Nov 1, 2014
Executives
Tim Argo - SVP, Director-Finance H. Eric Bolton Jr.
- Chairman and CEO Albert Campbell III - EVP and CFO Thomas Grimes Jr. - EVP and COO
Analysts
David Toti - Cantor Fitzgerald David Toti - Cantor Fitzgerald Rich Anderson - Mizuho Securities Karin Ford - KeyBanc Capital Michael Salinsky - RBC Capital Haendel St. Juste - Morgan Stanley Paula Poskon - D.A.
Davidson Tom Lesnick - Capital One Securities David Bragg - Green Street Advisors Carol Kemple - Hilliard Lyons
Operator
Good morning, ladies and gentlemen. And thank you for participating in the MAA Third Quarter 2014 Earnings Conference Call.
At this time, we would like to turn the call over to Mr. Tim Argo, SVP of Finance.
You may begin.
Tim Argo
Thank you, Priscilla. Good morning.
This is Tim Argo, SVP 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 want to point out that as part of the discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections.
We encourage you to refer to the Safe Harbor language included in yesterday’s press release and our 34-Act filings with 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.
H. Eric Bolton Jr.
Thanks, Tim and Good morning everyone. Operating results for the third quarter were in line with our expectations and reflect continued strong leasing demand across the portfolio.
In addition, with our merger integration process now largely complete, results are beginning to reflect the benefits of enhanced execution on the legacy Colonial portfolio as well as the benefits of increased scale impacting the combined portfolio. For the quarter, pro forma same store revenues increased 3.6% as compared to prior year and effective rent growth was 3.2%.
Encouragingly, when considering just the leases written during the third quarter, pricing was on average 4.8% higher as compared to the prior year, well ahead of the cumulative rent growth on all the in-place leases during the quarter. Occupancy remained strong with quarter and fiscal occupancy for the entire portfolio at 96.3%, putting us in a good position for the traditionally slower leasing activity during the winter months.
Resident turnover continues to run below long-term average, with move-outs during the third quarter down 7% on a pro forma same-store basis when compared to prior year. Move-outs to home buying declined a significant 14% when compared to the third quarter of last year.
Our new supply continues to come online in a number of markets, job growth across most markets has been sufficiently strong to support positive absorption and solid rent growth. While there are going to be pockets of extra supply relative to demand in some sub market, I expect this to continue to be the exception and not a widespread concern.
As the economy continues to show slow recovery and new construction activity picks up, we believe these trends will be positive for job growth and demand for rental housing, construction and construction related industries including single family construction and an improving housing market have typically been a boost to the economy in the Sunbelt markets. One of our best years of rent growth in our 20-year history was in 2007 when the single family housing market was at a very robust level.
Absent a slip in the recovery of the job markets, we expect continued solid leasing fundamentals and rent growth into next year. As mentioned third quarter results reflect the growing impact of the merger opportunities we have previously discussed.
After closing the merger on October 1 of last year, we began executing a number of changes to on site practices and policies within the legacy Colonial portfolio. Most of these changes required the re-working and consolidation of various systems and software conversions, while some changes were a matter of re-training our associates and retooling a number of operating processes.
It can take two to three quarter for the impact of these sorts of changes to show up in reported result. Comparing the legacy Colonial performance same-store portfolio on a year-over-year, during the third quarter, we improved the NOI operating margin on these properties by 250 basis points.
Changes made range from how we execute with our revenue management system and establishing pricing targets and exposure tolerances to how we approach property staffing and unit turn activities. In addition to the operating upside within the legacy Colonial portfolio, our merger transaction also created a number of benefits resulting from expanded platform size and scale.
This of course benefits both the legacy Colonial portfolio as well as the legacy MAA portfolio. When comparing the NOI margins for the same-store legacy MAA portfolio for the third quarter on a year-over-year basis we captured a 130 basis point improvement in performance.
We've reworked a number of national contracts for various products and services earlier this year and those renegotiated pricing terms have began to more actively work their way through our operation and have a positive compounding effect on results through the busy summer leasing season. As we continue to harvest these opportunities as well as execute on the redevelopment opportunity within the legacy Colonial portfolio, we continue to feel good about capturing the upside in NOI operating synergies as well as the G&A synergies that we've previously identified in our merger transaction.
As outlined in the earnings release, we remain very busy on the transaction front. We've completed our planned apartment property sales for the year and are substantially through the disposition of the commercial properties that were acquired as part of our merger.
You will note that we've increased our guidance for the year surrounding acquisitions as we have a number of properties currently under contract to buy and expect to close most of these by yearend. As new development activity has picked up in a number of markets, we've see a noticeable increase in deals being brought to market and are encouraged this pattern will continue into next year.
This should support our efforts to continue with an active program of capital recycle. In total at the midpoint of our guidance range, we expect to sell just over $300 million of properties this year and expect a similar volume of activity in 2015.
