Apr 28, 2015
Executives
Jason Reilley - Senior Director-Investor Relations Timothy J. Naughton - Chairman, President & Chief Executive Officer Matthew H.
Birenbaum - Chief Investment Officer Sean J. Breslin - Chief Operating Officer Kevin P.
O'Shea - Chief Financial Officer
Analysts
Nicholas Joseph - Citigroup Global Markets, Inc. (Broker) Jana Galan - Bank of America Merrill Lynch Dan M.
Oppenheim - Zelman & Associates Nick Yulico - UBS Securities LLC Haendel E. St.
Juste - Morgan Stanley & Co. LLC Robert Chapman Stevenson - Janney Montgomery Scott LLC John P.
Kim - BMO Capital Markets (United States) Vincent Chao - Deutsche Bank Securities, Inc. Dave Bragg - Green Street Advisors, Inc.
Alexander D. Goldfarb - Sandler O'Neill & Partners LP Tayo T.
Okusanya - Jefferies LLC Michael Salinsky - RBC Capital Markets LLC William Kuo - Cowen & Co. LLC
Operator
Good afternoon, ladies and gentlemen, and welcome to AvalonBay Communities' First Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Following remarks by the company, we will conduct a question-and-answer session. Your host for today's conference call is Mr.
Jason Reilley, Senior Director of Investor Relations. Mr.
Reilley, you may begin your conference.
Jason Reilley - Senior Director-Investor Relations
Thank you, Augusta. And welcome to AvalonBay Communities' first quarter 2015 earnings conference call.
Before we begin, please note that forward-looking statements may be made during this discussion. There are a variety of risks and uncertainties associated with forward-looking statements, and actual results may differ materially.
There's a discussion of these risks and uncertainties in yesterday afternoon's press release as well as in the company's Form 10-K and Form 10-Q filed with the SEC. As usual, this press release does include an attachment with definitions and reconciliations of non-GAAP financial measures and other terms, which may be used in today's discussion.
The attachment is available on our website at www.avalonbay.com/earnings, and we encourage you to refer to this information during the review of our operating results and financial performance. And with that, I'll turn the call over to Tim Naughton, Chairman and CEO of AvalonBay Communities, for his remarks.
Tim?
Timothy J. Naughton - Chairman, President & Chief Executive Officer
Yeah. Thanks, Jason, and welcome to our first quarter call.
With me today are Kevin O'Shea, Sean Breslin, and Matt Birenbaum. We'll each provide some comments on the slides that we posted this morning, and then be available for Q&A afterwards.
Our comments will include a summary of the Q1 results. We'll highlight a few areas of focus that we discussed in connection with the Archstone acquisition that closed a couple of years ago, but are now starting to pay off for the company, including an increased presence in Southern California, greater efficiencies from increased scale and expansion, enhancement of important strategic capabilities.
Lastly, we'll touch on the development funding and activity. Starting on slide 4.
Overall results in Q1 were largely as expected for our business plan and we're off to a strong start as we enter the peak leasing season this spring and summer. Highlights for the quarter include core FFO growth of around 7.5%, which was consistent with what we saw in Q4 of last year.
Same-store revenue growth was up 4.3% over Q1 of last year or 4.4% when you include redevelopment, which are both about 20 basis points higher than we saw in Q4. We completed three communities, totaling $450 million this past quarter at an initial yield of just over 6%.
And while that yield is a bit lower than other recent completions, 60% of that capital represents West Chelsea and Manhattan where cap rates have been in the low 3% range, and the other 40% are assets in LA and Seattle where cap rates are currently in the 4% to 4.5% range. So we are still seeing a significant level of NAV accretion from these completions with margins that have been consistent with the other completions this cycle.
We also started two communities in Q1, totaling about $100 million, and we backfilled the pipeline with new development rights of over $400 million or roughly $200 million once you net out projects we decided to abandon at the end of last year. Moving on and turning to slide 5.
Our same-store portfolio has continued to accelerate in early 2015. Year-over-year same-unit rent is up 5% to 6% in the first four months of the year, faster pace than we saw in Q4 and roughly 250 basis points to 300 basis points higher than the same period last year.
This is actually the strongest rent growth we've seen in the first quarter of the year over the last couple of cycles. So the portfolio is well positioned going into the peak leasing season, with renewal offers for May and June actually going out in the mid to high 7% range.
Clearly, strong portfolio performance is being driven by healthy apartment fundamentals, which takes us to slide 6. As you can see, over the last several quarters, and I'm sure you know, job growth has been north of 2% nationally, or over 260,000 jobs per month.
And it's been even stronger in the young adult cohort of 25-year-olds to 34-year olds who are our prime renters, as you can see there, on the upper right on chart two. More recently, household formation appears to be rebounding, as you can see in chart three, perhaps showing signs of the release of pent-up demand that many have been expecting since the recovery began.
The strong demands against a backdrop of stable housing production over the last several quarters, at least in the multi-family sector, as you can see in chart four, is resulting in rental vacancies that are approaching 30-year lows, as chart five shows. And effective rental rate growth that is at or above what we saw early in the cycle.
So we've seen a really nice acceleration really going back to Q4 of 2013 in effective rent growth. Turning to slide 7.
Strong fundamentals are expected to be more evenly enjoyed across our footprint over the next couple of years of the cycle. Over the past four years, as you can see on the left hand graph, the West has outperformed significantly, driven by strong job and income growth in the technology markets of Northern California and Seattle, while supply has been modest in most markets, particularly in the Bay Area.
Over the next couple of years, we expect job growth to be more evenly distributed as more parts of the economy join in on the economic expansion. Secondly, we do expect supply to increase in Seattle and Northern California and, as a result, performance differences between regions should begin to narrow, including in the D.C.
area where performance has lagged over the last couple of years. Conversely, Southern California is projected to enjoy the largest disparity in favorable demand greater than new supply over the next couple of years.
Turning to slide 8. This expectation for regional performance to narrow as the cycle matures, this is consistent with what we've seen historically where the West has generally outperformed early in the cycle during the recovery and early expansion periods.
And then performance often converges with East Coast markets as the cycle matures. To be clear, we're not calling the top to the West.
It's just that we expect performance trends to begin to narrow between the East and West as we move further into the cycle, and inevitably relative market performance will ebb and flow and market leadership will rotate. As I mentioned before, for example, the D.C.
should begin to rise from the bottom and narrow the performance gap we've seen with other regions, and Southern California should become a top performer in the portfolio. With that, that's probably a good segue to talk a little bit more about Southern California, and I'd like to ask Matt to touch on our efforts over the last couple of years and how we expect that to bear fruit over the next few years.
So, Matt?
Matthew H. Birenbaum - Chief Investment Officer
Thanks, Tim. As we mentioned at the time that we announced the Archstone transaction back in late 2012, the Archstone acquisition really helped us achieve our long-term portfolio allocation goals.
Slide 9 shows how the geographic distribution of our NOI across our six regions has changed over the past two years, primarily as a result of the addition of the Archstone assets, but also due to lot of organic growth from the legacy AVB platform as our development activity ramps up early in the cycle. The region that has seen the greatest growth is Southern California, which grew from 14.5% to 19.6% of consolidated NOI over the last two years.
We have been under-allocated to this region for many years and had always been challenged to increase our exposure to the broadly diversified economy and consistent long-term performance that Southern California has delivered for us for decades. By growing our presence here, we were also able to decrease our relative allocations for the Northeast from 50% to 38% of our NOI, which provides better long-term balance.
Turning to slide 10, you can see how momentum has really been building in our Southern California portfolio over the past five quarters, with year-over-year revenue growth increasing each quarter. Right now, we are seeing market rents in all of the Southern California sub-regions accelerate into the 6% range on a year-over-year basis.
We are well-positioned for another strong year of same-store revenue growth in Southern California, and that growth will contribute more to overall revenue growth for the company given our increased allocation to this region. Looking more closely at where our portfolio growth has occurred across the region, slide 11 shows the locations of our communities with the size of the dots proportional to the size of each property.
There are a lot of distinct submarkets within the sprawling geography of Southern California. We've increased our presence in all three of the sub-regions: Los Angeles, Orange County, and San Diego, with particular concentrations in the tri-cities area of Pasadena, Glendale, Burbank, and the 101 Corridor from Woodland Hills out to Thousand Oaks.
Of course, for us, it's a lot more exciting to see the actual product and to look at dots on a map, which is why we included slide 12 to give you a sense of the variety and quality of products we're adding to the portfolio in this region. The top row shows some of our larger stabilized assets, including Avalon Studio City, which is an 827-unit community acquired from Archstone located right next door to many of the production studios in Burbank.
