think that If you look at our enterprise value right now, dollars 500,000,000 pipeline is going to be right about 3% of our enterprise value. So I wouldn't be surprised to see it scale up to $400,000,000 or $500,000,000 over the next year. I doubt it would get much bigger than that, but that certainly becomes more attractive To us at this point in the cycle.
So just one quick follow-up if I may. I'm just curious how you're thinking about the risks in from construction today where we've Cost overruns and certainly some delays in deliveries, how are you incorporating I guess into your forecast for development yields.
Well, as thoughtfully as we can, I'll tell you that. I mean, yes, you're right. We've had to pull back on some projects that we were looking at or we put some on mothballs, if you will, for a while, while we work through Some cost issues, all the deals that we do are guaranteed cost construction contracts. We don't Build it ourselves, and so we take a lot of effort to sort of lock in our costs before we actually commit and pull the trigger on it. And then we take a thoughtful approach to lease up assumptions and we generally are pretty good about Nailing that outlook and we've consistently been able to sort of achieve our lease up velocity.
But this is a time to be careful for sure And we're taking a pretty careful approach in terms of how we lock in our costs Before we commit to actually starting to move dirt on any opportunity that we look at and today's environment with the rising costs, I certainly think that's the right approach.
Thanks guys. Appreciate the time.
Thanks.
And our next question comes from Nick Joseph with Citi. Please go ahead.
Thanks. Eric, you just mentioned the strong pricing in the market. And I know you're focused on earnings growth. But given the Would you opportunistically sell into this strong pricing?
Nick, I mean, we've recycled quite a bit of capital over the last 5 years, something approaching $3,000,000,000 We've obviously paid with that with a lot of earnings that we've conceded as a consequence of that recycling. And of course, The most recent merger with Post was a fairly initially dilutive deal for us. So I will tell you this, I mean, we very much Like the footprint that we have, we very much like the sort of the market mix that we have. We don't see any real need to radically alter The profile of the portfolio, I do think that as we go into next year, this is the 1st year, calendar year 2018 is the 1st year We haven't sold anything in as long as I can remember, probably over 15 years. And so I think that You'll see us probably get back to recycling a little capital next year.
And it won't be a lot, but I do want to get back to that practice and we will likely do some next year. And as some of this development opportunity Starts to pick up, obviously, the redeployment of that capital becomes easier to accomplish. So I think you'll see us do a little bit more next year.
Thanks. And then just for same store expenses, do you assume any baseline expense impact for potential hurricanes and initial guidance similar to what you would do with snow removal costs or anything like that?
You said for the Q4, Nick, or for as we look into next year?
Going into the year. So on Initial guidance, do you assume that there'll be some costs associated with the hurricane?
With hurricanes, no, we do not. It's not something No, we don't, Nick. That's just something we think at the beginning of the year that we really can't anticipate many years. We don't have certainly any significant And so we were unfortunate last year and this year, but that's something we do not forecast currently. Okay.
Thanks.
And our next question comes from Rob Stevenson with Janney's. Please go ahead.
Good morning, guys. You guys did a chunk of rehabs during the quarter, roughly $6,000 per unit versus your year to date cost So roughly a little over $5,700 So if I back those out, I mean, you have a pretty substantial jump from what you paid in the 3rd quarter versus what you were through the 1st 6 months of the year. Was that just a mix in doing more heavy stuff? Or is that Indicative of the cost pressures that you're seeing from a labor, especially, but also from a material standpoint as you do rehab these days?
Fair question, Robin. You've almost answered it. We are not seeing cost Escalation issues in the rehab arena, the vendors in the materials that we use, it's not cheap, It's not heavy lumber. It's not concrete. It's not glass.
We're not rebuilding them. And the vendors are a different set of vendors
than are on our construction jobs. They're local guys
that specialize in They're local guys that specialize in redevelopment. So what you were talking about is dead on correct. We saw we did More units that had full granite countertops and cabinets just as it shifted actually from like 22% to about 30% in our mix this go around. If you look at and this is really driven by the post side of things, If you look at on just an apples to apples basis, our cost per renovate, especially on the post side has dropped about $200 a unit just as we've Sort of gotten in a groove on it and are improving in that area.
But mostly the increase is because more of the post Portfolio is coming into the mix and
It's 2 things. It is 2 things.
