Apr 30, 2015
Executives
Tim Argo - SVP, Finance Eric Bolton - CEO Albert Campbell - CFO Tom Grimes - COO
Analysts
Robert Stevenson - Janney Montgomery Scott Gaurav Mehta - Cantor Fitzgerald John Kim - BMO Capital Dan Oppenheim - Zelman and Associates Haendel St. Juste - Morgan Stanley Tom Lesnick - Capital One Securities, Inc.
Rich Anderson - Mizuho Securities Michael Salinsky - RBC Capital Markets Omotayo Okusanya - Jefferies Drew Babin - Robert W. Baird David Segall - Green Street Advisors Jordan Sadler - KeyBanc Buck Horne - Raymond James
Operator
Good morning, ladies and gentlemen, thank you for participating in the MAA First Quarter 2015 Earnings Conference Call. At this time, we would like to turn the conference over to Tim Argo, Senior Vice President of Finance.
Mr. Argo, you may begin.
Tim Argo
Thank you, Leo. 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 the SEC, which describe risk factors that may impact future results. These reports, along with a copy of today's prepared comments and an audio copy of this morning's call, will be available on our website.
During this call, we will also discuss certain non-GAAP financial measures. Reconciliations to comparable GAAP measures can be found in our earnings release and supplemental financial data.
[Operator Instructions] Thank you. I'll now turn the call over to Eric.
Eric Bolton
Thanks, Tim, and appreciate, everyone joining us this morning. We had a strong start to the year with first quarter results ahead of our expectations.
The outperformace was driven by solid operating results with same-store NOI growing 5.8% as compared to prior year. Tom will walk you through more specifics surrounding pricing and the factors driving revenue performance.
But overall, we continue to enjoy a favorable leasing environment as job growth and strong demand across our markets are more than offsetting new supply deliveries. Continued progress and harvesting opportunities coming out of our merger with Colonial is also contributing to operating momentum.
The lift in performance we captured in the back half of last year from a number of operating improvements and scale benefits are continuing to generate solid year-over-year results. All aspects of our operations are now fully consolidated on to one platform and we're looking forward to continuing to improve and fine tune several processes that we believe will generate further lift in operating margin.
The balance sheet remains in a strong position and we expect to see coverage metrics continue to improve over the course of the year. In his comments, Al will recap more details but we are particularly pleased with the progress in growing the unencumbered asset base with the higher level of asset sales and growing free cash flow, our overall debt level as a percentage of gross assets is declining and is also further strengthening the balance sheet.
As recapped in yesterday's earnings release, we had very busy quarter with transactions. Including a group of properties that were sold earlier this week, we've completed the sale of 18 properties since the first of the year.
We have an additional three properties on the contract and are expecting to close on those sales later in the summer. As we have outlined in last quarters earnings release, we believe that market conditions and the transaction markets supported and expedited executing of our plans to exit this 21 properties in smaller secondary markets.
We are very pleased with the execution and an average age to 25 years and located exclusively in smaller markets this group of 18 properties that has been sold has an average rent that is 21% below our same-store portfolio average. Based on trailing 12-month NOI, total capital spending averaging approximately 1200 per unit and a 4% management fee, we captured a 5.6% cap rate on the sale of these properties.
Going forward, as we've been doing for the past few years we will continue to consider opportunities to recycle capital from properties in markets where we believe we can reinvest to capture more attractive long-term value but it's worth noting, that with the dispositions being completed this year. In addition to the significant volume of dispositions and capital recycling completed over the past few years, we've now sold over 11,000 units since 2010.
As a result, you can expect us to execute our capital recycling on more of a match funding basis going forward and exiting an additional 11 markets this year we have now repositioned the portfolio for stronger and more efficient execution. I’d like to point out that as a result of this capital recycling along with a number of other improvements we’ve made to both the operating and financing platforms for both the legacy MAA and CLP portfolios, we've seen MAA same-store NOI margin over the last five years improve 430 basis points.
When considering capital spending of both recurring and revenue enhancing items, the same-store NOI margin has improved 550 basis points since its calendar year 2010. On the acquisitions front, we continue to underwrite a number of new opportunities and deal flow remains high, but extremely competitive.
As we move further into the new supply delivery cycle, I continue to believe that we’ll see more investment opportunities that meet our long established investment hurdles. As noted in yesterday's earnings release, during the quarter we started a Phase II expansion of our property in Fredericksburg Virginia and are currently planning to also start additional expansions of properties we own in Orlando and in Charleston.
We also remain active with discussions with developers on several opportunities to acquire properties on a pre-developed or lease up status. In summary, we like the momentum we’re seeing and believe that the benefits being harvested from our merger coupled with the capital recycling we completed further supports a more efficient operation and higher internal growth profile.
The balance sheet is well positioned and we remain poised, but disciplined to continue to capture growth opportunities that we feel are likely to increase as we move further into the cycle. That's all I have in prepared comments.
And I'll now turn the call over to Tom.
Tom Grimes
Thank you, Eric, and good morning everyone. Our 5% revenue growth was driven by a strong average fiscal occupancy of 95.6%, up 60 basis points from the prior year coupled with average rent per unit growth of 3.9% and good fee performance.