The middle row features some of our recent redevelopments, including AVA Burbank, which is one of the oldest assets in the portfolio. This asset was originally constructed in 1961, but it's been completely transformed and energized by the introduction of the AVA brand.
And the bottom row includes three of our current development communities, including Avalon West Hollywood, which is a real flagship property, which will feature a Trader Joe's grocery store in the ground floor and 294 apartments above right on Santa Monica Boulevard. We were aggressive about getting shovels in the ground early in this cycle and all of these development communities have a tremendous base at the current cap rates and current replacement costs.
Timothy J. Naughton - Chairman, President & Chief Executive Officer
Well, thanks, Matt. At the time of the Archstone acquisition, we talked about some of the benefits of scale, namely G&A and operating efficiencies as well as the expansion enhancement of important strategic capabilities.
Sean is going to take a few minutes to provide a few examples of what we've been able to achieve in these areas. Sean?
Sean J. Breslin - Chief Operating Officer
Thanks, Tim. Shifting gears now, we thought it'd be helpful to talk a little bit about the efficiency and effectiveness of our operating platform and, maybe along the way, highlight some initiatives that will continue to enhance our operating performance in the future.
So starting with slide 13, these metrics reflect not only the benefits associated with our larger scale, but also our ability to deliver more cash flow per dollar of revenue generated from the portfolio over time. The chart on the left reflects our operating overhead, which includes G&A as a percentage of NOI both in 2007 and what's expected for 2015.
While our portfolio NOI has increased about 250% from organic growth, new development and the Archstone acquisition, we've been able to contain operating overhead growth to about 20% of the rate of NOI expansion over the total eight-year period. The net result is that overhead is now only 7% of NOI, down about 500 basis points or 40% from 2007 levels.
The chart on the right reflects our same-store NOI margins in 2007 and what's projected for 2015. Margins have expanded by about 200 basis points over the last eight years to 70%, putting us essentially at the top of the multi-family sector.
And when you think about our NOI margins, you really have to remember two important facts: first, we have not enhanced our margins by simply reshaping the portfolio, that is exiting lower rent markets and acquiring assets in the higher rent coastal markets. And second, rental rates declined during the financial crisis and economic downturn, which put pressure on operating margins.
In fact, if you look at the rent levels today compared to where they were in 2007, the CAGR over the past eight years is only about 3%, which is well below current growth rates. Moving now to slide 14, I thought I would highlight one or two initiatives that have made us more efficient and will continue to pay dividends in the future.
This slide highlights a couple of the benefits associated with our recent investments in proprietary technology, specifically our prospect and resident portals. These new platforms came online mid last year and have enhanced not only the efficiency of our operating platform, but also provided a better product to our customers.
Leads generated through our new prospect portal have increased by 300 basis points to 27% of all leads today. At the same time, our cost associated with other forms of Internet advertising has declined by about 28%.
In terms of the new resident portal, enhanced functionality has helped us become more efficient with certain back office functions. Online resident payments are now about 90% of total payments, up 12.5% since 2013, and maintenance requests or service requests received online are up to about 50% of all requests, which is an increase of two-third since 2013.
As you move on to slide 15, I'd like to share a few facts about our customer care center located in Virginia Beach, Virginia, which we view as the best in the business and a real competitive advantage for us. We have about 225 associates located at the center and about 70% of them take customer service calls and execute transactions that would have been done onsite at our communities in the past, for example, posting rent, processing move-outs, et cetera.
The cost per transaction is lower than it would have been at the communities because our highly trained customer care associates can handle a much greater volume than any one individual at a property, and these associates are continuously measured and monitored based on their efficiency and effectiveness of processing transactions. The remaining associates handle other corporate functions, accounts payable, cash management, payroll, et cetera.
So I'd highlight that we continue to expand our capabilities with the customer care center with a unique focus on functions that are scalable in a centralized environment, and for which we can reduce the cost per transaction by bringing it in-house. One example of a new capability is reflected in the chart on the right side of the slide, collections.
About two years ago, we developed a collections capability at the center, which is not easy, given the regulatory constraints across all the states within which we operate. We believed, however, that we can materially reduce the cost of collections if we did it ourselves.
And if you fast forward to today, our team is currently collecting about 35% of our total bad debt in-house, which has resulted in a net benefit of about $2 million per year. The benefit reflects a reduced third-party collection fees or commissions that we would have paid, offset by the overhead associate with our collections team in Virginia Beach.
We expect to realize an even greater benefit as we take on more of our bad debt collections in-house. And we also think there are additional opportunities to expand our capabilities as the customer care center will continue to leverage it through our advantage in the future.
So, hopefully, that provides an overview of some of our operational metrics and initiatives. And now I'll turn it back to Tim.
Timothy J. Naughton - Chairman, President & Chief Executive Officer
Yeah. Thanks, Sean.
As Sean mentioned, we've been able to reduce cost significantly from the system over the last cycle. Part of that's from scale, but importantly part of it's from just reengineering, how we conduct and operate our business.
But lastly, I thought we'd just take a few minutes and highlight development activity and funding, which we believe together position us for outsized NAV and FFO growth over the next few years, while being able to maintain a very strong financial position. And Kevin, do you want to take this?
Kevin P. O'Shea - Chief Financial Officer
Sure. Thanks, Tim.
Turing to slide16, we highlight the current performance of the five communities under construction that are in lease-up. As you can see from the slide, the performance of communities undergoing initial lease-up is quite strong and continues to exceed our original underwriting expectations.
Specifically for these five communities, which represent $455 million in total capital costs, the current weighted average monthly rent per home is $215 or about 9% above initial expectations. In terms of yield performance, the weighted average initial projected stabilized yield for these communities is projected at 6.9% or 60 basis points higher than our original projection of 6.3% for these communities.
Turning to slide 17. Our development activity remains well funded today.
In fact, as of quarter-end, our development underway of $3.6 billion was completely match funded by the combination of $2.5 billion in capital spent to-date, plus over $1.1 billion from cash on hand, projected free cash flow, and our equity forward. As a result, funding risk for this investment activity is essentially eliminated while the opportunity to realize a substantial amount of value creation as these communities are stabilized has been locked in for our shareholders.
Turning to slide 18. This slide demonstrates more clearly how our being match funded on this investment activity leaves us exceptionally well-positioned from both the cash flow growth and credit perspective.
In particular, the projected NOI from recently completed development and from development under construction totals about $225 million on an annualized basis, as shown in the chart on the left. This represents more than a 20% growth in our annualized adjusted EBITDA for the last quarter.
Moreover, to give insight on how this projected EBITDA growth enhances our leverage metrics, particularly given that no incremental capital is needed to complete construction, the chart on the right shows how our ratio of net debt to adjusted EBITDA for the first quarter would have declined from 5.9 times to 5.0 times, assuming this projected EBITDA from our development underway have been in place during the first quarter. Of course, our actual net debt to adjusted EBTIDA will move up and down a bit over time as we start new projects and source new capital to fund these new projects.
Therefore, this slide is not meant to communicate that our leverage is going to decrease to 5 times or that our target leverage is five times. In fact, our target range for this metric is between 5 times and 6 times.
Instead, the purpose in showing this slide is to convey that unfunded commitments, which happen to be zero today but more often will be positive in the future, should be evaluated in tandem with the projected EBITDA growth from ongoing investment activity. And as we stand today, funding risk is very low on development underway and the profit opportunity is relatively high, reflecting two important attributes of our combined investment of funding strategy.
First, the fact that our investment activity is expected to be accretive both to earnings and balance sheet strength. Second, that this cycle continues to offer compelling value creation opportunities for a development focused apartment REIT, such as AvalonBay.
And with that, I'll turn it back to Tim.
Timothy J. Naughton - Chairman, President & Chief Executive Officer
Yeah. Thanks, Kevin.
Obviously, we're off to a strong start in Q1 to the year. As expected, our stabilized portfolio continue to strengthen in the quarter, propelled by some of the strongest apartment market fundamentals we've seen over the last several cycles.
The development portfolio is contributing meaningfully, as Kevin just spoke to, and providing additional earnings and NAV growth. And importantly, I mean, actions that we took early and what we predicted would be a strong and durable cycle are paying off, including the starting and funding of over $5 billion of new development since 2010, acquiring another plus or minus $6 billion in stabilized and development assets in the Archstone transaction in late 2012, early 2013, and investing in important strategic capabilities, which are driving efficiencies and improving the scalability of our operating platform.