We also continue to make good progress leasing our existing new development and lease-up pipeline and expect to have full productivity of most of these deals in 2015. We're currently negotiating a couple of additional pre-purchase opportunities and would expect to reload our development pipeline although at a reduced level over the next few months as another source of opportunity for recycling capital.
That’s all the way I have in the way of opening comment. I am going to turn the call over to Al.
Albert Campbell III
Thank you, Eric, and good morning, everyone. I’ll provide some additional commentary on the company’s third quarter earnings performance, balance sheet activity and then finally on updated earnings guidance for the year.
FFO for the quarter was $103.8 million or $1.31 per share. Core FFO, which excludes certain items, primarily merger and integration cost and market value adjustment for debt assumed and debt extinguishment cost was $101.6 million or $1.28 per share, which was $0.07 per share above the midpoint of our previous guidance.
The results were supported by solid performance from our pro forma same-store portfolio, which produced NOI growth in line with our strong expectation for the back half of the year. Our G&A cost were about $0.01 per share favorable to expectations for the quarter, but a portion of this is timing related.
During the quarter, a promote fee associated with the wrap up of our Fund II joint venture. The total fee earned was $4.8 million with $2.5 million or about $0.03 per share recognized in FFO and with remaining portion related to gains on properties acquired from the joint venture applied to our investment basis in these properties.
Additionally we made a $0.03 per share adjustment to interest expense from accounting adjustment related to four interest rate swap contracts acquired in the merger with Colonial and these two items combined produced the remaining $0.06 per share [indiscernible] expectations for the third quarter. Our pro forma same-store portfolio produced 6.8% NOI growth over the prior year, based on a 3.6% growth in revenues and a 80 basis point decline in operating expenses.
As Eric mentioned, solid pricing performance continued through the third quarter producing 3.2% growth in effective rents with the remaining 40 basis points of growth coming primarily from higher average occupancy during the third quarter. Fiscal occupancy for the pro forma same-store portfolio ended the quarter at a strong 96.4% which is positioned well for the fourth quarter.
The decline in operating expenses was primarily related to reductions in personnel, repair and maintenance and instruments cost as compared to the prior year, which are all areas where we've began to see the benefits from the merger. Our utilities and real estate tax expenses both increased during the quarter offsetting a portion of these declines.
With the acquisition of the remaining two thirds of Verandas at Southwood, the final Fund II property located in Tallahassee Florida, total acquisition volume year-to-date was $178 million. As Eric mentioned we're currently pursuing additional acquisition opportunities that have accordingly increased our guidance to a range of $275 million to $375 million, for the full year a $75 million increase at the midpoint.
We also sold five wholly owned multifamily communities during the third quarter, containing 2238 units for total gross proceeds of $115 million. These sales completed our 2014 multifamily disposition plans, which produced total proceeds of $158 million and recorded gains on sale of $42 million for the year.
The average cap rate based on trailing NOI, a 4% management fee and total CapEx was 5.7% for the eight properties sold in 2014. Structure and lease-up of our development pipeline continues to progress well.
During the third quarter, we funded an additional $11.4 million, a development cost primarily toward the two remaining construction communities, 220 Riverside located in Jacksonville and Colonial Grand at Bellevue II located in Nashville. Also during the quarter, two lease-up communities, Colonial Reserve at Frisco Bridges located in Dallas and Seasons at Celebrate Virginia II located in Fredericksburg reached full stabilization, which we consider greater than 90% occupancy for 90 days.
We have communities remaining in lease-up at the end of the quarter, with an average ending occupancy of 94% and all four are on track to reach full stabilization during the fourth quarter. In the third quarter, we also continue to capture balance sheet and financing benefits from the recent merger.
We amended the agreement for $250 million term loan acquired from Colonial to reflect the strength of the combined balance sheet and the current market price. The amended loan, which matures in August of 2018 has a new credit spread, which is 65 basis points below the prior agreement at the current credit rate for the [company].
At the end of the quarter, our balance sheet remains in great shape. Total company leverage based on market cap was 39.7%.
The fixed charge coverage ratio was 4.1 times and our total debt to current EBITDA was 6.2 times. Also we have only $24 million of remaining funding commitment for our development pipeline with over $580 million of total cash and credit available under our line of credit at quarter end.
Finally based on the third quarter performance, we are increasing our earnings guidance for the full year. We now expect core FFO for full year to be in a range of $4.87 to $4.99 per share which is $4.93 at the midpoint.
We continue to expect pro forma same store NOI to range from 4% to 4.5% for the full year. Core AFFO for the full year is now expected to be $4.12 to $4.25 per share, which represents about a 70% dividend payout at the midpoint.
And now, I'll turn it over to Eric for some closing comments.