Okay. And then on the development pipeline, what's the Current expected stabilized yield on the 4 projects that you guys have under construction currently? And how do you guys think about Starting new projects, some of your peers talk about it as a spread over comparable acquisitions. Is it Absolute that we're not going to do anything that doesn't get us to a mid to high fives at least stabilized yield. I mean, How does that sort of work internally at MAA these days?
Well, I
can tell you the yield First on that, Rob, it's about 6.3% on the portfolio, which is we think is about 150 basis points over an acquisition of a similar quality product in today's marketplace.
And Rob, I would tell you that as I commented on in my prepared comments, we're really guided by a NOI yield analysis and assessing the accretive nature or not of that yield. And I will tell you that any development that we do today and would start today, we'd want to be fairly comfortable or actually really comfortable That we're going to be looking at a stabilized yield at 6% or higher and really keep that spread as Al made reference Between sort of the yields that we see today on any acquisition of a stabilized asset. But more importantly, We think that kind of yield, we're going to be value accretive and earnings accretive to the long term earnings Trend of the company. So that's kind of where we underwrite to 6 or in north of that.
Okay. And Al, that 6.3 is that that's just on the 4 That are currently under construction or does that include the 5 that are in lease up?
Just the 4 under construction right now. The ones that are lease We have some that are acquired, so some mixture of properties in there. So it'd be a little bit low, but you'd still be better than higher than the yield on an acquisition
The other 5 is 6.2. So it's right there with the development.
Okay. So 6.3 on the 4 and 6.2 on the 5.
Right.
All
right. Thanks guys.
And our next question comes from Drew Babin with Baird. Please go ahead.
Hey, good morning.
Good morning, Rich.
Quick question for Al on the balance sheet. Obviously, a lot of secured maturities for next year. I think you talked before about potentially taking those out with the unsecured offering in the 4th quarter. Is that still possibly in the plans? And would there be any thought to extending your overall duration?
I think mixing maybe 30 year in somewhere or anything like that. Would that still make sense given the flatter yield curve?
Yes. Great question, Jeremy. We absolutely In our plans right now, as I talked about, we had about $300,000,000 maturing in Q3, have another $80,000,000 in Q4, and we have about $500,000,000 maturing in the first half of 2019 that we may well want to get ahead of. So we are thinking about that. We think we'll be active.
Assuming the markets are favorable and open for us over the next Several months, we think that we'll potentially pursue some activities and we would expect to do That's pretty sizable financing to replace some of those and we are looking at potentially pushing out our durations. And I would say right now given the shape of the yield curve, There's a strategy you can take that would help you push your durations out and keep the cost relatively similar to a 10 year deal. And so We're definitely looking at that and hopefully we'll have more to say that in the next couple of quarters' calls.
Okay. Given the spreads you see today and it looks like the During next year, is it a 5.9 contract rate? Should we expect that the swap there would be, I guess maybe swap is the wrong word, but would the deal likely be accretive to earnings?
Keep in mind I would say keep in mind that majority of our debt has already been fair market value pretty recently, mostly from the mergers. And so what you're seeing in our interest expense is in a rate that's pretty close to current market levels. Now on a cash basis, absolutely. I think on a cash basis, we absolutely Will be a benefit to us, but because 2 mergers we've had, a lot of our debt is mark to market, are you feeling a rate that's similar to current market levels.
Okay. That makes sense. And one last question just on the property taxes. I guess in past years there's been Some success with appeals on both the assessments and the millage rates and have kind of provided an NOI benefit maybe later in the year. And I guess, How did those negotiations go this year?
What was different this year? Are you seeing the municipalities and assessors just being more aggressive?
I think overall, we put it this way, Drew, as we've said in the past, we fight very hard anything we think is unreasonable. In Texas, we've got 40 That's the pressure Texas and Georgia, our 2 pressure points right now. We've got 40 losses going on. I think the unusual thing this year was really 2 specific areas. You had Atlanta Fulton County who really put out a very high valuation increase across the tax register.
I'm talking in the 30% range across Register. And so everyone believe we saw that come out maybe the Q2, but everyone believe typically what they do in that situation, they'll take the millage rates down Significantly to a level to part to mostly offset that and just put themselves in a better position going forward for tax valuation. They didn't do that this time. They raised the valuation And brought the millage rates down just a small amount. So unfortunately, that is something you can't fight the millage rates.