April trends continue to be encouraging. Our 60-day exposure, which is current vacant plus all notices for a 60 day period is just 8.3%.
This is down 130 basis points from the same time last year. Our blended year-over-year pricing for April was up 6%, which is 200 basis points higher than this time last year.
While expenses were better than we expected, there are few timing notes on the expense lines. Our personnel and marketing expenses reflect timing and congruities related to the discontinuation of legacy CLP programs last year.
This affects first quarter comparisons only. We expect both lines to be below 3% for the full year.
The benefits of our strong operating platform on a legacy CLP communities continues to pay dividends. The more robust approach of our revenue management team has grown rents at CLP communities more than 150 basis points higher than their market peers.
Our system customizations that allow for fees and collections to be automatically build on the CLP platform has improved delinquency and fee collections for the quarter. We’re excited about our new repair and maintenance inventory process.
This new initiative - with this new initiative our vendor stocks and replenishes are onsite shops with their owned inventory. We then purchase the inventory when it’s used by our teams.
This maximizes our scale discounts and the speed of service to the resident. It minimizes the amount of time our team spends on procurement and increases efficiency onsite.
This process gives us the right part at the right cost at the right time. This is another example of how our scale and operating sophistication creates value for our residents and our shareholders.
On the market front, vibrant job growth of the large markets is driving strong revenue results in places like Atlanta, Austin, Charlotte, and Tampa. In the secondary markets, which have lower supply pressure we're benefiting from accelerating job growth and this group Charleston, Greenville, and Savannah stand out.
Jacksonville's 4% revenue growth is also notable. Further illustrating the demand of that market is our newly developed 220 Riverside project.
We delivered our first units last week in that 294 unit community, is already 58% pre-leased with rents above pro forma. We expect our four communities in Memphis to show year-over-year improvement as the last year plays out - as the year plays out and job growth builds.
We’re in very good shape in Houston, but continue monitoring our portfolio closely and we will remain sensitive to any changes and demand. During the quarter, Houston generated 6.6% revenue on rent growth, turnover for the quarter was down 8%.
For the month of April, Houston's average physical occupancy was 96.1% and year-over-year blended rents for April were up 7.7%. It was at this time last year that the heavy lifting of our system integration improvements began.
The year later, we’re in a different place. Our platform is fully integrated, our people are having fun with the new systems, and the benefits of the merger been harvested.
I'm excited about what our teams have accomplished thus far and looking forward to what's to come. Now turn the call over to Al.
Albert Campbell
Okay, thank you Tom, and good morning everyone. I’ll provide some additional commentary on the company's first quarter earnings performance, balance sheet activity and then the expectations for the remainder of the year.
FFO for the first quarter was $105.2 million or $1.34 per share. Core FFO, which excludes certain non-cash and non-routine items was $95.6 million or $1.32 per share, as compared to $89.5 million or $1.21 per share for the prior year.
And this core FFO per share performance was $0.03 above the midpoint of our previous guidance and represents a 9.1% growth over the prior year. Core AFFO for the first quarter was $94.6 million or $1.19 per share producing a solid coverage over our $0.77 per share quarterly dividend.
Strong results from our same-store portfolio as discussed by Tom produced the majority of the favorability to our forecast as both our revenues and expenses were slightly favorable to projections. Performance from our lease up properties also progressed as planned and our overhead and interest expenses were essentially inline with the expectations for the quarter.
Our G&A expenses are little front loaded this year reflecting the timing of certain items, but we expect this to normalize over the course of the year and we remain very confident in our projection for combined G&A and property management expenses of $56.5 million to $58.5 million for the full year fully reflected by the synergies captured from the Colonial merger. During the first quarter we acquired one 298 units luxury properties for $46.5 million and we sold four older properties for combined [Audio Gap] as we sold an additional 14 communities for combined gross proceeds of $180 million, which we’ll use to pay down our line of credit during the second quarter.
We also continue construction on the two properties under development at year end and we began construction on a Phase II expansion at an existing community located in Fredericksburg Virginia. We funded $5 million of construction cost during the first quarter and we expect to fund an additional $25.5 million to complete these three projects.
Our current plans anticipate $50 million to $60 million of total construction spending for 2015 just based on additional expansion opportunities as well. We prepared for the planned assets sales as well as to continue improving our balance sheet.
During the first quarter we paid off a $116 million of secured Fannie Mae debt, as well as an additional $15.2 million single mortgage. We incurred $3.4 million of debt extinguishment charges related to these payoffs, but the vast majority of this expense was non-cash write-offs or deferred financing cost.
We also have about $315 million of debt maturities remaining for the year primarily occurring in the fourth quarter. And as mentioned before, we currently plan to utilize the public bond markets to refinance this later this year.
The average interest rate for the majority of these maturities is well above 5%, which is projected produced on fairly significant interest rate savings giving current markets. At the end of the first quarter, our balance sheet remains in great shape, our total debt to market capital is 36.1%.