H. Eric Bolton Jr.
Thanks Al. it was a good quarter for MAA as the work of the past year in integrating the legacy MAA and Colonial operations is ramping up and the benefit surrounding the merger are increasingly reflected in our results.
We're encouraged with the leasing conditions across the portfolio and our team is focused on continuing to execute on the various operating improvements that have been made. We're making steady progress on recycling capital and continue to enhance portfolio quality and future internal growth prospects for the company.
MAA's balance sheet is in terrific shape and we have ample capacity to execute in our plans moving forward. I want to thank all of our MAA associates for their hard work and extra effort surrounding our merger over the past few quarters.
Thanks to your hard work and successful integration of our platforms, our consolidated operating and reporting systems are in great shape and the company is well positioned as we head into 2015. That's all we have in the way of prepared comments and Priscilla, we're going to turn it back to you for questions.
Operator
(Operator Instructions) We'll take our first question from David Toti with Cantor Fitzgerald. Your line is open.
David Toti - Cantor Fitzgerald
Good morning, guys.
H. Eric Bolton Jr.
Hey David.
David Toti - Cantor Fitzgerald
And I apologize in advance, I might have missed some of your opening remarks, it's been a bit busy today. Did you mention any plans for non-core asset sales in the retail, in the retail pool?
Albert Campbell III
We -- we've got the most of the remaining assets under contract to sell and would expect to get the remaining ones mostly closed by the end of this year. We've got some residual land assets that will probably slide into next year, but the operating assets, we expect to be gone by the end of this year.
David Toti - Cantor Fitzgerald
Okay. And then -- I just want to go back to the sort of merger synergies and kind of reversal and OpEx in the quarter, and just talk about the sustainability of that, you said if you were to characterize the appearance of the synergies, are we sort of in early stages or is this kind of a one-shot deal?
Do you expect that there will be additional savings, additional margin expansion in the next couple of quarters, how would you characterize that?
H. Eric Bolton Jr.
I would say David that certainly the changes that been introduced to date are sustainable going forward. There are sort of permanent changes if you will that we've made.
Now the year-over-year benefits of that will obviously lessen over time as we get to year-over-year comparisons reflecting where the change took place. But the changes that were made were more systemic in nature and as I said in my comments, it takes a while for these things to actually get implemented and then a while for them for being to show up.
And Q3 being a busy quarter as it typically is, it really began to show up and with all the integration behind us in the early part of the year. So now there are few other remaining items that we're going to still harvest in the area of some turn activities and some other things that we're working on, but certainly what we've seen to date, we think will carry this going forward for some time,
David Toti - Cantor Fitzgerald
Okay. That's helpful.
And then just my last question has to do with some of the ships in occupancy, which is counterintuitive in my view. The secondary markets were relatively stable, large markets had higher occupancy, was there increased concession activity if you achieve that, what do you think the dynamic was that created sort of some occupancy strength in the period?
Thomas Grimes Jr.
I think -- David this is Tom, I think clear eyes and a lot of focus generated that. We were a little -- I think in second quarter you saw a little bit more focus on secondary markets, but we felt like the large markets were not firing on all cylinders as we would like and you saw that build back quite well.
I think our pricing performance which Eric mentioned in the call up $4.8 million for the quarter in the case that we didn't have to do anything out of the ordinary for those.
David Toti - Cantor Fitzgerald
Okay, good. Thanks for the detail today.
Operator
Thank you. We'll go next to Rich Anderson with Mizuho Securities.
Your line is open.
Rich Anderson - Mizuho Securities
Thanks. Good morning.
H. Eric Bolton Jr.
Hey Rich.
Thomas Grimes Jr.
Hey Rich.
Rich Anderson - Mizuho Securities
So back to David's question on synergies if I can, I remember couple three, four quarters ago, the number of $0.30 to $0.45 of operating synergies was kind of, you know your game plan. Do you still have that view about pure operating synergies is always to G&A synergies and where are -- do you feel you are in terms of getting into that range right now?
Thomas Grimes Jr.
Let me answer initially Rich and then maybe Al can add some details, but in answering your question, we absolutely feel very confident about -- we actually the range that we show before on the NOI was $0.30 to $0.50 per share and we feel very good about achieving that. That's really broken down into four different components NOI stabilizing the development pipeline recycling non-earning assets and redevelopment of the Colonial assets.
All those things run away and in fact on the NOI operating synergies. Frankly what we saw in the third quarter you just annualize that.
We were at the very top into that range. So we spec we will probably do better than what we initially thought in that particular line item.
The G&A savings which is the other big component of this roughly $25 million or $0.32 a share, you'll see that all next year. our run rate certainly about the end of this year as we've always said would be reflecting that savings and we feel very good about delivering on that value creation as we initially identify.
Rich Anderson - Mizuho Securities
So the G&A of $0.32 is not included in the $0.30 to $0.50?
Albert Campbell III
No, that's additional above that.
