Good morning, ladies and gentlemen. Welcome to the MAA First 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, May 3, 2018.
I will now turn the conference over to Tim Argo, Senior Vice President, Finance for MAA.
Thank you, Savannah, and good morning. This is Tim Argo, Senior Vice President of Finance for MAA. With me are Eric Bolton, our CEO, Al Campbell, our CFO and Tom Grimes, our COO. Before we begin with our prepared comments this morning, I would like 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. Reconciliations to comparable GAAP measures can be found in our earnings release and supplemental financial data. I'll now turn the call over to Eric.
Thanks, Tim, and good morning. 1st quarter results were slightly ahead of our expectation and reflect the continued solid demand for apartment housing across our markets. We continue to weigh on our ability to drive rent growth on leases written for new residents. We expect the supply pressures will persist through most of this year With trends moderating in 2019, but as we enter this busy summer leasing season, we're encouraged with the number of trends that we are capturing And continue to believe that revenue trends have bottomed out for the cycle. Our expectations moving forward And demand for apartment housing across our markets, our high occupancy levels, the strong performance being captured on renewal lease pricing, The improving pricing trends within the legacy Post portfolio and finally, the continued strong performance on same In several of our markets for the next few quarters, continued favorable results in these key areas support belief I believe that we should see incremental improvement in NOI moving forward with better momentum in 2019 as supply pressures moderate.
Performance in the face of higher new supply is a testament to not only the continued healthy demand for apartment housing in our markets, But it's also a very positive statement about the quality of service provided by our on-site associates, and I really appreciate their efforts. The leasing pressures associated with higher levels of new development continue to mostly impact the higher rent properties and more urban oriented submarkets within the portfolio. However, it's worth noting that the overall blended rent growth on lease signed in the Q1 within the more urban oriented legacy Post portfolio did improve by 190 basis points Accelerated rent growth as a result of both the execution of our revenue management practices and the meaningful redevelopment opportunities in the portfolio We'll support much improved performance trends. As noted in the earnings release, our progress associated with managing operating expenses Tom will cover more details in his comments, but we have been pleased with the early results within the legacy Post portfolio as our various operating practices are fully implemented and the efficiencies associated with our larger scale are making a positive impact on overall portfolio operating margins. Over the course of the summer, we expect to wrap up the work associated with the back office systems integration associated with our merger with Post as we continue to refine and capture the benefits associated with having both portfolios on the outlined within the post for the post merger is something we continue to feel confident about.
As noted in our earnings release, During April, we closed on a property acquisition located in Denver. This off market acquisition of this newly developed property was negotiated late last year With the closing subject to the completion of the construction of Phase 1 of the project, the property is located adjacent to a recently approved New light rail station that will connect to downtown Denver and located adjacent to high end restaurant and retail shopping venues. This is a high quality property in a terrific location that is a great addition to our Denver portfolio. We expect to get underway with of the property later this year. We continue to see heavy deal flow with our underwriting and transaction volume reaching a 5 year high for the typically slower Q1 of the year.
I continue to believe that as we work further into the cycle of new property deliveries, The capacity and optionality surrounding our balance sheet along with our proven execution capabilities will yield increasing opportunity for earnings Accretive external growth. In summary, we like the start to the year and continue to believe 2018 will play out along the lines we expected. Demand remains high. Resident retention is strong and rent trends look to have stabilized. We're excited to be nearing completion of the final steps in fully integrating all operating and reporting activities of the legacy MAA and Post portfolios, And we remain very enthused about the long term value proposition surrounding the merger.
I appreciate all the hard work Our team has done over the past year in stabilizing our platform, and we look forward to the opportunities in front of us with the important summer leasing season. That's all I have in the way of prepared comments, and I'll now turn the call over to Tom.
Thank you, Eric, and good morning, everyone. Our operating performance came in as expected. Revenues for the Q1 were 1.8% over prior year with 96.3 percent average daily occupancy and 1.4% effective rent growth. Expenses increased just 1.6% over the prior year and NOI increased by 1.9%. Looking at revenue drivers by portfolio in the Q1 as compared to the prior year, the legacy MAA portfolio generated revenue growth 2.3% with 96.4 average daily occupancy and effective rent growth 1.8%.
The legacy Post portfolio had 0.4% revenue growth with 95.8 percent average daily occupancy And 0.2% effective rent growth. Supply has been elevated in our markets for several quarters. Despite the supply headwinds, we saw the blended lease over lease performance of the combined company grow by 1.6% in the 1st quarter, Which is 40 basis points higher than the same time last year. This is primarily the result of new lease pricing on the post portfolio, which improved by a significant 260 basis points in the Q1 from the same time last year. This is further supported by improving monthly trends during the quarter.