All these actions are positioning us to take advantage of what we believe could be a long and sustained expansion period for the current apartment cycle and help us achieve outsized growth. And with that, Augusta, we'd be happy to open the line for questions.
Operator
Thank you. Our first question will come from Nick Joseph of Citi.
Nicholas Joseph - Citigroup Global Markets, Inc. (Broker)
Thanks. I'm trying to reconcile 1Q same-store revenue growth of 4.3%, the growth you saw in January and February.
I think in early March at our conference, year-to-date same-store revenue growth was 4.4% to 4.5%. And then from the presentation, the March rent change actually accelerated in terms of the spread year-over-year from February.
So what drove the reduction of growth for the quarter relative to where you were in early March?
Timothy J. Naughton - Chairman, President & Chief Executive Officer
Hey, Nick, this is Tim. You're correct.
When we met at the Citigroup Conference, we gave a mid quarter update and we said our expectation would be we'd be at the top end of the range for the year, for the quarter being 4.4% to 4.5%. The reality is numbers like 4.34% and some of it's on the non-rental revenue side that gets rolled up at the end of the quarter.
So really nothing is different than what we expected and anticipated in early March when we met – when we met and spoke with investors at your conference.
Nicholas Joseph - Citigroup Global Markets, Inc. (Broker)
Okay. Thanks.
So then in terms of D.C., it looks like the quarterly year-over-year growth was the strongest you've seen since mid 2013. Can you talk more about what you're seeing on the ground there and expectations for the rest of the year?
Sean J. Breslin - Chief Operating Officer
Sure, Nick, this is Sean. In terms of D.C., I mean from a broader perspective, it's certainly still a weak market relative to other markets and there's still a fair amount of supply coming online.
The expectations for 2015 are still for supply growth somewhere in the mid 3% range, but what has improved certainly is job growth, it's now running closer to 1%. So it's in a position now where from a kind of macro perspective across the region, we're seeing some improvements.
And as you think about it in terms of the three markets: the District, Suburban Virginia, and Suburban Maryland, it does depend on the nature of your portfolio, whether it's higher price point, lower price point, and the distribution within the submarkets of each one of those markets. But for us at least, right now, D.C.
is performing the best as producing slightly positive revenue growth in rent change. The two weaker markets are Suburban Virginia and Suburban Maryland, with Suburban Maryland being the weakest right now, particularly given all the deliveries that are coming through in Rockville, Bethesda, Chevy Chase, all in that area.
But if you look at it in terms of maybe trends from the first quarter to what we're seeing in the second quarter, first quarter rent change across the region overall is basically around flat. But as you move into the second quarter, it's trending slightly positive to the tune of about 100 basis points in terms of blended rent change.
So we're seeing sort of that second derivative move positively, but at a relatively slow pace, and I'd say with still a fair amount of risk given the supply that's been delivered in the region relative to the anticipated job growth.
Nicholas Joseph - Citigroup Global Markets, Inc. (Broker)
Great. Thanks.
Sean J. Breslin - Chief Operating Officer
Yeah.
Operator
Our next question comes from Jana Galan with Bank of America Merrill Lynch.
Jana Galan - Bank of America Merrill Lynch
Thank you. Good morning.
Your turnover continues to decline and you saw the first quarter homeownership rate drop below 64%. I was just wondering how long do you think you'll continue to see turnover decline, and how that's helping your expenses, and then any changes in reasons for move-outs?
Sean J. Breslin - Chief Operating Officer
Sure, Jana, this is Sean. In terms of predicting turnover, it's a little bit difficult to predict.
It's really a function of, I'd say, job mobility, probably first and foremost, as well as choices in terms of within a local market what choices people have. They feel like they have more choices at the right price that influences turnover.
And the reason I'd say that is relocation is still the top reason for move-outs and our portfolio runs around 20%, I think that's consistent with most REITs. So, as people are relocating for job reasons, et cetera, that really tends to influence the total amount of turnover.
And then on the other topics, home purchases are still running well below long-term averages in the range of 13% and has been pretty flat, not really moved much. It's down a little bit year-over-year, but not really moving the needle.
And then the other reasons are really financial, including rent increases as well as intercommunity transfers, rent increases tends to run a little bit higher, closer to 16% to 18%. But at this point in the cycle, you expect it to be trending upwards.
But in terms of actually predicting what turnover will be, it's a function of the macro variables that I've mentioned. And so we are not yet at a point where we are predicting it.
But given what we're seeing across the portfolio as well as with housing and the single-family market and the production levels, it's not farfetched to assume that turnover will remain below historical averages for the next few quarters for sure.
Timothy J. Naughton - Chairman, President & Chief Executive Officer
Sean, maybe just add to that. Jana, as Sean mentioned, move-outs and home purchase has been relatively stable.
And it's been our expectation that homeownership rates are going to be stabilize roughly in this area in the 64%, 65% range. And so we don't really have a view that homeownership rates are going down meaningfully from here.
It's been our view that you are going to see more of a balanced housing picture over the next few years as the housing markets continue to recover and a lot of that's being driven by some of the things we've been talking about, which is demographics and lifestyle behavior in terms of what type of housing choice best sort of fits the need of the emerging population. So we do expect it to be more balanced over the next few years.
Jana Galan - Bank of America Merrill Lynch
Thank you. And then just maybe on the Southern California expense savings this quarter seemed very impressive.
I think some of that might have been benefiting from tax appeals, but maybe if you could talk to what else's in there?
Sean J. Breslin - Chief Operating Officer
Yeah. This is Sean.
That's exactly right. The main benefit that came through in the first quarter was a successful appeal of an asset in Southern California and that represented the majority of what you're seeing there in terms of the expense change.
Jana Galan - Bank of America Merrill Lynch
Thank you.
Sean J. Breslin - Chief Operating Officer
Yes.
Operator
We'll go next to Dan Oppenheim with Zelman & Associates.
Dan M. Oppenheim - Zelman & Associates
Great. Thanks very much.
Just wondering if you can talk a little bit in terms of expectations for some of the pricing power, you talked about the best start in terms of rental growth here at the start of the year and also some prior cycles. As you think about the balance across the regions, do you think this accelerates further as the Mid-Atlantic and Northeast gradually improve here?
How are you thinking about that overall in terms of the rental rate power?
Sean J. Breslin - Chief Operating Officer
Sure. This is Sean.
Just a few comments on that. From a macro perspective, certainly across the markets, pricing power is improving at this point.
Tim alluded to the rent change in his prepared remarks, not only for the first quarter, which trended higher in each month of the first quarter, but also continue to trend higher into April, where on a blended basis, we're running at about the 6% range. And, I guess, the way I'd describe it is we're seeing increased pricing power across all the markets, but the rate of acceleration is slightly different.
The rate of acceleration is probably the strongest right now in Southern California as well as Northern California, those two markets. Northern California, obviously, has been a discussion point for several quarters now in terms of the momentum there.
And it'll be interesting as we move later in the year and more supply comes online, particularly in the submarket of San Francisco, Northeast San Jose, whether that starts to throttle back a little bit of the pace in Northern California, which we saw a couple of years ago when we saw blocks of supply come through San Jose. Southern California, job growth has certainly ramped up, and supply remains pretty muted relative to other markets.
And if you look at a place like Orange County, job growth has really made the difference there, where it's up closer to 2% over the last six months. And so while there's still a meaningful amount of supply coming on in certain submarkets there, Huntington Beach, Anaheim, et cetera, Irvine, the job growth has really caught up to a point where it's pretty healthy.
So the momentum in Northern California is strong, Southern California is strong. Now in the East Coast markets, the Mid-Atlantic, certainly helpful to see a pickup and I mentioned that essentially rent change was flat in the first quarter.
It's positive about 100 basis points for the second quarter. And I think it's just going to be touch-and-go in the Mid-Atlantic over the course of the next year depending on how job growth comes out.
But assuming we maintain or accelerate on the job front in the Mid-Atlantic markets, we know what the supply is going to be, we'd likely to see pricing power consistent with what we're experiencing now to potentially slightly better as we move through the year, particularly as the household formations start to come through as consistent with what's forecasted for 2015. So really as you talk through the markets, it depends on where you're located, what your exposure is within certain submarkets to supply, et cetera.
But in general, pricing power is continuing to improve at different rates across the footprint.
Timothy J. Naughton - Chairman, President & Chief Executive Officer
Hey, Dan. Tim here.
Just to add a little bit to part of your question, I think. Generally, the West Coast is, if you look historically, has just been more volatile and the East Coast has been more stable.
