Apr 27, 2017
Operator
Good morning, ladies and gentlemen. Welcome to the MAA First Quarter 2017 Earnings Conference Call.
During the presentation, all participants will be in a listen-only mode. Afterwards, the company will conduct a question-and-answer session.
As a reminder, this conference is being recorded today, April 27, 2017. I will now turn the conference over to Tim Argo, Senior Vice President, Finance for MAA.
Please go ahead, sir.
Tim Argo
Thank you, Jessica. Good morning.
This is Tim Argo, Senior Vice President of Finance for MAA. With me are Eric Bolton, our CEO; Al Campbell, our CFO; and Tom Grimes, our COO.
Before we begin with our prepared comments this morning, I would like to point out that as part of the discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections.
We encourage you to refer to the 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.
I’ll now turn the call over to Eric.
Eric Bolton
Thanks, Tim, and good morning, everyone. FFO results for the quarter were ahead of our expectations as property operating expenses, interest expense and merger and integration costs all came in lower than expected.
While leasing conditions across most markets reflect varying degrees of moderation as a result of increased levels of new supply, we continue to see strong demand across our markets with high resident retention and MAA’s balanced portfolio continues to capture solid results. We also terrific start with integration activities in our merger with Post Properties.
The early results and improved operating efficiency and NOI margin enhancement are very encouraging. In the first quarter, our operating team was able to improve the NOI margin within the Legacy Post same-store portfolio 130 basis points as compared to prior year.
Our initial efforts on the revenue side were focused on stabilizing occupancy, lowering exposure and reconciling practices associated with lease renewal pricing. During the quarter, our Asset Management Group was also completed the retooling of key market data within our revenue management system associated with each of the Legacy Post Properties.
And as a result, we had into peak leasing season well positioned to optimize on pricing performance. Our operating teams have also captured some early wins on the expense side equation with renegotiated pricing and new contracts.
We have much more left to accomplish and opportunity to harvest, but we’re certainly encouraged with early trends and the longer term opportunities to be captured in our merger with Post. Our unit interior redevelopment program had a record first quarter performance with over 1,500 units redeveloped significant rent bumps and attractive long-term prospects that Tom will outline in his comments.
During the first quarter, substantial work was completed in initially scoping out this effort at a number of the legacy Post Properties and, as Tom will outline, the early indications are very promising. We expect to see this activity ramp up quite a bit at the legacy Post locations over the course of this year and throughout 2018.
Al will walk you through our update of FFO guidance, but we’re encouraged with the start to the year. And while we did make some offsetting adjustments to same store revenue and expense performance assumptions, we continue to be comfortable with our initial guidance for same-store NOI or said another way, we are reaffirming our original same store NOI guidance of 3% to 3.5% growth over the prior year.
With continued steady employment trends coupled with MAA’s diversified and balanced portfolio approach, and with the upside we expect the capture from enhanced operating efficiencies and margin improvement especially within the legacy Post portfolio, we are optimistic about our ability to drive NOI results as outlined in our guidance for the balance of the year. Good progress continues with our lease-up and new development pipelines and we look forward to getting those properties fully earnings productive over the next several quarters.
As noted in our earnings release, we did make one acquisition during the quarter. It’s an opportunity very much in line with the investments that we’ve captured over the past couple of years, which was a newly developed property in its initial lease-up that had fallen out of contract earlier.
The transaction market and pricing continues to be competitive as we’ve seen over the past couple of years and we will continue to be patient and disciplined in navigating through the pipeline of opportunities being presented. We are off to a great start for the year, and I appreciate the great results are being generated by our MAA associates as we deliver today, while also building for tomorrow.
That’s all I have in my prepared comments. I will now turn the call over to Tom.
Tom Grimes
Thanks, Eric, and good morning to everyone. Our first quarter same store NOI performance of 3.6 was driven by revenue growth of 2.8% over the prior year and strong expense control.