Blended pricing growth for the overall same store portfolio in January was 0.7%, February 1.8% and March 2.2%. Expense performance continues to be a bright spot for both portfolios. While improvements in revenue management practices Are just now showing up in pricing, our programs to more aggressively manage operating expenses have shown more immediate results. Overall expenses within the same store portfolio were up just 1.6%. This includes $900,000 of winter storm related costs incurred during the quarter.
Adjusting for storm costs, our expense increased Less than 1%. Total expenses on the Post portfolio during the quarter were down 2.2%. That was driven by reductions in personnel costs, repair and maintenance expenses, as well as property and casualty insurance. As a result, the 1st quarter operating margin of the Post portfolio improved another 90 basis points. This is on top of the 130 basis point improvement we made in Q1 of last year.
We still have room to run with our expense management programs on the legacy Post portfolio and expect continued progress in 2018. Our operating disciplines are now fully in place And at current run rates, the savings will continue. April results show the benefit of our consolidated platform and momentum. Overall same store average daily occupancy in April was 96.2%, which is 10 basis points higher than the prior year. This is driven by a 50 basis point year over year improvement in the legacy Post portfolio.
Overall, the same store April blended lease over lease rates are up 2.9%, which is 90 basis points better blended rents in April of last year. Our 60 day exposure, which represents all vacant units and notices For a 60 day period is a low 8.3% and in line with prior year. The supply picture is well documented. Dallas and Austin are facing the most pressure. In 2018, we expect 22,000 deliveries for Dallas And in Austin, we expect 8,400 deliveries.
We're encouraged that job growth has remained strong in both markets. Dallas job growth was at 2.5 in 2017 and expected to increase to 2.6%. Austin job growth was 3.3% in 2017 And expected to remain robust again at 3.3% in 2018. These growth trends are Strong and well ahead of nationwide trends. While elevated supply levels have pressured rent growth Several of our markets, we are seeing good growth in a number of markets.
Phoenix, Richmond, Orlando and Jacksonville stood out from the group. Our focus on customer service and retention is paying dividends. Move outs by our current residents continue to remain low. Move outs For our overall same store portfolio, we're down 2.3% for the quarter. Move outs to home buying were down 3% And move outs to home renting were essentially flat with last year.
Home renting remains an insignificant cost for turnover and accounts for less than 6% of our move On a rolling 12 month basis, turnover dropped to a historic low of 49.6%. The steady decrease in turnover was achieved while increasing renewal rents by 5.5%. Momentum is building on the redevelopment program across the Legacy Post portfolio. In 2017, we completed renovation on 1700 units. We have completed an additional 560 in the Q1 and expect to complete 3,000 units this year.
On average, we are spending $9,400 and getting a rent increase that is 11% more than 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, in 2018, we expect to complete over 8,000 interior unit upgrades. On the legacy MAA portfolio, we continue to have a robust redevelopment pipeline of 10,000 to 12,000 units. On a combined basis with the legacy Post portfolio, our total redevelopment pipeline now stands in the neighborhood of 25,000 units.
As you can tell from the release, Our active lease up communities are performing well in Houston post Afton Oaks stabilized in the Q1 as expected. Our remaining pipeline of lease up properties, the Denton II, Post South Lamar II, Post Midtown, Post River North and Ackland West And are all on track to stabilize on schedule. We have begun leasing at Post Centennial Park in Atlanta. 2017 was a year of significant change for our organization. We started 2017 with 2 completely operating platforms and teams.
We're pleased that the bulk of the integration work of the Post portfolio is now behind us. We have started 2018 with a much more aligned and cohesive operating platform and team. Results are progressing as expected. We look forward to continuing to capture value creation opportunities on both the revenue and expense side of the equation as we finalize full integration activities in 2018. Al?
Thank you, Tom, and good morning, everyone. I'll provide some additional commentary on the company's Q1 earnings performance, balance sheet activity and then finally on guidance for the remainder of 2018. Net income available for common shareholders was $0.42 per diluted common share for the quarter. FFO for the quarter was $1.44 per share, which was $0.01 per share above the midpoint of our guidance. 1st quarter performance included $0.02 per share of noncash expense from the valuation of the embedded derivative related to the preferred shares issued And this was not included in our original guidance.