Our fixed charge coverage ratio was [Audio Gap], 70% of our assets were now encumbered, which is a record for the company and over 92% of our debt is fixed or hedged against rising interest rates. And given the level of asset sales and projected internal cash flow, our current plans for the year do not include new equity.
At quarter end, we had over $335 million of total cash and credit available under Atlanta credit supporting our liquidity. We expect to end the year with our leverage on a net gross asset basis to be about 41% down from the 42%, - 42.6% at the end of 2014.
Finally we are maintaining our current guidance for core FFO and AFFO for the full year. We were encouraged by the first core performance from our same-store portfolio as we continue to capture benefits from the Colonial merger.
But as mentioned in our last call, we do expect tougher comparisons in the back half of this year as post-merger more normalized quarters began compared periods of synergy capture last year. We feel good about our current operating momentum but given that the bulk of our leasing activity and significant transaction activity, are ahead of us for this year, we will wait to visit guidance with our second quarter earnings report.
As a reminder, our core FFO is projected to be 5.09 to 5.33 per share or 5.21 at the mid-point based on average shares and units outstanding we’re about 79.5 million. Core AFFO is projected to be 4.43 to 4.67 per share or 4.55 at the mid-point, which is a 6.3% increase over 2014.
The major components of this guidance are outlined in our supplemental data packets that accompanied our press release and also I will point out that we had some additional details regarding our operating expenses to our supplemental disclosures this quarter which is on page S3. And so, we hope you find this helpful.
That's all I have, and I'll now turn the call back over to Eric.
Eric Bolton
Thanks Al. Before opening the lines for questions, I want to extent my thanks and appreciation for the hard work and excellent service our associates working on site and our properties provide for our residents.
Our company culture is based on a strong service oriented mindset for both those who directly serve our residents and those of us who support them in our corporate and regional positions. As a result of this focus, MAA will be recognized later today as first among apartment management companies across the country as having the best online reputation based on an independent online power ranking survey conducted by J Turner Research.
This recognition follows our designation earlier this year as having the best online reputation among the publicly traded apartment rates. This recognition speaks to both our team's dedication to serving our residents, as well as to the strength and sophistication of our operating platform.
That's all we have in the way prepared comments. So Leo, I am going to turn it back to you for Q&A.
Operator
[Operator Instructions] We'll take our first question from Rob Stevenson of Janney.
Rob Stevenson
Good morning, guys. Al, what drove the tweaks in the third and fourth quarter guidance today versus what you knew first week of February or so?
Albert Campbell
Hi Rob. It's really timing of items.
As we mentioned in the comments, we feel good about our full year guidance reaffirm that, we'll readdress that in the second quarter call. Surely timing of items and I will say primarily transaction activity the biggest unknown at this point really is more the transaction activity.
We sold a lot of assets. Obviously, we have plan in our forecast to put that capital back to work throughout the year.
So, that timing of that changed a little bit, causing the most of that.
Rob Stevenson
Okay. And them Tom, can you talk about where new and renewals were, sort of, month-by-month on the trend there?
And then, sort of, are there any markets where you are seeing very big gaps between those or where you are seeing the biggest gaps?
Tom Grimes
Rob it was pretty consistent across the board on a year over year basis. New leases were 56, renewals 57, blended 57.
For April it's 63, 56 and 60 and then looking forward May 75 and we were – offers went out at 75, we got 68 in June 75, 61 at this point.
Operator
Our next question comes from Gaurav Mehta of Cantor Fitzgerald.
Gaurav Mehta
Thanks, good morning. Just a couple of questions on your same-store numbers.
If I look at your NOI it's 5.8% for 1Q and then you just gave the numbers for new and renewals, which seems encouraging and I know you mentioned that you are expecting tougher comps towards the second half of the year but going from 5.8% to 3% to 4% guidance it seems, like quite a bit of slow down. So outside of tough comps, is there anything else you are looking at?
Eric Bolton
Not really. I think that – it's again what we are facing is reality that a lot of the improvements that we begin to capture in our operating metrics out of the Colonial portfolio really began to show up in the back half of last year as well as some lift that we got from some scale benefits and we are working a lot of contracts.
So, we will be comparing against those comps. All that improvement, all that lift of course, is permitted if you will, but just on a year-over-year basis the comps get little bit more challenging.
And to be honest with you too, I think that we are carrying fairly strong occupancy at this point and we were carrying fairly strong occupancy in the back half of last year. And so, lift on a year-over-year basis and effective occupancy becomes pretty challenged.
And there is some assumptions that if the economy continues to improve and we begin to see that employment markets continue to show recovery, I think it's also reasonable to assume, there may be a little pick up and turnover that begins to take place. So, those are all the various variables that I think one has to think through over the back half of this year.
We don't certainly see anything materially weakening and you are right, all the trends that we are seeing right now are pretty encouraging but we still got long way to go and that's really gets us to where we feel pretty automate that we already hold tight at this point and then readdress it as we get to the end of the summer.
Gaurav Mehta
Okay. And my follow up question is on transactions where you sold assets for economic cap rate of 5.6%, as you look to deploy that capital towards acquisition, what kind of cap rates are you targeting?