The top line was driven by rent growth as all in place effective rents increased 2.9% from the prior year. All leases signed during the quarter were up of 1.3%.
But we’ve seen some persistent weakness through the first quarter on new lease pricing. So let’s just jump into that area first.
For the same store portfolio, new lease rates on a lease-over-lease basis were down 3.2% for the quarter. As expected, the submarkets incurring higher levels of supply bore the brunt of the pressure on capturing new residents during the slower winter months.
We expect new lease pricing will remain challenged in a number of locations over the first -- over the next few quarters, as the new supply pipeline fully delivers. But we expect to see some improvement, as we move into the more favorable leasing season.
Encouragingly, leasing velocity has picked up and new lease pricing has improved by 190 basis points from April month-to-date as compared to the first quarter. In addition, as Eric touched on, we’ve completed most of the foundational work associated with repopulating our revenue management system with updated data from the legacy Post locations and with improved occupancy and exposure positioning.
We are where we should be heading into the summer. Renewals for the combined portfolio were still strong for the quarter at 6.1%.
Renewal signed for MAA remained robust at 6.6%. Post renewal rates responded well under the MAA pricing approach.
In January, they were up 4%; in February, 4.7%; March they increased to 5.4%; and so far in April, they’re coming in at 5.7%. For perspective, renewals sign on the Post assets for April last year were up 4.8%.
As a result, blended rents have improved 120 basis points from 1.3% in the first quarter to 2.5% April month-to-date. Occupancy exposure trends are strong across the board.
April month-to-date average daily physical occupancy of 96% matches our very strong April of last year. Our 60-day exposure, which is current vacancy plus all notices for 60-day period is just 7.9%, which is better than last year.
The strength in this area gives us a solid foundation as we had into the busier season. On the market front, revenues in Phoenix, Raleigh, National and Jacksonville stood out from the group.
In addition, it’s worth noting the effective rent growth coming from markets like Charleston, Richmond and Memphis were all above 4%. In both portfolios, Houston remains our only market level worry bead and represents just 3.5% of our NOI.
We will continue to monitor closely and protect occupancy in this market. Currently, our combined Houston markets daily occupancy is 96.2% and 60-day exposure is just 7.6%.
Expense performance was solid led by few early wins in the Post portfolio. As a result of the improved scale, our national account pricing improved in both portfolios, but it was more impactful in the Post results.
In addition, the renegotiation of end market contract services such as interior paint vendor improved cleaning and services aided the Post results. The increased sale also improved the pricing of our casualty insurance.
Driven by this expense performance, the NOI margin on the Post portfolio increased 130 basis points from the quarter, from the first quarter of last year. Rental demand remains steady and our current residents continue to choose to stay with us.
Move-outs for the portfolio were down for the quarter by 2.2% over the prior year and turnover dropped again to a low 15.5% on a rolling 12-month basis. Move-outs to home buying and move-outs to home renting remain consistent at 20% and 6% of move-outs.
As you know, much of the Post product is in interloop areas that are seeing the most supply. While this puts pressure on the newer product and creates opportunity on the well located older product.
There are 13,000 Post units that are in very good interloop locations that have compelling redevelopment opportunities. We can make these great locations more competitive by updating the product.
We have room to, we will have room to raise rents and still be well below the rates of the new product coming online. The early response to the Post redevelopment is impressive.
At this point in our redevelopment, units are pre-leasing based only on the description of the units provided by our onsite teams or mostly on the description based by our onsite teams. Through April month-to-date, we have completed 80 units, but we’ve already leased 152 units on the Post communities.
Given the quality of the locations, the redevelopment opportunities more significant. On average, we’re spending $8,600 and getting a rent increase that is 10% more on comparable and non-redeveloped units.
As Eric mentioned, we’re just getting started. We originally plan on doing 1,700 units in the Post portfolio.