Rich Anderson - Mizuho Securities
Okay. And so you get all of that in 2015, but how much of the $0.30 to $0.50 do you think you get in 2015?
Albert Campbell III
I think the four items were NOI synergy stabilizing the development pipeline to give the majority of those two Rich. The other two items, the redevelopment of the Colonial assets and these recycling the non-earning assets, they're going to take a couple more years on the redevelopment pipeline.
Just to give you an example we laid out 10,000 to 15,000 units of opportunity there. We feel very good about that.
We did 2,000 this year. We'll probably do more like 3,000 next year.
So it takes a few years to fully get that 10,000 to 15,000 units. But we feel very good about that program and the economics are still strong.
The non-earning assets, the land, we'll probably be active on selling added thing and you'll see the impact more in '16 I would say.
Rich Anderson - Mizuho Securities
Okay. So these two kind of in-process, are they half of the $0.30 to $0.50 or they less than that?
Albert Campbell III
They are on the recycle of non-funded assets there we said $0.08 range on the redevelopment program, $0.10 to $0.17 range. So the redevelopment program of that 30-50 is a pretty meaningful piece and we will see that play out over the next couple of years.
Rich Anderson - Mizuho Securities
Okay, that's great, thanks. In terms of your dispositions, Eric, you mentioned $300 million possible in 2015.
How much do you think will come out of the secondary markets being that you've had some little bit of choppiness there or are you not going to be willing to necessarily make a trade just because you had a couple of moving parts in the last couple of quarters.
H. Eric Bolton Jr.
Rich, we remain very committed to our strategy allocating capital both in large and secondary markets and the balance that we have today are roughly about 60% to 40% allocated, 40% allocated to secondary, 60% to large. We think that's the right model going forward.
So we're not going to change that. Now having said that, of the $300 million that we probably will sell next year overwhelmingly that will be within the secondary market segment of the portfolio.
There is some fine tuning within that component of the strategy that we're executing on. You will see and really the focus as it always has been for us is just to cycle some of the older lower margin investments and higher margin investments.
As it so happens given the history of our company, a lot of our older investments happen to be in some of the more tertiary markets within that secondary market segment of the portfolio. So that you will see more of the recycling taking place within the secondary segment of the portfolio, but we remain very committed to the overall strategy.
Rich Anderson - Mizuho Securities
Okay. I read a new story a few weeks ago about the jobless rate in the south being higher than -- it was surprisingly high considering this is where you'd see job growth Atlanta, Tennessee, Alabama, Louisiana and South Carolina, all registering high from an unemployment rate perspective.
I'm not, I don't know if you saw that article and -- but I was just curious if you've sensed anything about a job, job growth perspective in some of your markets or if that's not kind of coming through in the numbers.
H. Eric Bolton Jr.
I didn't see the article that you're referring to. What we have seen is in some select secondary markets weaker job growth than what we've seen take place in some of the larger markets and thus sort of the weaker performance out of the secondary segment of the portfolio -- market segment of the portfolio to specifically Memphis, Little Rock and Norfolk Virginia have been a little bit weak.
San Antonio has been a little bit weak. Offsetting that though to some degree has been certainly Charleston, Savannah, Greenville, Spartanburg, South Carolina, they’ve been very strong.
So it's hit or miss and some have been weak, some have been strong and so it's -- but again we continue to while the demand side or the job growth side of the model has been a little bit weak in some of those markets, the good news is that supply trends are still very muted within that group of markets overall and I think if can just continue, the economy pick up a little bit more steam. And you look at the job projections in the next year and the year thereafter, a lot of these secondary markets are showing pretty good momentum on the job front.
So we're encouraged with the trends and I think that we should see that performance improve over the next year.
Rich Anderson - Mizuho Securities
So is October 6, page 84 in the Wall Street Journal, I saved it just for you. And then last question is, the development pipeline reloading it, I'm curious I mean how much will development never being your kind of for take prior to Colonial, why now is it kind of the something that you wanted to do maybe with more of a long-term perspective?
H. Eric Bolton Jr.
It's really no change Rich. We feel like that our approach to development has historically been and will continue to be built around essentially a pre-purchase model of something to be built by a developer.
The incident or the occurrence of MAA actually being the developer is highly unlikely. We may do that on a phase two expansion or something of that nature.
We're very familiar with the product, but broadly speaking when we talk about new development, what these really are pre-purchases of to be built properties. We think that the volume for us is going to probably be around $200 million to $300 million offset on a $8.5 billion balance sheet.
So overwhelmingly the external growth story for us is largely continues to be built around acquiring existing assets.
Rich Anderson - Mizuho Securities
Great color. Thanks a lot, appreciate it.
H. Eric Bolton Jr.
You bet.
Operator
Thank you. We'll go now to Karin Ford with KeyBanc Capital.