Eric Bolton
Well, I mean most of what we are seeing today, we are seeing economic cap rates that would be 5 to 5.5, frankly pretty tight spread. Most of what we are targeting, of course, is newly built brand new so the CapEx requirements are fairly minor and are low.
And so, based on our hurdles and the criteria that we use is we think about deploying capital, the spread would be fairly narrow to what we sold.
Gaurav Mehta
All right. Thank you.
That's all I had.
Operator
Our next question comes from John Kim of BMO Capital.
John Kim
Thank you. I guess my first question is on the economic cap rate of 5.6%.
This is I think what was previously characterized as an AFFO yield, correct?
Al Campbell
We talked about that a lot on our previous call John, we talked about our FFO yield and then the cash flow cap rate. I think we did discuss the cash flow cap rate which is our new [indiscernible] for a moment.
Trailing 12 months actual NOI, minus of 4% managed fee and then minus to actual CapEx on this portfolio which is Eric mentioned is common. So, it's about $1,200 a unit.
And that's how that calculated. I think we did mention at our previous call, there was some discussion about it, NOI yield versus the cash flow, the cash flow obviously is what we feel is important, that's what you are selling to an investor and we thought that was a very good outcome.
John Kim
What was the NOI yield?
Al Campbell
The NOI yield was – NOI basically was close to 8%.
John Kim
Okay. And my final question is on the performance versus - of the core versus your secondary markets.
As noticed, it widened out with this period, is this really showing that having scale in your markets drives the NOI growth? And can you remind us what the balance of core versus secondary markets is ideal for you and under which timeframe?
Eric Bolton
Let me take the later part of the question and maybe Tom can pick the first part. I would tell you that today we are sitting roughly around 60%, what we refer to as large markets, and 40% referred to as secondary markets.
And that’s really kind of the portfolio strategy allocation that we are really after [Audio Gap] it's not the way we think about it. We are after certain portfolio mix.
We feel like we have that now and then, of course, what's happening in the secondary markets, broadly speaking is, that we are seeing things starting to pick up and improve there. And Tom, you want to -
Tom Grimes
At 3.7% year-over-year revenue growth along with 1% in sequential revenue growth which attracts the large market group pretty well, we are encouraged with the trends that we are seeing. And then furthermore based on the recent recap of job growth released by the VLS, just recently comparing Q1 of this year to Q1 of last year in the large markets, they moved up by 40 basis points and our secondary markets about 120 basis points So we’re sort of encouraged with the revenue on and the jobs picture looking forward in this group.
Eric Bolton
And the secondary markets generally continue to not see much in the way of supply pressure, not nearly as aggressive did you see in the larger market. So a combination, we always felt that as we get further into the economic recovery that these secondary markets would begin to show their improved strength and that’s we think that’s what we’re starting to see at this point.
John Kim
Thank you.
Eric Bolton
Thank you, John.
Operator
Our next question comes from Dan Oppenheim of Zelman & Associates.
Dan Oppenheim
Thanks very much. I was wondering if you can talk a little bit about some of the comments in terms of the second half of the year in terms of just being having concerned whether turnover raises or just slowing based on the, I can see levels there but if you’re looking at the trends in terms of renewals for May and June, are you seeing anything different in terms of the behavior of tenants in terms of percentage renewing at this point and or is that anything leading to that for this, in terms of the second half of the year or is it more just overall caution?
Eric Bolton
We’re not seeing anything on from marketing leasing, the market fundamentals or leasing fundamentals that causes us concern, I mean occupancies are strong as Tom outlined, rent trends are strong, turnover remains low, so there is nothing from an operating perspective or market perspective that gives us pass at this point. I think what we’re just the point we’re trying to make here is that, we’ve got tougher comps coming out, we’ve got both in terms of the benefits we got last year from some of the benefits are coming out of the merger and we were fairly full occupancy towards the back half of last year and so I think the only thing that would cause and so going above and beyond those two sort of improvements last year is going to be challenging because we’re still carrying very strong occupancy and we’re looking at if you call frictional vacancy a little bit and thinking about things we can do to sort of improve and minimize further downtime between turns and things of that nature.
So on the margin we still think there is some opportunities along those lines on occupancy as well as in the operating platform but fundamentally a lot of the benefits and that we got over the back half of last year presents some challenging comps this year. And the only other thing I would tell you, that causes us to think that, it’s time to sort of stick to what we think is going to happen at this point of our guidance is the fact that if the employment market continues to show recovery and we continue to see the job markets show recovery, I think that, it’s reasonable to expect that the turnover may pickup just a little bit, that’s typically what happens and that’s okay, I mean where the demand side of the equation is very strong and our move outs to rent increase continues to not be worry some trend.
And so little pick up in turnover is not something that worries us, now that the fact is it make cause vacancy to move up slight amount is a consequence of that but we’re preparing for that and we think we’ve got a good chance to minimize that but that’s, just the context of what we’re sort of working with here that causes us to think that we need to get through kind of the summer leasing season and take a look at where we are and at that point, consider whether or not we’ll be making revisions to our current guidance.