So as the East Coast has tended to outperform kind of later in the cycle, it's been less about it accelerating past the West Coast and more about it being a stabilizer relative to more volatile performance on the West Coast. I think it's a little bit of open question how things may play out this cycle.
As you saw on the one chart, if household formation really does recover to the 1.5 million plus range and housing production levels really just don't respond in a material way quickly, we're already seeing rental vacancy rates at 30-year lows, you're seeing ownership vacancy rates approaching kind of longer-term norms. You get another couple of quarters of the kind of household formation we think we've seen, I think there could be a shortage and an acceleration and impacts potentially all markets from a pricing perspective, whether that's for sale or on the rental side.
Dan M. Oppenheim - Zelman & Associates
Great. And, I guess, looking at the chart where you're showing the new versus move-in, I guess, on page five, showing the improvement in the new movement on the rental rate is certainly positive there.
Just thinking about the renewals, especially on the West Coast where the overall growth has been the strongest, how much are you pushing the renewals? Is there any caution about pushing too much and driving turnover higher there?
Sean J. Breslin - Chief Operating Officer
Yeah, this is Sean. I mean, certainly a conversation we have all the time in terms of optimizing the performance of the portfolio.
But at this point, we feel pretty comfortable that we're handling it in a way that's not only optimizing the performance, but also is based on what we think the customer's reaction will likely be, given available choices within their specific submarket and general geography. And one thing to keep in mind is people focus a lot on the renewal numbers versus the move-in rent change.
You really have to look at it on a blended basis because it really depends on – if you talk about same-unit rent change when the last person moved in, if they moved in five years ago, it's very different potential rent they're coming out of five years later as compared to someone who has been there two years. So if you look at it on a blended basis, it's probably more appropriate.
And the other thing that we look at is how wide is the gap getting between the absolute rent that a customer is paying as they move into an apartment relative to someone who is renewing in that same apartment type or the same community. And that spread today on an absolute basis is only about 2%.
So when you think about it, it's not that wide in terms of an existing customer going to a website and looking at pricing for their particular apartment home for someone who is moving in. And, obviously, they have switching costs in terms of their move and everything else.
So that's a relatively reasonable spread 2%. We'd probably be a little more concerned as that number was approaching 5%, as an example, but across the portfolio, I think we're in a pretty good shape on that.
Operator
Our next question comes from Nick Yulico, of UBS.
Nick Yulico - UBS Securities LLC
Thanks. Tim, I was hoping to just start off with the guidance again.
I mean, you guys are at the high-end year-to-date on same-store revenue, above on same-store NOI, you talked about really good trends so far and even in April. So how do we balance that against you guys not deciding to raise guidance?
Is there something in the back half of the year that you're concerned about or you just want to take a wait-and-see approach for another quarter?
Timothy J. Naughton - Chairman, President & Chief Executive Officer
Yeah. Nick, I mean, first of all, the first quarter more or less played out the way that we expected, particularly as it relates to the top line.
So, that alone wouldn't sort of drive a need to rethink our outlook at this point. We are moving into the peak leasing season.
While we're well-positioned and we're off to a strong start, we're going to have a lot more visibility mid-year, and that's typically when we do a more robust re-forecast process and sort of reopen the property budgets, if you will, and feel like we'd be in a much better position to give the investor and analyst community a sense of where we think we're going to end up for the year. So we're neither changing or affirming outlook at this point, but we would look to do so mid-year.
Nick Yulico - UBS Securities LLC
Okay. And then on the development pipeline, two questions.
One is, should we assume the forward gets settled all in the third quarter, and then how are you thinking about funding the next wave of development? I think you guys were saying you would do $1.4 billion in starts this year, would you consider another forward?
How are you thinking about that over the next couple of quarters from a funding standpoint? Thanks.
Kevin P. O'Shea - Chief Financial Officer
Sure. Nick, this is Kevin.
I guess, there's a few questions in there. First, as it relates to when we draw capital down under the equity forward.
As I think we indicated in the fourth quarter call, our expectation is that we do so in the second and the third quarters. Really no new news on that front.
It's somewhat dependent upon what we do in terms of incremental capital activity going forward over the next couple of quarters otherwise in terms of disposition activity and raising debt capital pursuant to our capital plan that could affect the timing there. I think it's probably fair to assume that probably at least two-thirds of it would be in the third quarter and a third or less would be in the second quarter, but that number bounces around quite a bit.
And there what we're looking at is just trying to balance cash on hand and minimizing our costs – interest expense costs under our line of credit with our other activity on the capital markets front. The second question, just to sort of answer that, it might be helpful just to give a refresh on our capital plan for the year.
If you look back at our initial outlook, we had total sources and uses of $2.35 billion. And in terms of the sources, we had cash on hand and an expected drawdown on unrestricted cash account for about $600 million of that.
As you'd probably noticed, we drew down cash by $300 million during the quarter to fund Columbus Circle, so that has happened as planned. That left us with about $1.75 billion of external capital in our capital plan for the year.
About $650 million of that relates to the forward, which we just talked about, leaving $1.1 billion. We sold one asset, Stamford Harbor, in the first quarter.
That leaves about $1 billion of net incremental capital, which we expect to source predominantly in the form of unsecured debt, and the balance in the sale of assets. So those are thoughts regarding sort of the capital plan for the year.
I guess, the final question is what is our philosophy around the use of the forward. I know we used it for the first time at the end of last year.
The reality is we've been aware of the forward for probably more than five years as a tool that was in our tool kit, if you will, that we could potentially use to fund development. And as we talked about in the past, you need to sort of have the right confluence of factors that would justify when to use it again.
And certainly, first and foremost is the expectation of elevated funding needs for development. We certainly have that this year, or have that this year.
We saw that by the middle of last year being something we wanted to think about. As we disclosed in our initial outlook, we expect to spend $1.7 million on development and re-development activity.
That's a cyclical high for us so far this cycle and a meaningful amount of capital. And that really informed our view about wanting to be more like 100% match funded rather than being more like, call it, 75% match funded, which is where we've really been for the most part throughout this cycle.
So it's a tool in our toolkit. It's something we can potentially use, but it's not something we necessarily feel like we need to use all the time, but really it needs to be driven more by an unusual confluence of factors with elevated funding needs being probably the most important.
Nick Yulico - UBS Securities LLC
Okay. Thanks, guys.
Operator
We'll go next to Haendel St. Juste of Morgan Stanley.
Haendel E. St. Juste - Morgan Stanley & Co. LLC
Hi, it's Haendel. Good morning.
So a couple questions here on development. So first, you guys started a couple of projects, two that I'd characterize as ex-urban or well outside of the core of the MSAs, your Hunt, Chase (41:06) and Lynnwood projects.
And you're not seemingly slowing down on your development pace as much in a time period where your peers are slowing more so. But specifically these two projects, what is it about these projects that makes you excited, especially in light of the Suburban Maryland weakness comment?
Are you gearing yourselves to capitalize on a perceived pent-up demand in the suburbs? And if so, how much more of your near-term development start could be more suburban in nature versus urban?
Matthew H. Birenbaum - Chief Investment Officer
Hey, Haendel, this is Matt. I can speak to that one.
It was actually a light quarter for us for starts, $100 million, and we're on track to start $1 billion, $3 billion, $3.5 billion for the year, and that is obviously a very small portion of our kind of development activity planned for the year. The Alderwood deal was just a second phase of the deal that actually completed this quarter, and that deal completed at a yield of around 7%, so – and again, Seattle market, even there Suburban Seattle, that's probably a mid 4%s cap.
So that's incredibly compelling value creation, second phase incremental economics. We just phased that deal, phased the land take-down, which was great.
The other one that we started this quarter, Hunt Valley, that's a bit of a unique asset for us. It is a suburban location, but it's a transit-oriented suburban location.
It's actually at the end of the rail line; it's right next to a Wegmans, it's an old mall that has been turned into a town center and it's a submarket that has seen no new supply for probably 30 years. So in some ways, it's a lot like our kind of older Northeastern stuff where we're bringing a luxury product to a submarket that has very high homeownership cost and very high-end homes, estates and such up in that area as well as a decent amount of employment, a lot of other amenities, but just hasn't seen luxury rentals.
So we think we're actually creating a bit of a market there and we don't get that opportunity very often. It also increases our exposure a little bit to the Baltimore Metropolitan area, which has done quite well this cycle, and where we're probably a little bit under-allocated in the long-term.
But more broadly, as we look out over our starts for the year, and we have said over the last year or so that we are starting to see our suburban assets perform a little better than our urban assets, and I think you're seeing that in general just because the supply is so concentrated in the urban areas, and also the urban product tends to be more compelling economically if it can be done earlier in the cycle because it's generally obviously higher capital costs when you get into concrete frame. So when you look at our pipeline going forward, what's currently under construction is about 50% urban versus what's in the pipeline is probably about 25% urban.