Same store performance, G and A expense and interest expense were all slightly better than expected and combined During the Q1, we did not acquire any communities. We did, however, close on the disposition 2 land parcels acquired in the Colonial merger for $5,900,000 in total proceeds. These sales produced net gains of about $200,000 recorded during the quarter. As Eric mentioned, in April, we closed on the acquisition of Sync36, a 374 unit high end community located in Denver. The acquisition included a land parcel to develop an additional 79 units as part of a Phase 2 expansion, which we expect to begin later in 2018.
Including the Phase 2 expansion, the total investment is expected to be approximately $128,000,000 Following quarter end, we also closed on a disposition of additional Land parcel located in Las Vegas for total proceeds of $9,500,000 which will produce a $2,800,000 gain that will be recognized during the 2nd quarter. Also during the Q1, we completed construction of 1 of our development communities, Post River North, located in Denver. The community was complete on plan with a total investment of $88,200,000 and is expected to be stabilized in early 2019 at a 6.4% NOI yield. We currently have 2 communities remaining under construction with a total projected cost of $125,800,000 of which all but twenty $4,400,000 was funded as of quarter ended. Including Post River North, our lease up portfolio now contains 5 communities totaling 1509 units.
Average occupancy for the group was 56.1 percent at quarter end. We expect 4 of these communities to stabilize in the second half of this year and remaining communities to stabilize in the first half of twenty nineteen had an overall average stabilized NOI yield of 6.4%, Which will ultimately produce over $21,000,000 of NOI. Our balance sheet remains in great shape. During the Q1, we paid off an additional $38,000,000 of secured debt, pushing Our unencumbered NOI is over 85%. We also executed $300,000,000 of forward interest rate hedges to secure future bond financings projected for later this year.
At quarter end, our leverage, as defined by our bond covenants, was only 33.1%, while our net debt to recurring dividend was just over 5 times. We also had almost $600,000,000 of combined cash and borrowing capacity under our unsecured credit facility at quarter end. Finally, we are maintaining and confirming Our outstanding guidance for all major components of our forecast, including net income, FFO, AFFO, same store performance and transaction volumes. In summary, net income per diluted common share is projected to be $1.78 to $2.08 for the full year 2018. FFO is projected to be $5.85 to $6.15 per share or $6 per share at the midpoint, which includes $0.08 per share of projected final merger and integration costs related AFFO is projected to be $5.24 to $5.54 per share or $5.39 midpoint.
For the 2nd quarter, of the remainder of the year as these adjustments are both noncash and impossible to predict. We remain on track to capture the full $20,000,000 of overhead synergies related to the post merger As well as other NOI and earnings opportunities outlined with the merger, which are reflected in our current guidance this year. That's all we have in the way of prepared comments.
We can take our first question from Nick Joseph with Citi. Please go ahead. Your line is open.
Thanks. You did 1.8% same store revenue growth in the Q1 and full year guidance is for 2% at the midpoint. And I know you talked Acceleration throughout the year. So just want to get a sense of the pace. How do you expect it to trend?
And do you expect 4Q same store revenue at I end the full year guidance around 2.2%.
Nick, this is Al. I would say in general, as we've talked about before, what the forecast is built on this year is really a few major components. Occupancy remaining strong at 96% through the year, certainly through the back part of the year. Renewal pricing being consistent 5%, 5.5% and then new lease pricing being the key to that performance over the back half of the year. We have Discuss that we do expect new lease pricing to be above prior year and that would drive blended pricing.
I think for the remainder of the year, what we We'll expect to see it was somewhere in the 70 to 80 basis points range to capture our guidance at the midpoint. I'll tell you though, in the Q1 of the year, we captured 40 basis points improvement over the prior years, Tom mentioned, in April actually was much better than that at 90 basis points. And so we feel very good about the trends and the prospects. And far what we lined up and outlined with guidance, we're right on track.
But then from a same store year over year basis, by the end of the year, you should be towards the top
The revenue is a good point. The revenue based on that would build as we went through. 2nd quarter would still be on the lower end, it would grow in the 3rd and 4th more significantly.
Thanks. And just wanted to get your View on the Houston market, we saw same store revenue growth in the Q1 actually
a little lower year over year than what
we saw in the Q4. So just what you're seeing there today?
Yes. Nick, it's Tom. Last year, we ran with high occupancy and negative rent growth. As you know, the hurricane changed that a bit And it takes time for the revised pricing to be replaced on each unit. So just to give you a flavor for what's coming, April blended rents in Houston were up 7.5% and we think revenues will continue to follow.
We just need that repricing to get on through the system.
Makes sense. Thanks.
Thank you. And we can go next to Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead. Your line is open.