Dan Oppenheim
Got it, okay and then I guess secondly then in terms of the acquisitions and had that one in Kansas City in the first quarter, clearly you’re well on your way to selling the multi family community to 233 million sold out of this week, as you think about buying the communities. Are you more cautious in the ability to buy based on having discipline in terms of looking for the right yields in those given the competition in the markets right now.
Eric Bolton
Well, certainly the market is very competitive, but I continue to believe that as we get later in the cycle and more the new products comes online, we typically see that point developers and equity partners become a little bit more likely that want to monetize your profit soon or rather than later. It’s lease up and depending on the locations can become little bit more challenging and you throw on top of that, the prospect of rising interest rates or highest cost of capital and I think the motivation to monetize profits from some of these developers grows even more and so I don’t believe we’re likely looking at conditions weakening to a point where the environment becomes the buyers markets by any means but the ability to source better buying opportunities, I think thus improve slightly and with our execution capabilities as a buyer, we think that that nets out to more opportunity as we get later into the year.
Operator
Our next question comes from Haendel St. Juste of Morgan Stanley.
Haendel St. Juste
Hi, good morning guys. So would you talk a bit more about the price the demand for the assets you’re selling, do the pricing exceed your expectations, what would the type of the buyer that showed up, the definite demand whether any re-trading and was there a portfolio premium or perhaps discount in the negotiation for the price?
Eric Bolton
Well, I think that, I mean this is a group that we’ve known for a while, we sold some properties to them last year, they have proven themselves as being a very credible buyers able to execute very well. And so we – and so we’re going to look at our disposition plans for the year, we had conversations with them as well as few other groups and felt like that we would probably achieve better execution and better net returns for our shareholders at approaching this on a sort of a bulk basis transaction portfolio if you will.
And so that’s the way we went at it and this buyer that is a private equity vary credible representing institutional capital that we talked to and they were interested in everything we had to sell for the year and so we began conversations with them and, no there was no retreading, we gave them an exclusive opportunity and frankly the numbers came in better than we expected and so we were pretty pleased overall with how it turned out.
Al Campbell
I add that because I think that Fannie and Freddie have widened up their spreads by I think 40 basis points over, since the start of the year, I’m just curious that might have be playing any part in your conversations with potentially interested parties for your assets.
Eric Bolton
Okay. Think about, when they increase their spreads the treasure rate also came down and the other side of that to help that as well, I think Haendel but in various comments that, we didn’t feel that in this transaction.
Al Campbell
No, not at all and I know that, the buyer for these assets is using Freddie financing and so, they were pretty pleased with, I know they moved early this year to lock in their rates and we do feel that, there was reason to move sooner rather than later on these disposition plans for all those reasons and so we glad we got it done.
Haendel St. Juste
Okay, and then for the three end of contract wondering if you can talk a bit about how much, talk about absolute dollars perhaps cap rates are they pretty similar to what you sold already and may be markets if you wish?
Eric Bolton
Well, the assets that we have are in two other smaller markets, we’ve got another and another asset in Memphis, we’ll be exiting two more smaller markets as a consequence of these last three sales, prefer not to get into pricing at this point. But it’s going to be very much along with what we’ve been doing.
Al Campbell
And the volume will pretty much complete our guidance expectations for the years, that gives you the remaining dollars.
Operator
Our next question comes from Tom Lesnick of Capital One.
Tom Lesnick
Hi, thanks for taking my questions, I heard you mentioned that strengthening job market in some of your secondary markets but I’m just curious is there any evidence and otherwise of an uptick in wage growth in any of the secondary markets, are you seeing less sensitivity from the rent increases?
Eric Bolton
We have not seen much sensitivity to rent increases from resonance that move outs for rent increases remain roughly flat and then our rent to income ratio has held steady at about 16.5% as we’ve gotten through. So something is the correlation between the increases in rents is being supported by increases in wages looking at that ratio.
Tom Lesnick
Okay, nice and then just a bigger picture question, Eric, I know you guys are just getting through the integration but just given recent deal activity and consolidation in the apartment sector that there is still several pure plays of these department entities both public and private still out there, are you guys amicable to further deal activity, what’s your mindset as you come through the entire problem stays turns out right now.
Eric Bolton
Well, I’m not going to speculate on M&A activity overall but I do believe that our focus is just continuing to strengthen our earnings platform through executing on the strategy that we’ve laid our and we’re excited about the trends that we’re seeing and what’s being accomplished. Having said that I mean yeah I mean we’re always we talk to folks all the time and we’re always interested in exploring a new investment opportunities.
And so we remain in the market. And we’re obviously learned a lot through the process with Colonial, we feel very good about the platform that we have in place and we’re glad to see the dust settle little bit and we’re perfectly content to continue refining what we’ve got and improving what we’ve got.
But we’re also interested, always open to other ideas and opportunities. So we’ll see what the future holds.
Operator
Our next question comes from Rich Anderson of Mizuho Securities.
Rich Anderson
Thanks good morning.
Eric Bolton
Hi Rich.
Al Campbell
Good morning, Rich.