Your line is open.
Karin Ford - KeyBanc Capital
Hi. Good morning.
H. Eric Bolton Jr.
Hi Karin.
Karin Ford - KeyBanc Capital
Just wanted to ask about the incremental level of acquisition opportunities that you're seeing in the market today. Does that cause you to potentially consider accelerating the dispositions and the portfolio recycling that you're planning for the secondary markets for 2015, now that you're seeing, if you're seeing more volumes on the acquisition side?
H. Eric Bolton Jr.
We're going to be selling more certainly on the apartment side in 2015 than what we've ever sold. We were selling about $300 in total this year call it half of its apartments have obviously existing commercial assets to Colonial.
Next year the $300 million will be comprised totally of apartments, but having said that, our strategy is really built around a discipline of sort of steady recycling from lower margin investments to higher margin investments. We're not trying to make any sort of major portfolio shift or there is no strategy change that we're trying to pull off here.
And as I said, we believe very much in being allocated between large and secondary markets. So what we're finding is and we've always found typically is good opportunities to harvest value out of lot of these assets and then see secondary markets by selling them in a very steady fashion on sort of a retail basis as opposed to putting a big package together and trying to find some wholesale buyer to take us out.
So we're going to push the agenda there as aggressively as we can depending on redeployment opportunities, but we also are very mindful of protecting a steady of performance to steadily AFFO and the dividend, which we think is an important component of long-term shareholder returns. So we're going to push that agenda Karin as aggressively as we can, but to some degree it's a function of where the redevelopment or sort of the reinvestment opportunity plays out.
Karin Ford - KeyBanc Capital
And where do you think the spread stands today on a cap rate basis between what you'd like to sell in the secondary market versus what you'd like to buy next year?
Albert Campbell III
Karin this is Al. I think one thing I'll point you to is on the eight assets we sold this year multifamily.
if you take the trailing NOI minus the 4% cap management fee and all the CapEx internal property last year that's a 5.7% cap rate and I will say we're buying probably in the 5% to 5.5% range altogether. So it's tighter than you would think and on a cash flow basis.
Now NOI to little bit wider spread than that, but on a cash flow basis, it's pretty tight.
Karin Ford - KeyBanc Capital
That's helpful. Can you give us just a sense for how October trends where just what new on renewal, lease increases were and where occupancy stands here in October?
Thomas Grimes Jr.
Sure Karin, this is Tom and occupancy is at 96, exposures roughly 76, which is about 30 basis points better than it was the same time last year and this is on a year-over-year basis, new leases are blended was 5 and it's 4.8, new lease 5.2 renewal.
Karin Ford - KeyBanc Capital
Okay. So October sounds like you continued the momentum that you saw in the…
Thomas Grimes Jr.
Yes and as Eric touched on some of these systems that we've in place to harvest efficiency and value are really beginning to pay off and we think we've got an opportunity for the next quarter or so to continue the improvements in our pricing arena.
Karin Ford - KeyBanc Capital
That's helpful. And my last question is just on the performance of the primary markets versus the secondary markets.
Can you just give a general sense as to where you think that the spread between -- the performance spread between those two groups is going to trend here in the next coming quarters? Do you think the gap is going to widen out further?
Are you expecting the secondary markets to start to narrow the gap a little bit and do you have any visibility on improving job growth trends or any other types of trends that might be affecting the secondary market?
Thomas Grimes Jr.
We feel like the -- on a positive note both groups improved very well from the second quarter to the third quarter. We think that the gap between them will narrow, but are enjoying the strength of the primary markets.
Looking forward, we're particularly encouraged by the lack of new supply in the secondary markets. Then we do have a few that have been pressured by weaker job growth Eric touched on those, with Memphis, Little Rock and Norfolk Virginia all at less than a percent of job growth over the last year or so.
Those are expected to do a little bit better in 2015, but we need to monitor those. Memphis was affected, Memphis revenues were 140 basis points lower this quarter than we would have expected because of a couple of down units or because of a number of down units related to flood event, which will have back in the first quarter.
So the job markets for the secondary group for those properties are expected to be 2.6%6 in Memphis next year, 2.9% in Little Rock and 2% in Norfolk, all of which bodes well for 2015. I would like to point out that we're seeing great strength in places like Charleston and it was up 3.4%, Greenville up 4.1% in revenues and Savannah at 5.1%.
So I think we've to be careful not to bucket all properties as secondary. It really comes down to what the job growth characteristics were and those appear to be improving.
Karin Ford - KeyBanc Capital
Thank you for the color.
Thomas Grimes Jr.
Thanks Karin.
Operator
Thank you. We'll go next to Michael Salinsky with RBC Capital.
Your line is open.
Michael Salinsky - RBC Capital
Hey, good morning guys. Al, Eric, quick question as it relates to turnover.