Yes. Hi, good morning. As it relates to supply, you guys had laid out a table in your investor deck that showed quarterly Apply growth by market, and indicated some fairly significant decreases by quarter. I was just curious, 1, do you still think that that's The case that we should see it ratchet down, I guess, each quarter throughout the year, or have you seen some of that pushed, I guess, later into the year? And then second, Do you think you're already feeling the impact from some of that supply as properties tend to lease prior to completion?
Yes. I mean the answer to your question is yes, we do think that some of the supply based on the most recent and updated information We have appears to be slipping a little bit later into the year. And yes, you're right, we do begin to see some of the pressure on particularly as I've mentioned in new lease pricing prior to the actual deliveries of the unit as pre leasing activity starts up. But I will tell you that the slippage, if you will, of some of the supply until later in the year in some Anyway, what was really a problem last year is we saw slippage take place in the Q3 with deliveries that we thought would happen in the 3rd Moving to the Q4, which of course is the worst leasing quarter of the year. So moving some of the Q1 deliveries into Q2, Q3 It's not such a bad thing given that leasing activity is more robust.
Having said that, I also want to quickly mention, While the revision that we're seeing on supply being pushed out a little bit is accompanied by also a higher job growth forecast than what we started the year with. We've seen job growth pick up on a blended basis about 40 basis points more than we expected Starting this year, so while the supplies picture is moving around a little bit in terms of timing, we're encouraged with Continued healthy demand and job growth taking place, which I think is going to be helpful.
Any particular markets That job growth are the big drivers of the improved job growth outlook?
Yes, Austin, this is Tim. We're really seeing Austin and Dallas Push up, which is they've been drivers now for a few years and they just continue to be job engines. That will be helpful as those are obviously 2 of our larger markets.
Great. Thanks. And then as far as expenses, clearly another quarter of expense savings from Post and really kept expense levels low. As revenue ratchets higher through the year, should we think about expenses also ratcheting a little bit higher? Or do you think That maybe the initial outlook is a little bit conservative and that you're finding continued opportunity to keep that kind of towards the lower end of the range on the full
Austin, this is Al. I would say we feel good about the guidance that we have full year for expenses, which is 1.5% to 2.5%. Now with the Q1 At 1.6 that would tell you that what we're expecting over the remaining 3 quarters is somewhere around 2, maybe a little north of 2, blended for the back half of the year. I think that's what we would expect overall.
If nothing else, some of the early wins we were getting on the expense side began showing up really in the last half of last year. So the comps, The comparisons to prior year get a little tougher as we get towards the back half of the year. The absolute savings continues, But the comps just get a little bit harder, which will, of course, affect year over year results.
Appreciate that. And then just last one for me. On the $128,000,000 total investment on the Denver deal, can you give us the breakout between Phase 1 and Phase 2, As well as what the going in yield on that deal was and then what you ultimately expect it will be on stabilization?
Well, the Phase 1 was something approaching $94,000,000 It's a 104,000,000 100 and 4,000,000 The balance is what we expect to spend on Phase 2. The stabilized yield that we expect to get out of this project is upper 5 range as it gets Phase 2 gets fully built out and leased up. So we, as I mentioned in my comments, it's an incredible location. And we think that As we continue to build out our Denver presence, we think this can be a great addition. But we expect to be in the upper 5 range on the stabilized NOI yield on this deal Over the next couple of years or so.
So does that put Phase 2 at north of a 6% yield? Yes. On a standalone basis? Great. Thanks for taking
the question.
Phase 2 is a smaller 79 unit as you can do the math on that, which will be a very efficient addition because it will use most of the amenities and things from Phase 1.
And the Phase 1 was about 68% occupied when we bought it. So that will give you an indication of sort of the initial yields.
Great. Thanks for the detail.
Thank you. And we can go next to Rob Stevenson with Janney. Please go ahead. Your line is open.
Good morning, guys. Other than the Phase 2 on the newly acquired asset, what other land are you controlling these Days for future development and how much of that are you thinking is going to start within the next 12 or so months?
We have parcels already that we own in Fort Worth, In McKinney, North Dallas, satellite city in North Dallas, McKinney, Texas and we have a site in Cherry Creek submarket in Denver. We would expect potentially to be underway With all of that very late this year, maybe a little bit, the Cherry Creek site may slip into early next But we're still working through pre development on those three opportunities. We also control opportunities and other And also we have a Phase 3 opportunity in Raleigh, North Carolina with an existing property That we will likely pull the trigger on later this year. In addition to that, we have another site in Denver That we are working, that we have on a contract and we also have a site in Orlando that we are working on.