Rich Anderson
So the last three remaining are apparently much larger assets if it’s three assets under million or so. Is there anything about the size and assuming I have that right, is there anything about the size of the assets that’s making at slower processes as it to that same private equity buyer?
Al Campbell
It’s with the same buyer, and no I mean there is nothing in particular about the size that’s making an challenge, we just staged these things to accommodate their needs and they’re all under contract and we’re pretty confident it will happen but yeah you’re right I mean the one of them in particular is large community over 1000 units. So but no complications per se that I can point to you.
Rich Anderson
Okay and then some people are asking whether or not you should be raising your guidance and you’re talking about the tough back half comps, but maybe if I think about little bit differently do you think you executed even faster than you thought you might have going in and hence earlier than expected dispositions maybe weighs on your FFO growth more than you thought. Is that a rationale line of thinking?
Al Campbell
Well I think there’s some truth to that I think that’s part of it, but I think it’s really the uncertainty surrounding acquisitions more than anything that causes us to be reluctant to jump on any kind of increase at this point. I mean we felt like that that the value opportunity, the value creation opportunity associated with expediting as quickly as we could on the dispositions made sense.
And even if the risk of pressuring earnings a little more than we expected this year we think it was the right thing to do long-term from a value perspective. And the acquisitions as I said earlier I mean we’re talking to lot of people about lot of different ideas right now and a lot of different opportunities.
It’s competitive and the thing that’s easy to do right now is lose your discipline and we’re not going to do that. And so we’re going to remain patient, I’m encouraged with the deal flow, I’m encouraged with the activity that we see taking place in our transactions team.
And we’re having lot of conversations and there’s lot of reason to be optimistic. But I can’t be certain and so we just think at this point be a little bit cautious on our ability to put the money to work and hopefully we’ll have something good to say later this year.
Operator
Our next question comes from Michael Salinsky of RBC.
Michael Salinsky
Good morning guys.
Eric Bolton
Good morning.
Michael Salinsky
Eric where you see the better opportunities currently either primary or secondary and as you’re underwriting growth rates on transactions to-date. How does the growth rate being underwritten for a primary market, compared with secondary market just at this point of cycle?
Eric Bolton
Well I’ll tell you the buying opportunities are pretty competitive across the Board, I mean we’ve been looking at transactions down the South Florida, Atlanta, Phoenix, based on what we believe is very reasonable, not conservative by any means underwriting deals trading at sub-5 cap rates. We’ve just lost on a couple of deals in secondary markets like Kansas City and San Antonio foreign capital buyers sub-5 cap rates and so it’s pretty aggressive across the Board and I think that it’s for us what we’re finding more opportunity with right now is talking with developers on deals that are either getting ready to get started or they’re in lease up.
And I think that there is some evidence building that folks were getting a little bit more anxious to go ahead as I said in my comments to monetize their profits that they’ve got and we’re looking of course to bring brand new product into the portfolio on something less than a full retail price. And that’s where we find those opportunities generally is at this point of cycles with developers who are in the early stages of development and/or lease up and we’re comfortable taking on the lease up risk.
And that gets us to that question you’re asking about sort of rent growth. And of course it varies in underwriting, it varies a lot by market obviously, but I would tell you that we’re probably a little bit more cautious in our rent growth forecast in today than where we were say a year ago or two years ago I just feel like we’re little further into the cycle.
I think that supply continues to not be a worry some trend at this point relative to the demand side of the equation. But I would not be as aggressive today in underwriting as I was a year or two ago.
Michael Salinsky
That’s helpful. And just thinking little along the same lines there as you mentioned development potential, see potential buying out and take on lease up risk.
What’s the right spread today I think you mentioned a 5 to 5.5 cap rate. What’s the right spread on property where you will take lease up responsibility versus a ground up to justify the other risk particularly at this point of cycle?
Eric Bolton
Yes it could be 100 to 150 basis points is generally what we’re looking at and I guess again it varies somewhat by specific opportunity and other metrics, but we’re looking for 100 to 150 basis point spread generally.
Michael Salinsky
Okay.
Operator
Our next question comes from Tayo Okusanya of Jefferies.
Omotayo Okusanya
Yes good morning two quick ones from me. The first one I may have missed this but could you give us a sense of just your general outlook for Texas at this point just kind of given all the oil and gas concerns?
Al Campbell
Sure Tayo, the Texas in general I just batted around by market is Houston is performing admirably for us at this point, the feedback we get from our folks on the ground is makes us one to monitor closely the oil and gas jobs were having affect in greater Houston, we’re not seeing that affected our properties at the moment. But we remain attuned to them, Austin continues to move on along and do very well we’re excited about it honestly and it seems to be managing a new supply well, which tends to be focused more on the Downtown, central Austin area.
And then Dallas and Fort Worth, Fort Worth honestly little more encouraged than Dallas, but both are good. Dallas just has heavy supply in Uptown moving up to a Plano, which affects just probably three of our properties in the Medical District and little new construction around Las Colinas.
But we’re still optimistic about say Texas in general, the oil and gas concerns in Houston are benefits to those other markets who are paying less at the pump.