However, if the response to the product remains strong through our busier season, we all have the opportunity to exceed this amount. For the full MAA portfolio during the quarter, we completed over 1,500 interior unit upgrades on legacy MAA.
Our redevelopment pipeline of 15,000 to 20,000 units remains robust and on a combined basis, our total redevelopment pipeline is in the neighborhood of 30,000 units. As you can tell from the release, our active lease-up communities are performing well.
We moved the stabilization date for innovation, 1201 Midtown in Colonial Grand at Randal Lakes Phase II up a quarter and moved Post Parkside at Wade back a quarter. These timing differences are minimal and do not have an impact on our return assumptions.
Our new acquisition community in Nashville is on track and residents in Fountainhead in Phoenix and Innovation in Greenville will stabilize on schedule in the second quarter. We’re pleased with our progress thus far in the Post merger and remain confident in the opportunities ahead to create value by continuing to reconcile practices between these two companies.
Al?
Al Campbell
Thank you, Tom, and good morning everyone. I’ll provide some additional commentary on company’s first quarter earnings performance, the balance sheet activity and then finally on guidance for the remainder of 2017.
Net income available for common shareholders were $0.36 per diluted common share for the quarter. FFO for the quarter was $1.46 per share, which was $0.08 per share about the midpoint of our guidance for the quarter.
We were encouraged by the solid first quarter performance but the results included some noise related to the nature and timing of several items, which should be considered in the revised expectations for remainder in the year. I’ll provide a little more color in a moment.
But in summary, $0.03 per share is related to favorable operating performance for the quarter, same store, non-same store combined. An additional $0.03 per share is related to lower-than-expected integration and the interest cost combined for the quarter.
And, finally, the quarter included $0.02 per share of non-cash income related to a required mark-to-market adjustments of an embedded derivatives. About two thirds of the favorable operating performance of $0.02 per share was related to the combined adjusted same store portfolio, primarily due to operating expense performance.
With the remaining penny per share related to the non-same store portfolio as lease-up development and commercial properties outperformed a little bit better than expected for the quarter. As mentioned, integration and interest cost together produced another $0.03 per share of favorability for the quarter, a portion of which is timing related.
We remain confident in our full year projection ranges for each of these items. And then, finally, the first quarter results include the $0.02 per share of non-cash income from the embedded derivative related to the preferred shares acquired in the Post merger.
In short, accounting rules required that we bifurcate and assumed embedded derivative related to the call options on the shares. The derivative must be recorded as an asset and mark-to-market each period through earnings.
While also trading during the first quarter produced a sizable non-cash adjustment, which compares no real economic benefit and will potentially reverse at some point over the remainder of the year. And I will outline our revised guidance for the remainder of the year in just a moment.
During the first quarter, we acquired a new developed committee located in Nashville for $62.5 million, which was in lease-up when acquired and about 77% occupied at quarter end. We also funded an additional $62.5 million of development cost during the quarter.
We completed the construction of two development committee slightly ahead of schedule during the quarter, leading seven communities in our current development pipeline with an expected total cost of just over $505 million, of which all but the $129 million is already have been fund. During the quarter, Moody’s Investors Services upgraded our investment-grade rating to Baa1 and stable, which reflects the strength of our balance sheet and brings all of our ratings, Moody’s, Standard & Poor’s and Fitch to the third level investment grade.
We expect to use these ratings this year as we plan to access the bond markets refinance maturities and to pay down our credit line. At quarter end, our leverage to bond and debt-to-total assets for our public bond covenants was 31.4% and encumbered assets were over 80% of gross assets.
We also had over $460 million of combined cash and capacity under our credit facility to provide protection and support for our business plans. And finally, we revised our earnings guidance for the full year to reflect the first quarter performance and update expectations for the remainder of the year.
We’re updating guidance for net income per diluted common share which is reconcile to updated FFO and AFFO guidance in the supplement. Net income per diluted common share is now projected to be 254, 274 for the full year 2017, reflected update expectation of gains on planned disposition properties.