What was turnover in the quarter? So what I'm trying to get is the mix of new lease versus renewals, how did that change kind of year-over-year.
And then as you think about, given the strong renewal growth you had relative to more moderate new lease growth, where does the loss to lease in the portfolio or the differential between new lease and renewal rents in place right now stand.
Thomas Grimes Jr.
Hi Mike, it's Tom and we were down 847 fewer units or 6.6% during the quarter on that and rephrase the second part of that question if you don't mind.
Michael Salinsky - RBC Capital
Just given the strong renewal growth that you had during the quarter relative to more moderate new lease growth, where do kind of in-place rents today stand versus kind of market, if you just look at the delta even pushing on renewals versus new leases, I was trying to get a sense of how the ports in place rents compared to market right now.
Thomas Grimes Jr.
Well I can tell you that in the third quarter we reported overall year-over-year in-place leases for all of Q3 this year versus Q3 last year, up 3.2%. If you look at the leases that we just wrote in the third quarter, just in the third quarter compared to just the leases we wrote in the third quarter of the prior year, they were up 4.8%.
Albert Campbell III
And I'll just add to that Mike, if you look at the months in the quarter, September was the highest effective rent which was in-place at 3.5% showing escalation or growth of those new prices early in the portfolio that Eric was pointing out.
Michael Salinsky - RBC Capital
Okay, that's helpful. Second question, Eric, you touched a little bit more just in terms of the acquisitions in the pipeline, you are looking at those more secondary or primary markets, will there be a lease up component of those, can you just give us a little bit more color there?
H. Eric Bolton Jr.
They are a mix of some large, some secondary markets and these are all stabilized assets.
Michael Salinsky - RBC Capital
Okay. Any comment on pricing?
H. Eric Bolton Jr.
I would better wait till that to be closed on and we're talking about that next quarter.
Michael Salinsky - RBC Capital
No problem then. And then just in terms of development starts, I recall in a prior call you talking about kind of focusing the development starts more in the secondary markets, markets where it was hard to find product.
Is that we should expect with development starts or these are going to be more primary?
H. Eric Bolton Jr.
It's going to -- again it's going to be a mix. We've got a couple that we are looking at right now, once in large, once in secondary.
We've got another one that we're really on in conversations about in another large market. So it's going to be a mix.
We are increasingly finding more and more interest in this area of sort of developers who are looking for -- we're hearing from developers that financing equity capital in particular is getting more difficult. These guys are very much interested obviously in continuing to keep their doors open and stay in business and we're having a lot of conversations with a lot of developers who very much want to sort of build a sustained relationship with us.
And so which also gives me some degree of comfort that hearing that the capital is tied with a lot of these developers gives me some comfort that the thread of massive overbuilding is pretty remote and so I think that we're encouraged with what we're seeing on that front.
Michael Salinsky - RBC Capital
That's all for me guys. Thank you.
H. Eric Bolton Jr.
Thanks Mike.
Operator
Thank you. We'll go now to Haendel St.
Juste with Morgan Stanley. Your line is open.
Haendel St. Juste - Morgan Stanley
Hey, good morning, guys.
H. Eric Bolton Jr.
Good morning.
Haendel St. Juste - Morgan Stanley
So, a couple of quick ones from me. Eric, I know it's probably a bit early to talk about 2015 guidance, but some of your partner maybe brethren have discussed a directional sense for 2015 same-store revenue.
So I was wondering if you'd be willing to similarly provide an early sense of how you're feeling about same-store rev heading to 2015, especially given the comments you made about supply and to me a largest Sunbelt and then the job wage growth in your smaller Sunbelt markets.
H. Eric Bolton Jr.
I think that I've seen what some of the others have said. I think that MAA is going to be competitive with the sector next year.
I think that we're going to see -- 2015 looks very similar to 2014, just without the lumpiness and drama.
Haendel St. Juste - Morgan Stanley
Okay. And then one for you, Al, just wanted some clarification.
Can you walk us through the adjustment for the treatment of the derivative contracts associated with Colonial merger? Just wanted to confirm that first thing what contemplated in prior guidance and then two, what's causing that adjustment to be reflected if booked now?
Albert Campbell III
Yes what that is when we acquired Colonial, there were four interest rate swaps that we acquired and they are very similar to swaps that we have, the plain are normal and they're hedging or locking in the rate on their term loans. When we acquired them though they had a market value.
When we incur a swap or start a swap, there is zero balances and the accounting is every period when the change in value you record that to other competitive income, which is below net income. So we handle these swaps because they're similar same way and the technical accounting as we continue to review and scrub all of our treatment from the merger the technical accounting is actually to -- since those swaps had a market value at the time you purchased them, a portion of that change period to period should be applied back to interest expense.
And so this was accumulative adjustment for Q4, one and two immaterial in any period presented, but to get it correct, we wanted to give you all information, so you could see it. We left it in FFO and core FFO because had we done it that way, through the life, it would have been in interest expense with the other items and so that's it in a nutshell.