So it is more suburban than what we currently have underway. But we actually have some near-term starts; we have a near-term start actually in the District of Columbia that we expect to start here in the next quarter.
So there's still a decent mix of product. And again, we're generally just driven by looking for where the best total risk-adjusted returns are in the market and, at this point in the cycle, that's where we're finding it.
Haendel E. St. Juste - Morgan Stanley & Co. LLC
Okay. I appreciate that.
Another development type of question. Looks like we're seeing some moderation in certain key input cost, land price costs are going up, but moderating; lumber and gypsum costs coming down, wage growth is moderating as well.
Wonder what you're seeing on that front and how you might be factoring that into – all these lower costs into your prospective project underwriting in new starts?
Matthew H. Birenbaum - Chief Investment Officer
We would love to see some of that come through. The subcontractors have been holding on to it so far.
Generally speaking, when we underwrite our business, we underwrite everything on a current spot basis. So we don't trend rents, we don't trend expenses and we don't trend capital costs.
When we sign up a new deal, we say, if we were building this project today, here's what it would cost us to build it and here is the NOI we would expect to get out of that. And generally speaking, depending where you are in the cycle, we may be looking for a higher or lower spread between where that yield is and where cap rates are; if we're in a market, whereas, earlier in the cycle where we think there's better rent growth ahead relative to cost growth, we might be willing to go in at least to the initial due diligence with a tighter margin than if it was the other way around.
But generally speaking, we're still seeing costs grow at a pretty rapid clip in most of our markets. And again, it's driven mostly by subcontractor, by labor availability, which is getting tighter, and by subcontractor margins and just the volume of business out there.
There is a lot of construction out there, the subs are busy, so they can afford to be pretty aggressive in the pricing they offer. And other than in Metro DC, where they're probably coming off of more production ramping into less production, and so they are a little hungrier.
Other than in DC, pretty much all of our other markets, it's going the other way still.
Haendel E. St. Juste - Morgan Stanley & Co. LLC
Okay. And the last one on Edgewater.
Now you've had a chance to go through the insurance assessment and recovery process. The $793,000 net loss figure you quote in the press release, is that the final figure?
Could there be additional costs? And any updated thoughts on your plan to that project going forward?
Could you – if you could term it if you're going to rebuild, sell et cetera?
Kevin P. O'Shea - Chief Financial Officer
Yeah. Haendel, this is Kevin.
I'll answer, I guess, the first part with respect to some of the costs. The $800,000 of costs that you see flowing through with respect to Edgewater were essentially our initial response costs with tenant displacements, fire wash, et cetera.
We'll see what rolls forward. There probably are some modest costs, but nothing very significant in that regard going forward since we're clearing the site and the other building has been reoccupied.
So not much in the way of Edgewater related costs that we expect. In the quarter, what we did in the first quarter is we wrote off the net book value of the building that was the story, which was $22 million.
It turned out the net third-party insurance proceeds that had been received during the quarter was $22 million, so that was an offset. So that really had no impact on our financials for the quarter.
Going forward, we continue to work with the insurance companies on securing the balance of the insurance proceeds that we expect. And in our initial outlook, we indicated that the casualty loss was likely to be, with respect to the story building, greater than $50 million where we have 12% self-insured exposure of about $6 million.
So we're still working on that. It's a matter of just working through the documentation and obtaining final sign-off.
And going forward, as we noted in our release, in the event that we receive additional insurance proceeds related to the casualty loss on Edgewater, those additional insurance proceeds will be reflected in the casualty gain, which would flow through in increased FFO, but will be pulled out for core FFO purposes.
Timothy J. Naughton - Chairman, President & Chief Executive Officer
Haendel, Tim here. Just in terms of your second question, really our focus in terms of the site itself has really been on clearing the site and cleaning the site to date, also just some salvage efforts that have been undergoing in terms of trying to recover some items from our residents, as Kevin mentioned, obviously the insurance process, which includes trying to help facilitate the settling of resident claims.
We have been evaluating options for the site as well as it relates to rebuilding. There's obviously a number of physical issues to be considered there in terms of the structural capacity of the garage that remains, but there's also political issues that we understand we need to work through with the town in terms of what might rightly be able to be rebuilt there in terms of the form and structure.
And then lastly there is a lender on the site. It is subject to a credit pool that would need to be considered as part of this.
So I would say it's premature yet in terms of telling you what exactly our strategy is and timing around the resolution of the site, but something we're actively evaluating at the moment.
Haendel E. St. Juste - Morgan Stanley & Co. LLC
Okay. Thank you very much, guys.
Operator
We'll go next to Rob Stevenson with Janney.
Robert Chapman Stevenson - Janney Montgomery Scott LLC
Hi. Good morning, guys.
Tim, can you talk about how robust the condo development and condo conversion process is in your core markets today?
Timothy J. Naughton - Chairman, President & Chief Executive Officer
Yeah, Rob, I don't know if they want to join in as well. I wouldn't say it's all that robust.
You're certainly seeing some signs of it in New York and perhaps San Francisco. If you just looked at where apartment valuations are relative to condo valuations or for-sale valuations, it still really doesn't make sense in most cases to actually convert an asset to condominium and take that market risks and you're just not going to get enough compensation in order to do that.
I think in some cases, and DC may be an example where it actually does make sense to think about new ground-up development, and certainly New York and San Francisco that makes some sense. But we're just not seeing a lot of – frankly, a lot of unsolicited interest in our assets like we did in the mid 2000s to potentially convert – it's pretty isolated, I will tell you at this point.
And it just makes sense when you go back and you track what apartment valuations have done over the last 10 years to 15 years versus what for-sale condominium values have done during that same timeframe. I think it's really going to be isolated at least over the next couple of years to really micro-locations and really kind of one-off type opportunities.
Robert Chapman Stevenson - Janney Montgomery Scott LLC
Okay. And then when you look at your redevelopment pipeline today, what's the expected returns on that and how many more projects do you expect to add to the pipeline this year?
Sean J. Breslin - Chief Operating Officer
Yeah, Rob, this is Sean. In terms of redevelopment, the pipeline's pretty plentiful, particularly given what we acquired from Archstone.
And I think what we've indicated in the past is that we'll probably start somewhere in the neighborhood of $100 million to $150 million a year, roughly, in terms of redevelopment activity. Some from the Avalon legacy assets, but also a relatively high percentage of the Archstone assets, would be in that pool.
In terms of the returns, the returns so far this cycle have been actually very healthy. And the way that we look at it is, if you take the overall investment into the enhancements at the assets, we typically look at our returns that are probably underwritten in the 10% to 12% range, but actual results have been more in the mid-teens, and that excludes components that if you just have to replace the roof as part of a redevelopment or something where you're not really getting an economic return, it's more like CapEx.
But in terms of the actual redevelopment opportunity, kitchens and baths and other enhancements in common areas underwritten again 10% to 12% and producing mid-teens recently.
Robert Chapman Stevenson - Janney Montgomery Scott LLC
Okay. And then last question.
The 35 projects on the developments right page, I mean how many of those are shovel-ready today, and is there any sort of issue or reason why you guys only started two this quarter? In terms of your thinking, is that that's what was available and that's where the yields were.
Is there a situation where the starts are, on some of the stuff that you're planning for the rest of the year, sort of back-end weighted towards more urban, complex deals et cetera? Can you talk a little bit about that?
Matthew H. Birenbaum - Chief Investment Officer
Sure, Rob, this is Matt. Pretty much when they're shovel-ready, we generally tend to start them.
So we're planning a fair number of starts this next quarter here in the second quarter. And it just tends to work out that way; it's as much to do with weather as anything else you wind up with.
Generally speaking, the deals in the pipeline, we're bidding them, we're finalizing the plans and permits. When we get the final bid numbers and we find the economics satisfactory, we tend to start them.
So I wouldn't read anything into that except this next quarter we should have a pretty healthy amount of starts, and there isn't really anything in there that's ready to go that we're just sitting on.
Robert Chapman Stevenson - Janney Montgomery Scott LLC
Okay. Thanks, guys.
Operator
Our next question comes from John Kim with BMO Capital Markets.
John P. Kim - BMO Capital Markets (United States)
Thank you. I had a couple questions on your asset sale of Stamford Harbor.
You provided the unlevered IRR of 11.9%. But can you also provide the leverage return given it's going to have mortgage debt?