So we think there will be some fall Maybe over the next couple of years or maybe even later this year on that as politicians do their thing, but that is what happened in Atlanta. It's pressure for sure. And in Dallas, you had a situation where there was an additional millage rate increase in certain districts for school districts That was over 8% of the 10% increase in some of the districts and it's so high that you have to have a you have to put for vote In Texas, if it's over 8%, you have put for votes. So it's possible, long way of saying, we certainly think it's possible that we'll get Some favorability in the future, maybe 2019 beyond as some of these things work through, but it's going to take a while to work through the system and we adjusted our reserves For the remainder of the year to reflect what we think is a reasonable case.
Okay, very helpful. Thanks guys.
And our next question comes from Rich Anderson with Mizuho Securities. Please go ahead.
So if I could go back to the development discussion, Eric and all, Paul, you mentioned supply pressure still around you, perhaps slightly less next year. You mentioned having to be careful at this point in the cycle, Agreed. But development costs are rising at a faster rate than NOIs. I think you would agree with that as well. But yet the development pipeline could Rise by 2% or 3% I'm sorry, 2 or 3 times in the next year You said $400,000,000 to $500,000,000 I'm just curious how is that possible that you can make the numbers work to the degree where can see it grow that much in this environment.
What's the MAA advantage to get 6 plus type of stabilized yields despite All those things and those pressures happening around you?
Well, it's a couple of things. 1, I mean, in some cases, the projects we're looking at are Expansions of existing communities where you're leveraging off the existing infrastructure and amenities and the existing overhead of the in place staff in Phase 1, So you can create a little better margin from an operating and from an investment perspective on these expansion opportunities. 2, I think that we are in some cases executing on existing owned land sites as well that we have a lower basis on. And then I think other than that, as I think you probably know, I mean, we've had a history of being able to operate pretty cost efficiently at the property level over the And it's only gotten better or stronger, if you will, given our scale now. And so I think a combination of all those factors Offers up an opportunity for us to still deploy capital on the development side where we are taking certainly some level of risk more so than You would have an acquisition, but risk that we feel very comfortable executing with.
And the As I say, probably the biggest risk is that you commit to a project or you started and then all of a sudden your construction costs get away from you. And we're not going to take that risk. I mean, we go into it with a guaranteed fixed price contract with the contractor and We've put in a lot of ample cushion in case we do run into some degree of problem. But all those factors sort of come together Create in our markets at least in the regions that we're in, the markets that we're in an ability to make these deals Those were at the levels and the numbers that we've been talking about.
Okay. Fake Pergo Floors, I remember well. Yes. And then Sort of corollary to that question, Eric, do you see an opportunity down the road For broken deals to come back your way and by value add maybe next year or late next year into 20 Are those types of things starting to sort of percolate behind the scenes or is that just not being seen just yet?
Rich, I think that we are starting to see maybe some really early indication That things are starting to fray a little bit. The deal volume, as I mentioned, the deal volume is really high right now And we are hearing more about deals not trading That had been under contract previously. The challenge of course is there's still a lot of very strong buyers waiting in the wings and waiting around the hoop Just to jump on any of these deals, we used to be able to hang around the hoop without a lot of other people around us and now there are a lot of people around us. So, But I do think, as I'm sure you know, I mean, there's just a I hear just huge numbers of capital, private capital On the sidelines that are specifically earmarked to deploy in multifamily real estate. So, I think that The deals flow and the opportunities, I think, are starting to pick up, But the buyer pool is still pretty aggressive, but we are hearing and seeing more deals fall apart, A little early indication on that.
So I'm optimistic that next year we may see the tide turn just a little bit.
Okay, great. Thanks for the color.
You bet.
And our next question comes from John Kim with BMO Capital Markets. Please go ahead.
Good morning. You had a slight increase in your development yields, it sounds like, this quarter versus last. Is that Because rents have been trending better than expected or is that due to mix?
I think that's a comment. It's really more of the mix of properties that we had in there, John. I think 6% to 6.5 Yield is pretty consistent on the deals that we've seen. I think it's a little bit different mix in 6 a couple of quarters ago. I think there's a little bit different mix of properties in that.
And I think you alluded to this in your prepared remarks and in other But with your balance sheet at 0.5 times net to EBITDA, can you just list your priorities as far as use of capital developments, redevelopments and acquisitions?
Well, right now, without a doubt, our most accretive use of money is in redevelopment. And so we're going to push that agenda as aggressively as we can Without, you can't push it too far and you start to really change the economics, but we're going to continue to push that agenda As much as we can. And the good news is there's a lot of opportunity there. We're just now really getting into the post portfolio and that's where we see some of our best Yield opportunity on that redevelopment capital. I think after that, as I alluded to, some of the development deals We're looking at continue to pencil out pretty accretively.