Okay. I mean from a timing standpoint, I mean it sounds like that most of this is going to wind up being either late 2018 or 2019 starts, which Means that basically, I would imagine then that there's basically the expectation to little to no deliveries at all in 2019. Is that correct?
That's correct.
Okay. And then, Tom, any markets that you're a third of the way through the year now That you're seeing might be a little bit stronger, a little bit weaker than you guys were initially expecting?
Honestly, Rob, not out of the chute. I mean, we expected headwinds in Dallas and Austin and those are there, but we're pleased With the job growth there and then very pleased with places like Phoenix and Orlando right now.
Okay. And then, Al, one last one for you. In terms of the hard cost on unit turnover, what are you guys spending these days?
I think it's around $1,000 per unit with 1,000,000 1200 with all things depending on whether you replace carpet or not. That's a big factor in there. I think that push At the high end, if you replace carpet, you would do that every 5 years or so. And so I think that's roughly what we would say today.
Okay. And given the reduced level of turnover, are you able to do that With existing Mid America staff, are you having to bring in outside contractors to do that?
And that's one of the key things that has helped us with the Post Portfolio is we're handling close to 80% of those turns in house, meaning sort of paint and carpet cleaning. The carpet installation and replacement, the capital item that Al mentioned, We contract that out by comparison post really used contract labor for the overwhelming
And we can go next To Dennis McGill with Zelman and Associates, please go ahead. Your line is open.
Hi, good morning. Thank you. First question, you gave a couple of That's around new leases. I think you had said the post new leases were up 2 60 bps year over year. Can you just fill in the holes as far as what new lease was for the overall portfolio and then maybe the pieces and then how that trended versus 1Q 2017?
Yes, sure. New lease rates were For the Q1 combined same store, new lease was negative 2.3%, renewal 5.5%, blended 1.6%. And then for April, new lease rates are 10 basis points positive, renewals are 5.6 And blended 2.9. And then just on roughly on a blended basis, to save some math, but I'll go into detail if you want it. 1st quarter was up 40 basis points versus last year on blended and April was up 90 basis points.
Got it. And then I guess the only question within that, so post new leases, I think you said were up 260 basis points year over year. What does legacy MAA do in the Q1
Legacy MAA on blend, you said new lease rates?
Right.
Bear with me just a second. MAA new lease rates were about flat for the quarter.
Perfect. Second question, You noted the operating platforms will be finalized on the synergy later this year. Where will we see the most obvious benefits once that's done Either expense wise or revenue wise.
Well, I will tell you, it gets a little Hard to point to specific things. Generally, a lot of the expense savings That we hope to get as a result of just renegotiating a lot of contracts and services for various Services and supplies and products that we use. And that really wasn't so much a function of The systems conversion and consolidation effort, if you will. I will tell you on the revenue side is where I think comes from in terms of where the opportunity is as a result of putting both companies on the same platform. We frankly just get more efficient in how we manage the company.
Right now, our regional leadership and We are working with 2 different systems and having to look at 2 different sets of reports and our LRO or revenue management It's not as fully optimized because of having to, if you will, still interface with 2 versions of our property management software. So There are there's a lot of inefficiencies frankly that we have in terms of just how we manage the business by having the on 2 different systems. And I think as a consequence, and we're about halfway through the conversion process at this point, we'll wrap up here in another 90 days or so. And I think it ultimately just gets to a point where we have more efficiency. Now the other thing that comes from this is Frankly, with the new system, we're introducing a little bit more robust activity as it relates to sort of web based activities.
There's a new consolidated Web platform that is being finalized. And so it's a lot of things. A lot of them are subtle, But in aggregate, we think it just creates a lot more ability to bring intensity to the things that we really want to focus on as opposed A lot of focus on putting systems together. We sort of are able to, if you will, get back to work in a much more intense fashion As a consequence of the merger.
I might just add to that too, if the question is what is remaining to capture from those opportunities, then one of the things we've talked about is the redevelopment. Remember, we're capturing that over 3 years or so, And the plan this year to capture a third of that. So it will take several years to roll that opportunity, that portfolio opportunity out at the pace we're doing. So there are several things that will keep providing
And when you flip the switch in 90 days or so and you're on the same platform, how long will it take you after that to get To stabilize fully efficient run rate on the revenue management.
I think it's happening. I think it will be Instant, frankly. I think it happens. What remaining little inefficiencies We have sort of dissipated as a consequence of finally being on the same system.