And also maybe share some of the characteristics of the buyer?
Matthew H. Birenbaum - Chief Investment Officer
Yeah. This is Matt.
We generally haven't provided those numbers. The deal was originally developed off the balance sheet; it was put into a pool.
When? 2009 or...?
Kevin P. O'Shea - Chief Financial Officer
Yeah.
Matthew H. Birenbaum - Chief Investment Officer
So it's hard to kind of isolate that. And the buyer, I think it was a private buyer, folks that we've done other business with before.
Kevin P. O'Shea - Chief Financial Officer
Regional player.
Matthew H. Birenbaum - Chief Investment Officer
Yeah, regional player.
John P. Kim - BMO Capital Markets (United States)
Where do you think your dispositions will come in this year versus your average run rate of $380 million?
Matthew H. Birenbaum - Chief Investment Officer
Well, I think we've provided some guidance at the beginning of the year with our outlook in terms of the total disposition volume.
Kevin P. O'Shea - Chief Financial Officer
Yeah. John, this is Kevin.
As I mentioned in my early remarks, I went through sort of the capital plan that we announced at the beginning of the year, and much of that capital, at least externally, is yet to be formed apart from the equity forward and sale of Stamford Harbor. That leaves about a $1 billion of net incremental capital pursuing to our initial plan for the year.
We don't break it out further than that other than to say that the predominant amount of that capital, we expect, will come in the form of unsecured debt and the balance would be in the sale of assets, partly because we don't really want to be overly precise with respect to our anticipated debt capital markets activity by giving specific amounts and, plus, because the capital market conditions can change and the precise amount may change throughout the course of the year. But it'll be mostly in the form of unsecured debt, at least that's our plan and hope, and the balance would be sale of assets.
John P. Kim - BMO Capital Markets (United States)
Okay. Just a follow-up question on Edgewater.
According to your disclosure, the lender of the mortgage debt can decide how you use the insurance proceeds, whether or not to repay the loan or redevelop the asset. So if the lender chooses to redevelop, do you have a choice and can you potentially change the scope of the project?
Kevin P. O'Shea - Chief Financial Officer
Yeah, John, this is Kevin again. As Tim noted, we're still in discussions with respect to – with the lender and also evaluating what our plans are for the asset.
So it's a little bit early to say what's going to happen with respect to whether we're going to redevelop – whether we're going to rebuild Edgewater and what's going to happen with our discussions with the lender.
John P. Kim - BMO Capital Markets (United States)
Okay. And then just one final bigger term question.
But California continues to be very strong. At what point do you become concerned of the state's ongoing drought and maybe the potential impact on the economy?
Timothy J. Naughton - Chairman, President & Chief Executive Officer
I'm not sure. John, Tim here, I'm not sure how to answer that really just in terms of the drought's potential impact on the economy.
It's obviously affecting our properties in terms of we're subject to the same constraints that other homeowners are. And Sean, you might want to just talk about a little bit about that.
Sean J. Breslin - Chief Operating Officer
Yeah. I mean...
Timothy J. Naughton - Chairman, President & Chief Executive Officer
But as it relates to its economic impact, it'd be total wild speculation on our part.
Sean J. Breslin - Chief Operating Officer
Yeah, John. This is Sean.
I mean there has been plenty of press out there about the state mandated reductions in water usage and higher rates as a result of exceeding the 25% targeted reductions for the state. So I think people are getting their arms around that in terms of how that actually flows through to communities and to residents who ultimately pay the majority of the water bill.
But I think the general expectation is certainly that there will be potentially higher utilities cost across the board in that market, which would impact just choices in terms of residential dwellings, whether it's multi-family, single-family, whatever your choices are. And in terms of our response, our response is, as you might imagine, trying to be as efficient as we can.
And before this even came out, we have already started initiatives related to smart irrigation systems and things like that to try and be as efficient as possible as it relates to water usage, because there had already been pressure on rates, water rates, in California as a result of the drought.
John P. Kim - BMO Capital Markets (United States)
There have been some market reports that developments are slowing down. Are you seeing this at all?
Sean J. Breslin - Chief Operating Officer
Developments are slowing down as a result of the water issue?
John P. Kim - BMO Capital Markets (United States)
Yes.
Sean J. Breslin - Chief Operating Officer
I've not heard that.
John P. Kim - BMO Capital Markets (United States)
Okay. Thank you.
Operator
We'll go next to Vincent Chao with Deutsche Bank.
Vincent Chao - Deutsche Bank Securities, Inc.
Hey. Good morning, everyone.
Just a quick question. In terms of New England, you outlined the sort of snow removal cost impact on expenses.
Just curious what impact you saw on the leasing side? I mean it seems like things did track a little bit higher than last quarter on a year-over-year basis, but just curious how much of an impact you saw on leasing and if there's been a notable improvement since things have started to fill out here?
Sean J. Breslin - Chief Operating Officer
Yeah. Vincent, this is Sean.
Yes, we did quantify the OpEx impact in New England. And if you had excluded the impacts of those storms on OpEx, our year-over-year growth rate in OpEx was about 100 basis points less.
In terms of the impact on the revenue side, it's a little bit difficult to quantify. I mean you could look at traffic and net leases and things of that sort to try to quantify it as best as you can.
We had a difficult winter there last year; it's worse this year. So you know there's some impact, but it's really hard to quantify what that is in terms of who didn't show up.
New England is a market sort of like Seattle that's a little more seasonal than the average market, specifically is relatively soft or quiet in the first quarter in terms of what you might you see in market rent growth and then it ramps up materially as you get into March and April through about July, and that's pretty much the pattern we've seen this year. So it's not terribly different from what we've seen in the past.
We structure our lease expirations in New England in the first quarter to be pretty low, lower than the average across the portfolio for the first quarter, and that diminishes the level of activity in the region to begin with.
Vincent Chao - Deutsche Bank Securities, Inc.
Got it. Okay.
Thanks. And then just another question, last quarter, I think there was a question about the remaining Houston assets and they're getting ready to be marketed.
I was just curious if you had any color on what you're seeing in terms of demand for those assets and pricing and that kind of thing?
Matthew H. Birenbaum - Chief Investment Officer
Yeah, Vincent, this is Matt. We have two assets in Houston.
One of them we did market in the last several months; it is under contract now, so I can't really comment any further than that. I can let you know more when it closes.
And we have one other asset there that we are positioning for sale, but we have not brought to the market yet.
Vincent Chao - Deutsche Bank Securities, Inc.
I mean, I know it's under contract, but I mean any comment on the demand you saw for that asset, was it better than expected, in line?
Matthew H. Birenbaum - Chief Investment Officer
I really can't get into that when it's a pending transaction.
Vincent Chao - Deutsche Bank Securities, Inc.
Okay. Thank you.
Operator
We'll go next to Dave Bragg with Green Street Advisors.
Dave Bragg - Green Street Advisors, Inc.
Hi. Thank you.
And thank you for all of your thoughts earlier on your portfolio allocation goals and accomplishments. It's been a very busy period, but I want to revisit one goal or idea that you had suggested back at your Investor Day in 2010.
At the time you said that your portfolio was 15% Class B but the efficient frontier analysis indicates that 25% would be optimal. Where do you stand as it relates to that?
Timothy J. Naughton - Chairman, President & Chief Executive Officer
Yeah. Dave.
This is Tim. I think as we talked about maybe in the last few calls, we think about really more from a brand allocation standpoint at this point, but you can think just sort of roughly eaves as a Class B generally suburban and Avalon largely is Class A, and AVA can be bit of a mix, but probably more Class A than it is Class B.
And what we said is it's less about a target allocation for the entire portfolio than trying to optimize positioning of assets within target submarkets. And that sometimes is going to be a more affordable asset; in other cases, it's going to be more of Class A or newer build type asset.
And we were just trying – back in November 2010, we were trying to give an indication what we thought the outcome of that strategy might look like. But as we've mentioned in the last few calls, we're active developers right now and we're allocating more capital through new development than we are through acquisition.
And so, you might expect that weighting to continue to be a little bit more weighted towards Avalon then eaves over the next couple of years as we build out the portfolio.
Dave Bragg - Green Street Advisors, Inc.
Right. That makes sense.
I know you've published this many times but I don't see it in front of me. What's eaves as a percentage of the portfolio?
Timothy J. Naughton - Chairman, President & Chief Executive Officer
Eaves today is about 17%, AVA is about 6% and the remaining 75%, 76% is Avalon today, and that's by sort of fair market value of the assets, if you will. So, on a unit count, it would be a little different than that.
Dave Bragg - Green Street Advisors, Inc.