Omotayo Okusanya
And that’s helpful. And then just in regards to asset sales going forward and I know you’re planning to do stuff in a more match funded basis going forward.
But could you just talk to us especially in the secondary markets about just how deep the buyer pool is there. I mean you’re doing a lot with this one private equity shop, but kind of who else is missing around and what are they kind of and in general don’t know just how strong is the market in those secondary markets where you’re looking to sell?
Eric Bolton
Yes I would tell you it’s very strong, I was alluding to some of the pricing that we’re seeing recently on some transactions in Kansas City and in San Antonio, but we get calls all the time from folks who are looking deploy capital in secondary markets and multi-family real estate and these are smaller buyers to institutional buyers along lines of who are selling till today. So it’s quite strong, I mean and we’re of course - Fannie and Freddie and the agency financing is wide open for secondary markets as well.
And so I think that as a consequence of exiting these 11 markets this year that I would characterize smaller, more tertiary in nature than most of the residual secondary markets that we have left over, I would think that the buyer approval for any future sales that we may have would be a strong or stronger than what we’re seeing right now.
Operator
Our next question comes from Drew Babin of Robert W. Baird.
Drew Babin
Good morning guys. Question, on second half of the year just given what you're saying with the expense growth comps, as well as possibly flat to slightly down occupancy, the revenue growth, and the NOI growth is going to have mostly come from rent growth.
Can you kind of quantify how ROI renovations you’ve done since Colonial acquisition may kind of help boost revenues? And then also whether many turnover they are expecting in the second half of the year, whether you look at that as an opportunity to maybe get into the units and tune things up to get better rents?
Eric Bolton
Drew we did about 2000 units on the Colonial side last year and we will do about similar for a total of 4000. So on a year-over-year basis, we’re going to be doing about the same, so the comparative bump is not materially there.
If we do units sooner, which were running a little bit ahead, we will do that but all in all it’s about 20 basis points of revenue bump that will come from the redevelopment program. Now we're also mid-way, really early in the roll-out, very early in the roll out of our washer and dryer program and it works very similar to our redevelopment program being essentially adding washer dryers to the mix, to the unit and charging additional fee.
We test that, we run that, just like we do the innovated program, that could generate about an extra half million dollars in the back half of the year.
Drew Babin
Okay. I appreciate the detail.
And then on - lastly just on Raleigh and then kind of Florida in general markets where the rent growth has been kind of below average for different portfolio, just maybe talk about Raleigh and how a supply maybe not - supply growth may or may not be trailing off there. And can you just about Florida, there is always some supply in Florida, it is not always the highest quality supply but what do you think is underpinning some of the marginal weakness in multiple Florida markets?
Eric Bolton
I'll start with Raleigh and what I would tell you Drew is obviously we – that's been a high sales growth market - a high delivery market for a while, it's been specifically high in that Brier Creek area which we have high exposure to. We are pretty encouraged that that is stabilizing and we like our rent trends so far in Raleigh and we like where we’re going.
Just to give you an idea, average occupancy in Raleigh right now is 95.6, exposures is just 8.1. That is down 260 basis points from the prior year.
And April blended rents were 3.8. So honestly we feel like our portfolio on Raleigh is rebounding now.
I'm pleased to continue. On the Florida side, honestly we’re pretty excited with what Jacksonville, and Orlando and Tampa are doing right now and feel pretty good about them going forward.
Operator
Our next question comes from David Segall of Green Street.
David Segall
Hello. I was just curious on the developments.
Do you have any sense of why was the stabilization date delayed by a quarter for both Riverside and Bellevue. And also why the budget increased slightly since last quarter?
Eric Bolton
I will address - in Bellevue we had some weather delays over the winter that pushed us back a little bit but everything is on track at this point and so just some weather delays. In Jacksonville, we just ran - the developer ran into some construction delays that were just fairly minor in nature but in an effort to just be sure that we had the property at a point where we were comfortable allowing people to move in, we just pushed delivery back to just a tad.
And as Tom mentioned, our preleasing is going extremely well there and so we are delivering units there starting I guess next week, and move-ins are starting next week but the properties are already 58% preleased. So with returns and expectations on both of those deals are very much intact.
Tom Grimes
The increase in the cost, I’ll just give you little color on that is really primarily capitalized taxes and the interest because of the slight delays Eric mentioned and obviously on IRR basis that's the same cash as we had expected, it is no difference, it doesn’t impact the returns.
David Segall
Great. And do you have a sense of the expected yield on the Fredericksburg expansion?
Tom Grimes
Probably about 6 to 6.5 on that expansion which is kind of a wholesale price as we talked about, as Eric talked about of course we look to capture not a full development yield but pretty close.
Operator
Our next question comes from Jordan Sadler of KeyBanc.
Unidentified Analyst
Hi it's, [indiscernible] with Jordan. Just wanted to touch on CapEx for a moment, you guys mentioned on the dispositions, CapEx is running in about 1200 per unit.
In the first quarter it looks like CapEx was little over $10 million, I'm not sure what that was on a per unit basis but just curious what you’re expecting on the residual portfolio from a CapEx perspective?