And Dennis, what I would tell you is, I think most of the benefit of the revenue management system on the Post portfolio, we're really beginning to capture that now and you're seeing that in the
Eric, you talked to turnover being at historic lows and we're seeing that not just across the multifamily space, but pretty much all of housing. Any thoughts From your perspective, how much of that is changing consumer behavior versus not having anywhere to go because of inventory constraint?
I think that a lot of it is a change in behavior. I think that we certainly continue to see average age, average income Continue to move up as within our resident portfolio over the last couple of years. We continue to see the percentage of female Versus mail continue to move up as a consequence of the last 2 or 3 years' worth of trends. Certainly, the ability to go out and buy Starter home is more challenging, and I'm sure that factors into it to some degree. But I think it I continue to believe that a lot of it is more social And more about just our behavior patterns of our resident profile As much as it is anything.
And Dennis, we've seen our single rate go up about a percentage point, which indicates Supporting sort of Eric's point, we're not seeing people get married and sort of The backlog in the unit in some way, shape or form assuming that a married couple is more likely to buy a house than single.
Thank you.
And we can go next to Nick Yulico with UBS. Please go ahead. Your line is open.
Hi, good morning. This is Trent Trujillo on with Nick. Just wanted to circle back. I appreciate all the comments that you had on supply. Just to circle back on that topic though.
So given peak supply across your market, you said in Q1 plus some slippage, so maybe you're experiencing it right now. Can you speak to the level of concessions you're seeing across some of your larger urban markets of perhaps Atlanta, Dallas, Houston and DC and how that's trended since the start of the year?
Sure, Trent. And I'll just roll through it with Atlanta and going down concessions, It's really about submarket in Atlanta. We've got 1 to 2 months free in Buckhead and Midtown. There are Pockets of 1 month free depending on specific lease up places like Roswell Road in 285 or the perimeter Has a little bit of pressure with a 1 month outside the perimeter, concessions are really pretty rare there. In Austin, we've got we see sort of 1 month in Cedar Park, which is North area and in South Austin.
The tightest part is our the most pressured part is sort of that South Congress, Lamar corridor and we're seeing 6 weeks to 2 months there. That's pretty similar with what we saw earlier. And then in Dallas, we're seeing 1 to 2 months in Frisco, Plano and Richardson. Uptown is running close to 6 weeks, which is actually slightly better than what we saw previously. It was running closer to 2 months.
And Uptown supply is about 2,000 units, which is about we expect that in 2018, which is about what it was in 2017.
Thank you very much. I appreciate that. And perhaps regarding acquisitions, how competitive is the transaction market? And can you speak to The amount of deals you're currently considering, I think earlier Rob had mentioned something about the land sites that you were looking at. But I think last quarter you mentioned you had quite a few Acquisition deals under review, but just the one closed in the Denver market after quarter end.
So any commentary on that would be helpful. Thank you.
Yes, I mean the transaction market is incredibly competitive. We, as I mentioned in my call comments, we I mean the number of deals that we underwrote in the Q1 is the highest we've had in over 5 years in the Q1, which is Typically a very slow quarter for deal activity. So we continue to see a lot of volume. But we've seen cap rates, if anything, over the last 6 months move down a little bit. I mean routinely, you're in 4.5% to 4.75% range in some The bigger markets in your low 5, 5 to 5.25 and perhaps some of the smaller markets as more capital Continues to wade into some of these more, if you will, non coastal markets or more secondary markets.
So It's incredibly competitive and we continue to remain active In the market, but believe that based on the hurdles and the disciplines that we're holding ourselves accountable for in In terms of any capital deployment, that where the pricing is right now, it's just hard to really justify some of the pricing that we see happening. And so we're going to remain patient frankly as we think that as we get a little later into the cycle, I think Later this year, supply trends being what they are, that the opportunities Make it a little bit more favorable, but it's pretty competitive right now.
Okay. Thank you very much.
Thank you. And we can go next to Drew Babin with Baird. Please go ahead. Your line is open.
Hey, good morning.
Good morning. Hi, Drew.
Question on the improvement in new lease pricing year over year within the legacy Post portfolio. Would you say that this is directly attributable to The ROI CapEx on some of these units you've acquired and I guess can you speak to how you're pricing those units relative to new Supply in places like Uptown Dallas, Atlanta and Austin.
Yes, Drew, we haven't done enough of that CapEx to really move the number. Started on the merger and supply was picking up and our ability to get last year, We were really on 2 different pricing systems completely. We were just beginning to push renewals up and we were adapting To the portfolio, so I would tell you the uptick is significant in terms of just us learning the portfolio and getting our practice Habits and systems in place. And then sorry, what was the second part of your question, Drew?