So we're going to be mindful of the risk on that, but continue to pursue that agenda. And then we're just going to remain patient on the acquisition side. We continue to underwrite a lot and look at a lot, but we're just not pulling the trigger on anything right Given the pricing we'd have to pay and the outlook for sort of rent growth that we think is there over the next few years, The 2 just come together to create a outlook that to me is not particularly appealing from an earnings accretion perspective. And so we're just going to wait on that and wait for pricing or something to change the dynamic there.
Okay. And then on your 2.3% growth on blended leases in October, can you give the new versus renewal and So the 90 basis point improvement, any difference between legacy post and legacy MAA?
Yes. Okay. So the improvement On new leases was 110 basis points in October and the renewal Was 60 basis points. And both MAA and post were pretty much in Neck and neck on that one. MAA was 1.1 better than last year and post was 1% better than last
And our next question comes from Daniel Bernstein with Capital One. Please go ahead.
Hi, good morning.
Good morning.
Sticking to the development questions, which seems to be the flavor of the day. Yes. Have you thought about doing any instead of on balance sheet, maybe something that's more funding developers like loan to own And taking some of that risk off on the development side and maybe or maybe with private equity and not taking all be on balance sheet risk at this point in the
cycle? We have, and we've had some conversations with a number of people about that. In fact, we're working an opportunity currently in the Phoenix market, much along the lines of what you described. We are One of the things that I've always felt that we wanted to be focused on is as we do I have these conversations to come in and talk with the developer and providing the funding. I think there needs to be a clear pathway for us to ultimately Secure ownership of the asset.
I think just deploying capital as a lender is not what we really want to do. I think that we ultimately want Control the asset at the end of the day once the property is fully built and leased out. So we're having a number of those kind of conversations. And we're as I said, we're working on one opportunity right now that might come together.
Are there any particular markets That you would want to develop in or gain scale in some of your markets that are 3%, 4%, 5% of NOI, would that Assuming market conditions are right for that, would that help the investment yield on
As we grow scale in given markets. So, but yes, I mean that's why we're looking at trying to grow Our presence in the Denver market right now, we have, as we mentioned in our call, we've got one expansion project that we In the Q3 in Denver, we've got 2 other land sites currently, 1 owned and 1 under well, both owned actually at this point That we may very well pull the trigger on next year. So Denver is a market that is high on Our target list at the moment, Orlando, we mentioned really any of the Florida markets continue to we find a lot of appeal there. Raleigh is another market that we've got a site under control there and all those markets are in that kind of 3%, four So, Raines, that you're alluding to, Houston, we've got a site that under contract there as well. So, yes, the answer to your question is, All those markets offer opportunity to pursue this and create a little bit more scale and operating efficiency.
Okay. One more quick question. It seems like marketing expenses went up sequentially and I know that's a much smaller bucket than taxes and some of the other ones. But Is there anything that we should read into that in terms of going forward expense growth?
The quarter, we spent a little more on marketing And drove about 20% more leads and a higher level of move ins during the quarter, but would expect it was actually a little behind in Q122 And expected to be back in line in force. So no real read through on that, just timing more than anything.
Okay. So just normalizing?
Yes, sir.
Okay. All right. Thank you for taking my questions.
You bet. Thank you. You bet.
And our next question comes from John Guinee with Stifel. Please go ahead.
Great. Thank you. About 9 months ago, we were in Orlando for the NIMHD conference. And if you listen to the research guys, who I think are pretty good, every one of them Said B product, secondary markets, lower price point had a greater potential for Top line revenue growth than a product in urban markets and looking at the REITs year to date, that The research forecast is the beginning of the year and that it maybe hasn't quite played out that way?
Go ahead. Yes. I'd be glad. Our experiences that it has and well, I would give you the example of the Atlanta Okay. The Interloop, High End, Buckhead, Brookwood, Midtown Corridor has been very much under pressure and That's affected our Atlanta numbers outside the perimeter, up the 85 quarter or 575 quarter And 75, those a little bit more suburban and skewed towards B assets Performing at a higher rate.
So it's hard to get a pure read through on A versus B by looking at the REITs individually.
Great. Thank you.
And our next question comes from John Pawlowski with Green Street. Please go ahead.