Okay. Thanks.
And the other question relates to the American Bible Society deal, seems really interesting. We're hoping you could provide a little more detail on that including your expectations for Street retail rents in that sub-market.
Matthew H. Birenbaum - Chief Investment Officer
Hey, Dave. This is Matt.
We are actively working that project; obviously we closed at the end of January. We've put the design team together, are working through the concept designs right now, moving it as quickly as we can towards hopefully a start sometime the second half of next year.
And as part of that process, we are talking to potential retail partners, and it is quite possible that we'll wind up doing a transaction there to bring in somebody either on a forward sale basis or on a current basis to take the retail. We do have some estimations of what we think retail rents are there, but ultimately we know that that is a material part of value of that asset, and that is not our area of expertise obviously as much as the residential.
So, we may well bring in a partner there. It's about 55,000 feet of retail divided between three levels: the ground floor, the second floor and some cellar space, and obviously the rents are very different, depending which of those floors you're on, and even if you're on the Broadway frontage versus the 61st Street frontage.
But we're looking at in terms of what the total value of the retailers and therefore what the total value of our net investment will be after that, assuming that somebody else ultimately owns that.
Dave Bragg - Green Street Advisors, Inc.
Okay. So, lot move in pieces, nothing else that you can share right now?
Matthew H. Birenbaum - Chief Investment Officer
Right.
Dave Bragg - Green Street Advisors, Inc.
All right. Thank you.
Operator
We'll go next to Ann Weisman of Credit Suisse.
Unknown Speaker
Hey, guys. This is Chris (01:05:33) for Ann.
In your prepared remarks you talked a little bit about how you strategically increased your exposure to the West Coast over the last 7 years to 10 years. But when you look at your $3.3 billion shadow pipeline, the vast majority of that comes from your East Coast markets.
So, can you talk a little bit about what you're going to do in terms of develop those assets or those land parcels or are you going to be going out to buying more land in order to increase your exposure to the West?
Matthew H. Birenbaum - Chief Investment Officer
Yeah. That's a fair question.
This is Matt. I can get into that a little bit.
Obviously you're right. Our development rights pipeline is more heavily weighted to the East.
I think that's a function of a couple of things. One is the entitlement cycles tend to be very extended particularly in the Northeast, so some of those deals are in there for a long period of time, three years, four years, five years.
So that isn't necessarily reflective of the balance of the way the starts will be. The West Coast deals have tended to come in and move out more quickly, particularly early in the cycle where we were buying sites that maybe someone else had entitled.
So, some of it is just timing mix, some of it is market timing though that the West Coast markets are more volatile, as Tim had mentioned, and so, we were trying to be very aggressive about getting in early in the West Coast markets, where the development window can be a little narrower. So I think we are more careful about that.
But having said that, we are looking at some pretty significant West Coast land opportunities right now and we're continuing to pursue those. So I think you may see that mix change a little bit over the next couple of quarters.
But generally speaking, the deals in the West do seem to come in and out of the pipeline a little bit more quickly.
Timothy J. Naughton - Chairman, President & Chief Executive Officer
Yeah. And, Chris, just one last thing to add.
As we feel like we're getting out of balance between the East and West, you can obviously manage that through just buying and selling assets as well. So...
Matthew H. Birenbaum - Chief Investment Officer
Yeah.
Timothy J. Naughton - Chairman, President & Chief Executive Officer
While opportunity may not allow us to do that through development based upon where you're in the development cycle in particular markets, we do have a little bit more flexibility as it relates to buying and selling assets.
Unknown Speaker
Great. That's really helpful.
I appreciate it. Just now a couple of questions about like impairments and how those hit the income statement.
It looks like you have about roughly $5.8 million impairment hitting the income statement where $4.2 million is coming from Northeast weather and then about $800,000 from the loss on Edgewater. What's the remaining $800,000?
Kevin P. O'Shea - Chief Financial Officer
Chris, this is Kevin. The remaining $800,000 is an impairment charge on land that is about to go under contract for sale that we expect to close in the second quarter.
Unknown Speaker
Got you. And then in terms of the Northeast storm impairment, it's reversed above NAREIT FFO.
Is there any reason why that's the case?
Kevin P. O'Shea - Chief Financial Officer
It's a casualty on depreciable real estate, which under the NAREIT definition of FFO is added back to FFO.
Unknown Speaker
Okay. That's helpful.
And then, last, of the $3.2 million you have added back to core FFO, I assume the $793,000 is for the actual impairment and is the balance kind of the opportunity cost of lost trends. And of the, I think $0.09 to $0.11 you have in the guidance for the full year, is that also a mix of opportunity cost and actual cost?
Kevin P. O'Shea - Chief Financial Officer
On the first part, the $3.2 million that is added back in our Attachment 13 of the release is added back to Core FFO from FFO. It consisted about $1.6 million in lost NOI from Edgewater.
So, we expect roughly speaking that – that to recur throughout the balance of the year. $800,000, as you point out, is tied to Edgewater's, the incident response costs that we incurred during the first quarter and the remaining $800,000 is the land impairment costs for the wholly owned parcel that we just mentioned a moment ago.
Can you repeat the second question again?
Unknown Speaker
No. I think you pretty much got it, but it sounds like that's going to be recurring throughout the year and that the $0.09 to $0.11 will be a mix of those two things?
Kevin P. O'Shea - Chief Financial Officer
Well, I think it's probably – we can follow-up afterwards, but basically just to be clear in terms of what I just was describing. Of the $3.2 million, $1.6 million relates to lost NOI from Edgewater and that will recur throughout the back half of the year.
Unknown Speaker
Right, right, yeah.
Sean J. Breslin - Chief Operating Officer
So you just multiply that by three and that's what we expect to receive over the next three quarters. The other two items, the $800,000 in response costs from Edgewater and $800,000 in land impairment costs, those are one-time items that we experienced in the quarter and do not expect to recur over the balance of the year.
Unknown Speaker
Got it. That makes sense.
Thanks a lot, guys.
Sean J. Breslin - Chief Operating Officer
Okay.
Operator
We'll go next to Alex Goldfarb of Sandler O'Neill.
Alexander D. Goldfarb - Sandler O'Neill & Partners LP
Hi. Good afternoon, and thank you for taking the questions.
Just two that are really quick. First, Kevin, you talked about potential debt issuance.
Going back a few months ago, the rating agencies seemed to be indicating they may be looking to upgrade you guys. Although based on the conversations, it's like the debt markets already priced you guys like an A type credit.
So, as you are thinking about debt issuance or capital for the rest of the year, are you obligated to change any of your thoughts or this is all the rating agency is doing, you guys aren't asking for any of this, and therefore you're not changing the way you view your capital structure or development spending, et cetera?
Kevin P. O'Shea - Chief Financial Officer
Alex, this is Kevin. Our thoughts around our capital structure hasn't changed.
The rating agencies have taken their own action of their own accord based on whatever they're seeing in terms of both the evolution of our business and the current capital market condition. So that's sort of the set of actions that are happening independently of us.
In terms of our capital plan for the year, our decisions around how much to raise is a function of how much we expect to expend on development and other activities. So it's driven by our uses.
And so, as I mentioned earlier, we expect about another $1 billion of incremental activity on the sourcing front in the form of dispositions and unsecured debt issuance really because of the investment activity we have in our capital plan. In terms of our choices around what to raise, it's really a function not of the rating agencies but rather what are the most cost-effective sources of capital at any given point in time.
And as things stand today, unsecured debt pricing is relatively attractive. Moreover, as you can see in our initial outlook from the fourth quarter, we have $650 million of debt that we expect to refinance, so that's a use.
And on a leverage neutral basis with NOI on stabilized portfolio growing and development NOI coming online, we can add more than that amount in the form of newly issued unsecured debt and still grow on a leverage neutral basis. So that's how we're trying it around our total incremental need and how much of it might be in the form of unsecured debt.
But at this point, as you know, we haven't issued anything in terms of debt, so we'll just have to wait and see what happens as we progress through the year.
Alexander D. Goldfarb - Sandler O'Neill & Partners LP
Okay. And Kevin, can you remind us what cap rate they used for your unsecured debt – for the unencumbered pool – sorry, what cap rate they use?
Kevin P. O'Shea - Chief Financial Officer
I'm not sure if I'm following your question. We have disclosure in our press release that talks about the cap rate that pertains to our line and I think that's a 6% cap rate, if I'm recalling it correctly, but you can just look through the attachment for that.
But in terms of the cap rate that the rating agencies use, I don't have that information. I don't know that it will be something I'd want to share, if I did.