Is that what you were asking?
Haendel St. Juste - Morgan Stanley
Yeah, that was, I appreciate that. And then one small follow-up.
On the 3Q asset sales, were those individual or was that a portfolio sale?
H. Eric Bolton Jr.
Those are individual asset sales.
Haendel St. Juste - Morgan Stanley
Okay. And type of buyers, we are talking private, local buyers effectively.
I am just curious if you're seeing any change in demand etcetera from those guys, just trying to get sense on the transactional market.
H. Eric Bolton Jr.
No, these are all private buyers and generally they're not [at the core] (ph). They are funds that manage anywhere from companies that have institutional capital often behind them, but these are managed 5,000 to 7,000 units, one group out of California, one group out of New York, one group out of Dallas.
So they're kind of all over the Board, but it's generally not just a small sort of country club kind of group of people. These are usually platforms again anywhere from five to one group ahead up to 15,000 units.
But typically higher leverage buyers. They're usually getting agency financing anywhere from 75% to 80% financing on the deals and we're finding it a good market for that.
Haendel St. Juste - Morgan Stanley
Appreciate that. Thank you.
Operator
Thank you. We'll go now to Paula Poskon with D.A.
Davidson. Your line is open.
Paula Poskon - D.A. Davidson
Thanks very much. Good morning, everyone.
H. Eric Bolton Jr.
Good morning, Paula
Paula Poskon - D.A. Davidson
Eric, I just wanted to follow up on stat in your prepared remarks about the move-outs to home buying, did you say that relative 14%?
H. Eric Bolton Jr.
It was down 14% from what it was…
Albert Campbell III
Paula it's about 17% of move-outs right now.
Paula Poskon - D.A. Davidson
Okay. And is there -- are you seeing any divergence across the communities in terms of or across your markets in terms of spikes up or down that surprised you?
Albert Campbell III
In terms of home buying, Paula?
Paula Poskon - D.A. Davidson
Yes.
Albert Campbell III
Not really. I would tell you broadly it's lower than we thought it would be this year, but it's been relatively the normal band large markets moving out for home buying at a slightly higher rate than secondary, but nothing really stands out.
They are pretty tightly banded between sort of low of 15 and high of 22 or so.
Paula Poskon - D.A. Davidson
Okay. Thanks, Al.
And the other comment was Eric, when you said the new supply you thought would just be in kind of in certain pockets, but not a wide spread concern. Are there specific markets or sub markets that you are concerned about for 2015?
H. Eric Bolton Jr.
I'll Tom answer that Paula.
Thomas Grimes Jr.
Paula, we're still monitoring sort of the same suspects, Raleigh is probably the one that has shown the most is sort of most effective supply. It actually seems to be responding reasonably well now, but effective rent growth there was only about 1.2%, but blended rates for the quarter are actually up there.
So we're encouraged by that. Austin we're monitoring I think along with everyone else, but their effective rent growth is fantastic and the jobs really just seem to be absorbing the units at a pretty good clip and then monitoring Dallas with that supply seems to be focused sort of Uptown area and North Dallas where we have relatively limited supply.
So I would say those are sort of places where I am watching in 2015, but we keep the job growth numbers for '15 slightly better forecast than they were last quarter. So we are encouraged by the job growth side of the equation.
Paula Poskon - D.A. Davidson
Okay. Thanks.
That's all I have.
H. Eric Bolton Jr.
Thanks Paula.
Operator
Thank you. We'll go next to Tom Lesnick with Capital One.
Your line is open.
Tom Lesnick - Capital One Securities
Hi. Good morning, guys.
Just curious with the upper revision in your acquisition guidance is the -- are the sellers more tax motivated or what's driving that?
H. Eric Bolton Jr.
It's really in every case is a brand new property. So these are developers who are looking to cycle out.
They never intended to hold these assets for long and in one case, it's a property we've been tracking. It went under contract to someone else earlier recently fell out.
They came back to us at our earlier pricing and we were able to make it work, but in every case these are one of the benefits of the new supply thing up in a number of these markets as I say is it's creating more and more eying opportunities and that's really what we were targeting is new product and so that's where we are seeing activity now.
Tom Lesnick - Capital One Securities
Great. And then how do your pre-purchase yield expectations compare to in-place acquisition cap rates right now?
Albert Campbell III
Usually about a 100 basis points higher from an NOI yield perspective.
Tom Lesnick - Capital One Securities
All right. Great, thank you.
Albert Campbell III
You bet.
Operator
Thank you. We'll go now to David Bragg with Green Street Advisors.
Your line is open.
David Bragg - Green Street Advisors
Thank you. Good morning.
Just wanted to grab a couple of data points from me here at the end. First, what are the operating margins for the legacy and Colonial portfolios?