FFO is now projected to be 574 to 594 per share or 584 at the midpoint, which includes $0.15 per share of merger and integration cost for the full year. AFFO is projected to be 515 to 534 per share or 525 at the midpoint.
We are maintaining our overall expectation for combined adjusted same store NOI growth for the year in the 3% to 3.5% range. We now expect this to be produced by revenue growth in the 3.2% range and expense growth in the 2.5% to 3.5% range.
In summary, we are increasing our FFO guidance for the full year by $0.02 per share. This is produced by the strong Q1 performance at 8%, $0.08 per share performance above our guidance as mentioned earlier.
Combined with revised expectations for several items which offset $0.06 of this favorable performance remainder of the year. First we expect volatility from the derivative accounting to reverse the $0.02 of non-cash income of the remainder year.
Also we now expect our acquisitions to be a little later in the year and to provide more lease-up opportunities, which cost an additional $0.02 per share and initial 2017 but we expect to be more accretive and value productive over the longer term. In addition, revised guidance for real estate taxes, now expected to grow 5.5% to 6.5% renew per share over the remainder of the year.
And, finally, though our integration cost per penny per share favorable in Q1, we expect our total integration costs for the year to be in line with our original estimates ship in the penny per share to the remainder of the year. Our guidance for acquisition and disposition volumes, development investments and total merger and integration costs for the full year remains unchanged.
We also remain on track to capture full 20 million of overhead synergies on a run rate by year-end. And we expect to continue capturing additional NOI opportunities included in our forecast, primarily in the latter part of this year as operating practices and platforms become [indiscernible].
So that’s all that we have in the way of prepared comments. So Jessica, we’ll now turn the call back to you for questions.
Operator
Thank you. [Operator Instructions].
And we will take our first question from Nick Joseph with Citigroup. Please go ahead.
Nick Joseph
Thanks. Wonder if you could provide what same-store revenue for the first quarter was with the MAA legacy portfolio and the Post legacy portfolio?
Tom Grimes
Sure Nick. This is Tom.
In the, so for revenue expense NOI and ARU for those revenue, revenue was 1.3 for Post and MAA was 3.3.
Nick Joseph
Thanks. And then just in terms of reduction of same-store revenue growth.
What drove that lower? Was that specific markets?
Was it the Post legacy portfolio was it more broad-based, if you could just provide a little more color there?
Al Campbell
Nick, this is Al. That was really primarily related to new lease pricing as Tom mentioned in his comments.
What we’ve seen in the early part of the year was new lease pricing and seasonally as it is negative beginning the year and begin in the 3% down range. But the other side of that is renewals were very strong.
They were 6% over. And so what we had our forecast with expectation as we move in the March, move into the digital leasing season, the new lease price will begin to improve in the state; down the 3% range lower than we expected.
Good news is as move into April, as Tom mentioned, we are seeing significant change and it did, and we did see the trends about to more than what we thought.
Eric Bolton
Nick, this is Eric. I’ll also add that, I mean the other thing, if you look at just the Post portfolio and the performance on new lease pricing in Q1, I would really characterize the performance by two things that went on.
One is obviously that -- those are the submarkets where supply pressures are the greatest, and that was clearly evident. But, secondly, we also made a conscious decision in Q1 to focus our efforts on the Post portfolio towards stabilizing certain variables and positioning that portfolio for a more robust level of performance in the more important summer leasing season.
So namely what we did as we focused on pulling exposure down, improving occupancy and, importantly, repopulating our LRO revenue management system with all the correct and updated data that was frankly lacking and so we’ve got all that accomplished in the first quarter. And as a consequence of that, we think that, that portfolio is a much stronger position as we head into, frankly, the more busier important season of the summer.
The challenge you have is that when you do re-price some leases in that first quarter, I mean you kind of carry them over the quarters two and three. And so as we -- but we thought that was the right trade-off to make, and we certainly think that the benefits are going to begin really show up latter -- in later this year despite clearly there being more supply pressure in those markets, the submarkets.