Thanks. Eric or Tom, I know the smaller metros you Great. And I've been a little bit seeing better growth of late. When you stare out 2 or 3 years, would you underwrite higher revenue growth in your All our metros or your bigger metros?
I think over It depends on where you are in the cycle. And I think in the current environment where these larger markets We're seeing more supply. They're going to be under more pressure from a rent growth perspective than what you're going to see in some of the smaller markets that are We're seeing as a percent of existing stock quite the level of supply. But I think that as you get into another Stage of the cycle where perhaps some of the supply pressures have pulled back a little bit, recognizing that those larger markets Tend to over time have more robust job growth over time. You then get back to a point in the cycle where the larger markets Tend to outperform some of the smaller markets.
So it really depends on where you are in the supply cycle and broadly in the economic Tycho, in terms of how the 2 different sort of types of markets perform, I think that if we continue to See supply remain pretty elevated over the next Couple of years, I think the larger markets will probably struggle a little bit more, but the good news of Some markets are creating some fabulous job growth. And so while the supply is elevated, the demand side of the equation It's so strong that it's keeping the performance from really being more problematic than you might think. One of the things that's interesting is just if what gives me pause more than anything is when does something radically different happen? When does something radically big change the and it's usually a recession or some sort of massive pullback on the demand side of the equation that That's always hard to anticipate. And if that kind of scenario plays out, that's where you really see the smaller markets really start to outperform the larger markets because those larger markets Tend to be much more susceptible to recessionary environments.
So it's It's hard to really say over the next 2 or 3 years exactly how those two segments will perform relative to each other depends on these other factors. But I just have come to conclude that better to be diversified than not diversified and be ready for whatever may come.
Sure. Makes sense. And I know supply grabs all the airtime in these calls and all the headlines. When you look at the demand back Drop in any of your markets, are you seeing any concerns, any leading indicators of concerns for the demand side of the equation your markets?
No. At this point, it is steady as it goes. We are not seeing any pullback, but That information is more hypothesis than I think the supply is. We can get a bead and are getting a better bead on what our But what the job growth number is going to be for next year It's more hypothetical, but boy, the momentum feels good right now.
Yes. And I would tell you that when you think about the demand side of the equation be A function of not only just the economy and job growth, but also the other factors surrounding demographics and changes in society And sort of single family housing affordability and all those other factors. Those factors, I think are going to continue to be favorable Towards rental housing broadly and apartment housing specifically. So I think that at this point, we don't see Any real reason to expect that the demand side of the equation is going to pull back at all. And I think that as I say, The one variable that's really hard to handicap right now is when does the next recession hit and to what degree Does job growth get affected by that and how does it affect demand?
No reason to see that coming anytime soon, but it's something we think about.
Okay. Thanks for the comments.
Thanks, Sean.
And our next question comes from Tayo Okusanya with Jefferies. Please go ahead.
Hi, yes. Good morning. For most of this year, I mean, when I take a look at your supplemental, you guys tend not to refer to larger markets versus secondary markets as they used To pre the post acquisition, I'm just thinking, just to kind of think about your portfolio that way? And if you do, how do you kind of think about your smaller secondary markets in regards to maintaining exposure there, possibly selling down in some of those markets that you have over the past few years?
As a consequence of all the transformation that We've been through for the last really 5 years starting with Colonial, then with Post and then just the recycling of capital. We've really Think about diversification and earnings balance in a different way now and really think about it mostly in terms of sort of A and B product, Trying to cater to a balanced price point in the market, diversified price point in the market and then we think about it in terms of submarkets, whether it's urban, Interloop, Suburban or more Satellite City. And so that has increasingly begun to define sort of Our portfolio and certainly how we think about earnings diversification, I think that As we look at recycling capital, it more often than not is driven by age factors and rising CapEx Issues or moderating rent growth for whatever reason. And typically that translates into older Our assets and neighborhoods that have got some age on it that has reached a point in the life cycle where we think better to pull that money out and redeploy it. And often when you look at our older assets, they tend to be in some of these smaller cities that we've had for some time.
So, I think that as we think about recycling, you may see us continue to access some of these Legacy smaller cities that we've had, but that's really more a function of just asset specific issues as opposed to any sort of Strategy change or any diversification change.
Got you. All right. Thank you.
Thanks.
And it appears 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.
Okay. Well, thanks everyone for joining us, and I'm sure we'll see most of you next week at NAREIT. Thank you.
This does conclude today's program. Thank you for your participation. You may disconnect at any time.