Albert Campbell III
Hold on just a second. I'll give you.
As we talk about Dave, while we're pulling that, what it specifically is, the margin growth in the Colonial is 250 basis points improvement and it's a 130 basis points improvement on the legacy MAA piece, well actually underlying for synergy there Tim?
Tim Argo
Yes Dave, its Tim. For the legacy MAA, the NOI margin for Q3 was 59.9 and 59.5 for legacy CLP.
David Bragg - Green Street Advisors
Okay. So they're pretty close to each other and generally given your knowledge of these two portfolios, do you expect them over time to be pretty comparable as they are now?
Albert Campbell III
I think that over time they probably will be. We frankly would expect to see the margin improvement grow a little bit in the CLP portfolio just as a consequence of some of these changes that Tom and his folks are working through as well as recognizing that there is a higher concentration of higher rent properties in the legacy CLP portfolio.
Now as we continue with our recycling effort and continue to cycle out of some of the lower margin investments, older assets that we have, which as I mentioned earlier, a lot of the activity next year will take place in the legacy MAA portfolio. I think you’ll begin to see the margin then pick up more substantially in the legacy MAA portfolio.
Ultimately they'll settle out about the same place, but I wouldn’t be surprised to see for the next year or so for the CLP margin portfolio to or margins in CLP portfolio to actually accelerate beyond MAA.
David Bragg - Green Street Advisors
Okay, thank you for that. And the other thing is, we spoke about move-outs buy, but can you provide move-out to single family rental this quarter and a year ago?
Albert Campbell III
Sure Dave, move-outs to rent increases are actually down slightly from second quarter. It's 8% this quarter and then…
H. Eric Bolton Jr.
That's rent house.
Albert Campbell III
Sorry, rent house. That was what you were asking right?
David Bragg - Green Street Advisors
Renting the house, yes?
Albert Campbell III
And then it was -- so it was 7% this time last year.
Tim Argo
But it's moved up from 7% to 8% of our move-out over the last year.
David Bragg - Green Street Advisors
8% and 7%, okay, thank you very much.
Operator
Thank you. We'll go now to Buck Horne with Raymond James & Associates.
Your line is open.
Buck Horne - Raymond James & Associates
Hey guys, thanks. I think a little deep on my listed things to ask you guys, maybe any update on recent rent to income trends, are you seeing a larger group of higher income tenants or is it still relatively steady?
H. Eric Bolton Jr.
No it's at 17%, which is still very, very good and the downturn is it probably peaked around 18% or 19% and so it's at a very healthy point and the Sunbelt I think apartments are affordable. There is a lot of upside on what people can pay in upfront.
Buck Horne - Raymond James & Associates
And I'm pretty impressed that the resident turnover levels are declining and then as high as they are at this point of the cycle, I know if you got any additional color on, if you're surprised where the resident turnover levels are. I don't, I'm just the detail and can you -- do you have any of the station on where your tightest in your product like whether it's one-bedroom units or two bedroom units that are tighter right now and what the, what your tenants are doing in terms of managing their household structure?
H. Eric Bolton Jr.
No about 70% of our households are single adult led. Home buying is the thing that we would tell you is slight different.
I don't want to overstate this. We expected it would pick up a percentage point or two and it's dropped a couple.
So not wildly different, but it was up in '13 from '12 and I think modestly and we expect that to continue and it didn't. But I think it really speaks as much as anything to our renter psychology, their appreciation of the flexibility of renting and frankly the fear of home buying.
Nothing new here in terms of theory, but that's -- they're just staying same put a little longer and appreciating renting a little longer.
Buck Horne - Raymond James & Associates
All right. Thank you.
Operator
Thank you. We'll move next to Carol Kemple with Hilliard Lyons.
Your line is open.
Carol Kemple - Hilliard Lyons
Good morning.
H. Eric Bolton Jr.
Hi Carol.
Carol Kemple - Hilliard Lyons
I just have a question related to move-outs, are you all seen an increase from last year of tenants moving out related to a job transfer?
H. Eric Bolton Jr.
That has moved up just a tad Carol. That's always been our largest cause for people leaving us and moving out and in the third quarter that constituted 29% of our turnover, whereas a year ago, it constituted 29% of our turnover.
So that typically is the largest reason why people move out as a change in the tenant.
Thomas Grimes Jr.
And the downturn, that was the reason it was dropping, when we look at job transfers overall a positive sign.
Carol Kemple - Hilliard Lyons
Okay. Great.
Thank you.
Operator
And I’m showing no further questions. I will now turn the call back over to management for any closing comments.
H. Eric Bolton Jr.
Okay. Thank you.
No closing comments. We’ll see a lot of you next week at the NAREIT.
Thanks.
Operator
Thank you, ladies and gentlemen. This concludes today’s conference.
You may disconnect at any time.