We think that there is real opportunity as the year plays out.
Nick Joseph
Thanks. And just finally in terms of the new same-store revenue range, first quarter is obviously at the low end of that.
So there is assumed acceleration throughout the year. Can you walk through the assumptions that are underlying that new range in terms of occupancy and doing under a lease rate growth?
How you would expect same-store revenue to trend on a quarterly basis throughout the year?
Al Campbell
Nick, this is Al. The basis of for that is really, we expect the legacy MAA portfolio to be strong in that initial 3% to 3.5% pricing range and to be for a stable through the year in revenue performance.
But what you have as you had -- the Post portfolio came on board at lower point and we expect that to increase over the year, as we capture those opportunities for improvement that Eric mentioned and so that will continue and probably intensify in the third and fourth quarter. And so on our total performance for the adjusted combined portfolio, you will see continued slight improvement through the year primarily in third and fourth quarter making up that 2.8% to 3.2% range for the year.
Than the net result is just not to be lost and as we tweaked the midpoint by 25 basis points, and we think that it’s a fairly modest adjustment, but we think it was a right long-term decision to make.
Operator
And we will go next to Drew Babin with Baird & Company. Please go ahead.
Drew Babin
On some of the more CBD focused REIT for earning calls. So far this quarter and there has been some talk about elevated supply levels kind of looking at the national data.
Looking a bit worse kind of into the end of ‘17 and into ‘18 and so just missing some of that data is being more kind of Sunbelt oriented and getting more suburban. And I guess, my question is are you seeing that and as you compete with new supply, is it mostly the product that just now having these Post assets that is generally more urban or are you starting to see more supply in kind of the MAA legacy suburban markets.
Al Campbell
There are two points on that one is we are seeing permitting trends in our markets across the portfolio -- combined portfolio, permitting is down 10% so far this year as compared to last year. When we look at deliveries forecast, based on the information we have for ‘18 versus ‘17, they are down.
So we think that there is growing evidence based on permitting trends and forecast for deliveries, coupled with all the other information that we get from developers we talk to regarding construction costs and financing challenges so on and so forth, to believe that ‘18 is certainly not likely to be worse than ‘17 from a supply perspective. So, yes, I offer that first.
Secondly, I mean clearly right now it’s the higher price point more urban-oriented locations where the supply is more evident. And we don’t see anything sort of indicating that there is a shift a foot to all certain developers redirecting their efforts on suburban locations and abandoning their urban locations.
There is no evidence to support that and we certainly aren’t seeing it based on our markets and what we monitor. So we think that ‘18 is shaping up to be based, it’s early and these things can change, of course.
But based on everything, we have to work with right now, there is a lot of evidence that ‘18 deliveries or will be lower than ‘17 deliveries. And assuming the economy continues to show progress, when you look at the ratio of jobs to deliveries, ‘18 is projected to be slightly better than ‘17.
Drew Babin
That’s very helpful. And then on the acquisition side, it sounds like things are a little slow to come along and it’s the general trend is pricing obviously pretty broadly.
Do you anticipate any catalyst or trigger we should look to, maybe if not this year, probably more the next year again what you see more merchant builders looking to sell properties become value add opportunities for you? What is your view the catalyst for more of that become to market and could potentially be portfolio of assets like that?
Al Campbell
Well, I think that, I would read too much into Q1, but just because it tends to be a slower transaction quarter anyway. We tend to do much more, get busier and get more opportunity or deals that going to contract, the first part of the year fallout and we tend to be more successful in the back half of the year.
Having said that, catalyst, I think it’s going to be, just as we get later in the cycle, later this year, maybe event to the next year, some of these lease-ups that are underway or perhaps there is more of them out there now than there has been historically. We think that creates some level of pressure.