I guess just as More of these renovated units come to market maybe in the peak leasing season. I guess what's the pricing strategy relative to the new supply in these markets? Was there a certain kind of gap relative to where the new supply is delivering as far as rents go that you're targeting to sort of be a value proposition relative to
This is what we are so excited about the Post portfolio on is, Post did a really, really fine job of picking locations that stood the test of time. So essentially what you've got is we have mid rise product that was 8 years to 10 years old, let's say, And we're being shaded out by high rises that are looking for $3 a foot. So we're able to upgrade the unit, Great bones, well developed property and we're able to stay even with the upgrade in units $2 to $500 less than new lease pricing. It's a real sweet spot for us.
That's very helpful. And lastly, Al, Just a question on the balance sheet. Unsecured bond pricing right now for 10 years, if you could kind of give maybe the spread economics And then whether MAA would consider doing anything with the duration over 10 years, given kind of a flat yield curve?
Yes, Drew, that's a good point. I mean both the underlying treasury rates, 10 year rates has gone up recently and the spreads have gone up a little bit in the But 10 year bond, if we do once a day, it'd probably be around 4.3 to 4.5 range, something like that. But keep in mind, As I mentioned, we've done $300,000,000 of hedges in preparation for some financing this year. So when and if we do a deal this year, we'll be a little bit Lower than that, I would say. And so that's and then what was the second question, second part of that?
30 year. 30 year. Oh, absolutely. No question. And one of the things we've talked about 4 is, we've worked very hard on our balance sheet over the last few years.
Now we're at a point we've got a lot of public bonds, outstanding liquidity. We think we're ready to go to potentially a third of your market at some point. And one of the things that we are looking to do to continue to strengthen our balance sheet is push our durations and maturities out. That's a Specific target for us over the next few years through. So I can't tell you when we would do that.
Obviously, we're going to work Tactically where the market gives us that opportunity, but we do expect to seek that kind of activity over the next year or 2.
Great. That's all for me. Thanks.
Thanks, Trey.
Thank you. And we can go next to Tayo Okusanya with Jefferies. Please go ahead. Your line is
Yes, good morning. A couple of questions from me. First of all, you are quickly increasing your exposure to the overall Denver market. Just curious how do you expect to get in Denver over the next few years and why you're kind of particularly focusing on that market?
Well, we've been looking at the Denver market for frankly the last several years. We continue to believe that the growth dynamics there are very I think that there's just a lot of good things associated with, I think, the next 10 years likely that occur in Denver from a job growth perspective and migration and household demand for that market. Some of the West Coast markets continue to become prohibitively expensive to live in. We think that the markets like Denver, Phoenix Continue to find favor with a lot of households and employers as well. As a result of the merger we did with Post, You may recall they actually had a development project already underway there.
And so that really gave us the toehold into the Denver market that we've been working to a fine for several years. And then as a consequence of now Spending more time in the market, we went out and created an off market opportunity on the Sync36 acquisition that we looked at. As I mentioned, we also have another site In the Cherry Creek submarket, very compelling and high end submarket there, just a little bit southeast of downtown that Post had already On balance sheet that we're working on. So we're going to continue to and then we've got another site that we're working that we recently have been working for the past year or so to sort of tie up. So it's just a very slow methodical process that we're continuing to work through Both in terms of development as well as acquisition and we'll be patient as we look to build out our presence in the Denver market, but we very much like The growth dynamics in that market and continue to feel that it's a good fit for us.
That's helpful. The second question is for Al. Just kind of going back to same store FX, again, really good quarter Holding those costs down, but kind of going forward, I guess, with where your guidance is, could you just talk a little bit kind of category by What do you still think you might be able to hold costs down? I know this quarter in particular was repair and maintenance and even property taxes are really up 2.6%. But I'm curious for the rest of the year, how do you see that mix that will keep you within that low guidance range?
Yes. I think for the rest of the year, you'll definitely continue to I think taxes, real estate taxes will be pretty consistent. It was 2.6% for Q1, but there was some timing of the prior year appeal finalization. So 4% for the full year on that is about the right picture. And then I think we would say marketing expenses will be below long term, but at the lower end of not negative, but Low 0% to 1% kind of range.
And so I think those are the key drivers of it as you look at the back half of the year. The insurance renewal that we had last year that's providing a lot of opportunity. In the first half of the year, we do renew in July 1 this year. We have an increase projected. So that's a little bit of a wildcard.
We feel like our increase we have in there is correct, But that's yet to be determined.
Great. Thank you.
Thank you.
Thank you.