Alexander D. Goldfarb - Sandler O'Neill & Partners LP
Okay, that's cool. And then separate question, are you now done with any of the legacy Archstone dispositions or gains or is there still potential for more to come?
Kevin P. O'Shea - Chief Financial Officer
Well, I guess, one point I'll mention. This is Kevin again, Alex, and others may want to comment.
We expect potentially in the second quarter – and you probably saw this in the JV income line item – to receive some additional settlement proceeds related to some pre-acquisition activity that will likely flow through in the second quarter and be included within reported FFO, but it's carved out for core FFO.
Alexander D. Goldfarb - Sandler O'Neill & Partners LP
But, I mean, in addition to what you've already disclosed, is there anything future beyond this or versus second quarter basically clears the deck and that's it?
Matthew H. Birenbaum - Chief Investment Officer
Alex, this is Matt. There is one more asset.
There were two parcels of land that went up in the parking lot, one settled earlier this year, there is one other parcel of land out there that it will eventually settle – may settle this year, it may not settle for a while longer, we'll see how the market plays out on that, but that's relatively minor one-time adjustment if it clears.
Kevin P. O'Shea - Chief Financial Officer
Well, it's been actually reflected in the first quarter.
Alexander D. Goldfarb - Sandler O'Neill & Partners LP
Okay. Perfect.
Listen, thank you.
Kevin P. O'Shea - Chief Financial Officer
Yeah.
Operator
We'll go next to Tayo Okusanya of Jefferies.
Tayo T. Okusanya - Jefferies LLC
Hi. Just along Alex's line of questioning, can you just talk a little bit more about what you're expecting for the rest of the year in regards to acquisitions overall, and generally what kind of pricing you're seeing in most of your key markets – I'm sorry, dispositions, not acquisitions?
Kevin P. O'Shea - Chief Financial Officer
Tayo, this is Kevin. I think overall, as I mentioned, there's probably an incremental $1 billion of capital we expect to source pursuant to our plan for the year.
Most of that we expect to source in the form of unsecured debt; the balance will be dispositions. In terms of the dispositions that we contemplate – I think Matt outlined a moment ago that two of them relates to Houston, one we completed in Stamford Harbor in the first quarter.
So there is overall and you step back there's not an awful lot of disposition activity that's anticipated within our capital plan and probably those two sources represents the bulk of that.
Tayo T. Okusanya - Jefferies LLC
Okay.
Kevin P. O'Shea - Chief Financial Officer
And Matt, anything you want to add just in terms of just the transaction market generally with what we are seeing out there?
Matthew H. Birenbaum - Chief Investment Officer
The transaction market has been very hot. There is clearly more demand from buyers to buy high quality multifamily assets and there are assets on the market for sale generally speaking.
Obviously, it varies a little bit market-to-market. So like Kevin said, it's our need to fairly model it.
We are always looking to transact. On the margin, if we can shape the portfolio, so we make some additional asset if we are using those funds to buy an asset, it may be in a submarket we like better, but right now the market is very active, very liquid.
Tayo T. Okusanya - Jefferies LLC
Got it. Thank you.
Operator
We'll go next to Michael Salinsky with RBC Capital Markets.
Michael Salinsky - RBC Capital Markets LLC
Hey, guys. Just in the nature of time as this call is going on a little bit long.
But just the late additions over the last couple of quarters seems to be a little bit more of an urban focus particularly with the New York asset there. Is there any shift as you think about starts maybe two years, three years down the road kind of moving more urban – moving more back into that urban core as opposed to the suburban?
And then just given the starts in D.C., you guys were among the first to sell out to reduce your exposure to D.C., ahead of the kind of the downturn. Can you just talk about your outlook for D.C.
over the next, call it, two years to three years? Has the worst already passed, and do you expect kind of 2016 and 2017, would you expect D.C.
to perform more in line with the rest of the portfolio or do you think there is a recovery potential there?
Matthew H. Birenbaum - Chief Investment Officer
Yeah, Michael, this is Matt. I can speak a little bit to the first part of the question, and then maybe Sean or Tim might want to add some color as well on D.C.
longer term. In terms of our development rights, obviously, that Columbus Circle deal is a very large deal, so that does move the needle in terms of when you start looking at the numbers and weighting it by urban, suburban and those things.
But, as I mentioned earlier, generally speaking, we're still finding – just when you look at overall supply/demands fundamentals and you look at where land is pricing, the cost of construction, we're finding better risk-adjusted returns, generally speaking, on new land deals in suburban markets. And again, a lot of this is infill suburban transit-oriented in-suburban job centers.
Some of it is for that bedroom suburbs, but most of it is that kind of in a ring suburbs, I'll call it. So I would not expect our development rights mix to change materially one way or the other, but it's really bottom-up.
So we don't sit here and say to the local teams, go find us five deals in an urban market and now go find us five deals in a suburban market, it's find us the best deals in your market. And they respond to what they're seeing on the ground and sometimes those are more urban deals, sometimes they're more suburban deals.
But, at this point in the cycle, they are still more suburban Columbus Circle notwithstanding. As it relates to D.C., we are planning a couple of starts in Metro D.C.
here over the next couple of quarters, some of those are legacy positions, one of them is a large deal in the District that we had inherited the land from Archstone. But as it relates to the development cycle, it's probably a better time than it has been in the couple of years, if you think that D.C.
has had several years of basically flat rent growth underperformance relative to the rest of our footprint and if replacement costs haven't moved all that much, it's probably a better time to be thinking about that. In terms of where fundamentals are headed and where rent growth might be two or three years from now, I don't know that we're in a position to predict that other than we know there's still a fair amount of supply coming in the next year or two.
Timothy J. Naughton - Chairman, President & Chief Executive Officer
Yeah. Mike, maybe just add on to that.
To be clear, I think I said in my remarks, we do expect the performance gap start narrowing between D.C. and our other markets.
But over the next two years, we do expect it still to underperform. When you just look at the supply that's still coming and while job growth has picked up recently in D.C., we do expect it still to be an underperformer relative to our average markets over the next several quarters.
But the match point, as it relates to development, you're really focused on the second derivative as well as the kind of the first derivative and that's oftentimes where those good land opportunity is and if you can time it from a construction standpoint, when the labor market is still relatively soft, that those are oftentimes our best-performing assets long-term.
Michael Salinsky - RBC Capital Markets LLC
Thanks for the color, guys. Thank you.
Operator
We'll go next to William Kuo of Cowen & Company.
William Kuo - Cowen & Co. LLC
Great. Thanks, guys.
Appreciate the color in the presentation. The additional data points are in the development pipeline.
Just looking at page 16 where the five communities under construction in lease-up, whether the current projected yield is 6.9% versus the 6.3% original, so about 10% higher. Given your view of the extended nature of the current cycle and, call it, two years to deliver the rest of the pipeline on average, is there any reason to think that the current pipeline – if I estimate about 6.2% yield that that won't stabilize at 10% higher as well?
Timothy J. Naughton - Chairman, President & Chief Executive Officer
Yeah, William, it's Tim. I mean, if you look over the last three or four years, the deals that we completed have all stabilized on average for each vintage year, if you will, above what we had anticipated upon original projection.
It's just really just rent growth. So I think it's going to come down to how you underwrite rent growth over the next four or five years.
To the extent we continue to see a long sustained cycle where we're getting trend to above trend rent growth, we'd expect stabilized returns to be above what we first report in the release when it initially goes on the schedules.
William Kuo - Cowen & Co. LLC
Okay. Thanks.
And then just quickly, I know that High Line, West Chelsea is 97% leased. Can you talk about the performance of the two different segments versus original expectations and how splitting up that into the two segments has performed?
Sean J. Breslin - Chief Operating Officer
Yeah. William, this is Sean.
In terms of the performance, we've been happy with both the AVA and the Avalon product. AVA delivered first a little bit bigger building and Avalon followed.
But when you look at it just from a lease-up pace perspective and what happened with rents through the course of the different seasons, the lease-up performance relative to the original expectations was pretty similar between the two, both Avalon and AVA.
William Kuo - Cowen & Co. LLC
Okay. Thanks so much.
Sean J. Breslin - Chief Operating Officer
Yeah.
Operator
We have no other questions at this time. I'd like to turn the conference back to Tim Naughton for closing remarks.
Timothy J. Naughton - Chairman, President & Chief Executive Officer
Thank you, Augusta. Well, thanks for being on today.
I know it's been a long call, so we won't take any more of your time, but we do look forward to seeing all of you in June at NAREIT.
Operator
That does conclude today's conference. Thank you all for your participation.