It certainly creates pressure on some of these lease-up in terms of pricing that we’re hoping to get lease-up that we’re hoping to achieve. And if you throw a little prospect of rising interest rates on top of that, collectively that may start to create the catalyst that creates more compelling buy opportunities.
Having said that, we certainly see, as I mentioned in my opening comments. We certainly see or lot of investor interest that still pretty strong out there for multi-family.
So we haven’t really seen as a cap rates that move a little bit. I would suggest that maybe the number of people at the table putting bids and maybe down slightly from what we saw a year or two ago.
But the people that are there are still pretty aggressive overall. And so, we’re staying patient.
But I think this is we get later this year into next year, there may be little bit more opportunity that makes sense for us.
Operator
And we will take our next question from Mike Lewis with Suntrust. Please go ahead.
Mike Lewis
On the same-store revenue, I understand there is the supply pressure in the Post portfolio where little more than you expected. April is coming back.
But you can make up all that, so you want to head and lower the guidance a little bit. But productivity confidence after 2.8% same-store revenue growth in 1Q, that you could do 2.8% to 3.2% for the full year when it seems like we’re in this several quarters in a row of kind of decelerating growth.
Is it -- maybe it’s some easier comps in the Post portfolio, maybe it’s supply tailing off, just kind of what gave you comfort there?
Al Campbell
Well, first of all, we weren’t surprised by anything in the first quarter. We elected to make a conscious decision to, as we got into the Post portfolio, and remember when we closed on it in early December, but as we got into it, what we believe that the thing to do was to really position the portfolio for stronger performance in the busier summer leasing season.
Having said that, what gives us confidence that we will see some pickup is frankly, we’re heading into the busier summer leasing season where leasing velocity and demand tends to really pick-up. And we think that, that coupled with candidly, what we do see are some comparisons in the Post performance from last year, and the way that we executive with LRO, supply pressures notwithstanding, we think that getting to that midpoint of the range the we revised 2% or 3% is something that we feel pretty confident.
And having said that, as Tom mentioned, I mean in his comments, I mean the progress that we’ve seen on renewal pricing in the Post portfolio is pretty impressive. And recognizing that we’re renewing a bigger component of our portfolio than we ever have, that’s helpful.
And so I think that there is a lot of trends that -- one other thing as I think it’s important that not to get lost in all this, because when you look at the Post portfolio, not could be lost in sort of the opportunity that we’re underwriting here, is recognizing with that portfolio prior to the close of our merger was carrying an average rent level that was 44% higher than legacy MAA, 44% higher rent. But yes, we were capturing a 100 basis points higher NOI margin.
We think that spells opportunity.
Mike Lewis
Thanks. My second question.
Some of that I guess as a whole of the smaller markets are lagging a little bit, some particularly. Is there a trend going on there?
Maybe jobs moving to larger markets more? Are you starting to see some supply pressures in some of the smaller markets?
Eric Bolton
No, if you look at the key driver of sort of performance in that, the secondary markets, 2.9% effective rent growth, the large markets 2.9% effective job growth. If you look on the NOI side, you do see a trade-off that’s primarily expense driven and it relates to a prior year comparison when we received their credit last year that didn’t reoccur this year.
So we’re pleased with where the revenue trends are in those areas, and believe places like Charleston just keep drawing jobs, building airplanes, building trucks, and building more of those, and it’s encouraging to see these secondary markets performance closing the gap.
Operator
And we will take our next question from Tom Lesnick from with Capital One. Please go ahead.
Tom Lesnick
I guess first, looking at Houston, the same-store year-over-year comps stood out once again this quarter. Just wondering how we should think about that same-store performance through the year.
And then the second question on Houston. Historically, that’s been one of the larger markets with respect to moving out to purchase a home for you guys.
Just wondering how that metric is trending for that market right now?
Al Campbell
Sure. When you think about Houston, we want you to think about it is 3.5% of our net operating income first.