And we can go next to John Pawlowski with Green Street Advisors. Please go ahead. Your line is open.
Thanks. Eric, on the capital plan for 2018, I guess, what specifically would you need to see to begin ramping dispositions? I understand You've done a lot of capital recycling in the past, but what would we need to change on the ground to pivot this position strategy?
Well, I think that as you alluded to, I mean, we've worked a lot over the last 5 years, both as Capital recycling and 2 fairly significant M and A events that have really gotten the position, the portfolio more or less where we want it. I think that we've got the balance and the diversification we've reduced, if you will, the number of markets that we're in pretty significantly. And as a consequence, we think created a little bit more efficiency in terms of how we are able to operate the portfolio. So I think that it's a long way of saying we sort of like where we are right now. I think the opportunity to then Ramp up recycling of capital by selling more assets Really comes back to the opportunity to match or to fund The capital we pull out of those dispositions and into something that is attractive and would offer an improvement, if you will, in our long term earnings growth rate over what we're selling.
And We're having a hard time finding new deployment opportunities right now that are particularly compelling in terms of pricing. And so as a consequence, we think the right thing to do at the moment is to continue to clip the earnings coupons that we have coming out Of a lot of the investments that we have today, keep our earnings coverage strong, keep the balance sheet strong, keep the optionality In place, and I think that we're at a point where obviously there is just a wall of capital out there That is continuing to chase multifamily real estate. I don't think it will always be this way, but I think that We're going to continue to be patient with the optionality that we have right now. And I think just Selling a bunch of assets and using the proceeds in a compelling way right now is just It's not a good environment for that right now. So we're and it's obviously it's a good time to be a seller.
But finding an attractive use of the capital Without really creating earnings pressure associated with that is difficult to pull off right now.
Yes. But in certain markets, your comments about how competitive the bid is and you're sitting in the for acquisitions, not willing to underwrite the growth on certain deals that people are. So I guess why not sell the dream to somebody else with Comparable assets in your own portfolio and balance sheet is in good shape, but build a war chest for another day, sell that dream today.
Well, we think we've got a pretty big war chest right now. And I think that giving up earnings Right now, it doesn't seem to be particularly compelling for us. We think that the right thing to do right now is continue to enjoy the earnings that we're getting from the portfolio. We've put the organization through a significant amount of earnings dilution over the last 5 years. Recycling Over a well over $1,000,000,000 of capital from high yielding to low yielding assets, longer term earnings growth rate is better as So these new assets, but we put the organization through a significant dilutive event, both in terms of the recycling that we've done Through the merger with Colonial and more recently through the merger with Post, we have deleveraged the balance sheet massively over the last 5 years.
So we've done a lot of dilution, if you will, earnings dilution over the last 5 years. And in order To position the company, we think, for a better future earnings growth profile. And a lot of that has been accomplished right now. So We don't see a big need to do more of it right now. We think frankly the thing for us to do over the next few years is to harvest the earnings out of all the stuff that we've done for the last 5 years and that's really where our focus is.
Okay. Last one for me. In terms of submarket supply backdrop, On the margin, when you look forward to 2019 2020, do you expect supply to start weighing on the legacy MAA footprint More than the post
footprint? No, not really. I think that we continue to see that frankly what development does Rising land costs, the only thing that pencils right now is to build a pretty high end, very high rent kind of product. It's the only way you can make it work. And so I don't think there's any reason to see that those conditions are going to change in such a fashion that all of a You're going to see a wave of modest more modestly priced product starting to be built out.
I just don't see that happening.
Okay, thanks.
Thank you. And we can go next to Wes Golladay with RBC Capital Markets. Please go ahead. Your line is open.
Hey, good morning guys. Just want to go back to the questions on concessions. On average for the entire year, do you expect Concessions to be less of an issue this year. I know you got hit last year, particularly in Q4, and that really hurt the guidance. But How should we look at the progression of concessions and new lease spread?
Yes. I would think concessions well, New lease rates, I would expect on a net effective basis to continue to build on the pattern that they have for the 1st 4 months of the year. And then concessions, I would not expect, it really ramped up in the Q4 of last year and we just I don't see anything indicating that that's going to happen again this year.
Okay. And I don't know if you have the data handy, but you have the new lease spread last year in Q4?
I do not have it in my fingertips. We can follow back up with you on that, Wes. But it is a number we're looking forward
And it appears we have no further questions At this time, I can go ahead and turn it back over to you, Eric and the team, for any additional or closing remarks.
Okay. Well, thanks everyone for joining us this morning, and I guess we'll look forward to