Tom Grimes
For the full year, we expect just over 900 to 915 a unit for the same-store portfolio. The first quarter CapEx was a little below the run rate for the year but on the $52 million recurrings that we expect for the full year, so you can do the math on that.
Eric Bolton
915 inclusive of - people have different definitions of what CapEx is but that includes both what we refer to or often people call both recurring and revenue enhancing. So that’s an all in number if you will and 900 to 915 for the remainder of the portfolio.
Tom Grimes
For recurring, we expect about $52 million for the full year, so you can back into what is remaining for the last three quarters.
Jordan Sadler
It's Jordan here with [indiscernible]. I had a question regarding the gains reported during the quarter, a big number $134 million on the steps that teed up and I suspect there is going to be something incremental one, what's the total number expected for the year and then what are the plans for those gains as you see it now, are we going to 10.31 and then I’ll go from there?
Tom Grimes
Those are book gains, not tax gains, I will start with there, but we do expect significant tax gains that are sort in line with those numbers. We do expect to have more gains as we sell that remaining tranche in the second quarter or early in the third quarter when it occurs.
And obviously we don’t expect a special dividend or anything like that related to it because we do plan to use both [indiscernible] and other tax planning techniques or strategies to cover that. So we are not concerned about any dividend issues or things along that line?
Jordan Sadler
And so as it relates to - so what do you think the total gains will look like either book or taxable however you want to present this, I suspect that taxable would be higher than book, but that's just a guess.
Tom Grimes
Tax gains will probably somewhere in the 225 to 250 range. And as we mentioned we have strategies that we expect [indiscernible] and other strategies to have all that cover but that's what we expect.
Operator
Our next question comes from Buck Horne of Raymond James.
Buck Horne
Good morning. Thanks for the time here.
Going back to the supply picture question. Just, I mean it's pretty strong acceleration in some markets that have been notable for the amount of new deliveries that have been coming to them whether it's Austin, Charlotte, Houston those types of markets.
You've spoken to this a little bit, but I guess what I'm trying understand is to what extent do you think the portfolio is kind of insulated from that supply pressure given you made the bulk of deliveries going to urban core product and I guess the real question is, are you seeing any signs that the developers are extending out into the suburbs and to your areas? Do you think that, that might add to supply pressure going forward for your portfolio?
Tom Grimes
Buck, of course it varies a lot by market but broadly speaking I think you’re right and where most of the supply pressures are happening in some of those markets that you mentioned are in more or sort of urban core area and candidly that’s what we’re seeing the buying opportunities that we’re talking to folks about and those markets are in those urban core areas and I think that’s where you’re going to see most of the - to the extent that the supply creates pressures on rent growth and any of these sub markets that's where it is going to be. And so that’s where we are hunting for opportunities right now.
But I think that a lot of our existing product in some of these larger markets are in some of the more suburban locations as Thomas, Michigan, Austin, in Houston, in Dallas, and in Fort Worth and Charlotte I mean the trends are pretty good, we’re talking about Raleigh there earlier Brier Creek is a high end sub market area carry their holding up. They've got a little bit of supply last year and we’re little weak last year but the trends are pretty encouraging this year.
And so I do think that as we get into this later part of the cycle where supply continues to come in, and I mean right now the demand is strong and we’re not concerned with any of the trends that we’re seeing and of course you’re never concerned until you are concerned. And I don’t think that it’s going to be the supply side of the equation.
It’s going to really disrupt the train if you will, I think one day something will happen on the demand side and things will start to slow and that’s where you will run into some more those of moderation in terms of our ability to push rents. I don’t see that happening anytime soon but that is typically the way it happens and that’s why we feel like it’s important to keep a presence in some of these smaller secondary markets that we’re in because they tend to not see the supply pressure and they don’t tend to get as out of balance if you will at any point and we think that it’s an important part of protecting sort of the full cycle profile that we’re after.
So, at this point I mean we’re still not seeing anything on the supply side, it causes us any real worry and wherever there maybe, little pockets here there generally where we are not but I think that's also going to create some buying opportunities for us.
Buck Horne
Very helpful. And just real quick, and any signs in the turnover ratios for move-outs due to buying or renting single family homes, anything noticeable there and the turnover is slow, but any color you can provide on that is helpful.
Tom Grimes
Buck it went from - buying house went from 18.7 to 18.8 of move-out, I mean it’s just flat and it’s not moving and it’s staying low honestly, same on move-outs to renting.
Eric Bolton
Yes, move-outs to renting is constitutes about little over 7% of our move-out right now and for 20 years this has been in the 5% to 7% range. So it is - we just continue to not worry about single family housing either for sale or for rent product is being a pressure point for us.
To the extent that the single family housing market starts to show some meaningful recovery, I think that happens only because the employment markets are getting continued stronger and I think that works in our favor as well.
Operator
This concludes our Q&A session. I would like to return the call to Eric Bolton, for any concluding remarks.
Eric Bolton
No further comments from us. If you have got follow up questions please call us and we will see everyone at NAREIT.
Thank you.
Operator
Thank you. Ladies and gentlemen, this concludes today's conference.
You may now disconnect at this time.