And then what I would say is, with the Post merger, we picked up more or exposure really in the same-store group for the first time in interloop and had some significant stabilizing to do there and the trends are improving their both in terms of occupancy exposure and asking rents. But we don’t see Houston coming out of the woods this year.
On home buying, it’s been in line with our other groups. It’s not booming on home buying and it’s not well under, it’s running about 20%.
Tom Lesnick
Got it. And is there any bifurcation in performance between more infill properties in Houston as opposed to the ones outside the loops?
Al Campbell
Yes. Both have pressure, but interloop pressure is larger.
Tom Lesnick
That’s helpful. And then final one from me.
Turning to redevelopment for a second, I appreciate the detail you gave every quarter with respect to the increase in rent from the redevelopment units. How is that trending on the Post units relative to the MAA units historically?
Al Campbell
It’s about a 10% bump versus, let’s say 9%. But it’s larger dollar figures on the whole risk spending.
The Post locations are just spectacular. I mean we’re little gave you about it.
And with that we’ve got people building high-rises next door to us that gives us the freedom to go in and put in brand in most of them and do a little bit more robust and like an $8,000 innovate, we’re getting $150 improvement versus probably an $80 redevelopment and $90 improvement. So significant.
Operator
And we’ll take our next question from Rich Anderson with Mizuho Securities. Please go ahead.
Rich Anderson
So if I can just double down that last question. If you’re spending more money on the Post redevelopments and getting a 10% return and you’re getting 9% on a lesser amount of money in the MAA, why is the Post opportunity a better option?
Eric Bolton
Well, we’re not saying it’s a better option? What we’re saying is that the submarket and in the competition set that we’re competing with supports an ability to invest.
And frankly, in those locations, we have to spend a little bit more on the improvement, but we’re getting commentary at higher level of rent bump as a consequence of the higher investment that we’re making and ultimately the IRR, if you will, is very comparable to what we’re see between both…
Al Campbell
Sorry. Its larger in terms of, the numbers are larger and the opportunity as a percent of the portfolio is larger.
Tom Grimes
Well said, we are excited that we able to put out more capital at very strong returns in general. That helps our value production.
Rich Anderson
I get that. Anything you can get a 10% return on is good business.
But what is the average, if it’s 8,600 for unit on Post, what is it -- what gets you 9% on an MAA, what’s that number?
Eric Bolton
Closer to 4,400.
Rich Anderson
Okay, all right. Got it.
So next question, if I could be maybe a little whack, cynical here. The expense outperformance in the first quarter or maybe this is just me talking, offered the opportunity for you to introduce a new revenue range that, let’s say, is easier to be, this year.
I mean is that just too diabolical of a way of thinking about this?
Al Campbell
I’ll just -- what we as Eric mentioned earlier, what we’re trying to do with that is because we saw those new lease pricing trends go a little further into Q1 at the range they were than we expected, that have some impact in the future as our leases re-price, so we’re just dialing at in Richard we’re going to do that. That we were very excited to see as we got in the expense side contract opportunity that were glad than we saw, so we were very glad to see the offset, but really they are unrelated.
Eric Bolton
You give us more diabolical credit than we deserve.
Rich Anderson
And then last question, maybe for Eric. You offering the call from the story from MAA has been this full cycle story, when you look at the sign curve of your full cycle and kind of that is less downside comparable upside.
You know that story. Does the introduction of Dallas and Atlanta kind of disrupt this so-called full cycle opportunity.
You would think it would. Those are bold bracket type markets.
So you’re giving up some of that in exchange for this, sort of, synergy story?
Eric Bolton
I don’t think so, Rich. We think that ultimately what drives our full-cycle performance profile, if first is really the focus on the region that we’re in, that I would argue offers some of the best job growth dynamics and ultimately demand dynamics for our product over the full-cycle.
I think that the best way to manage through a down cycle is to really be well diversified and to have a very strong operating platform, and we think that with the combination of Post into our portfolio that in a lot of ways we further diversified who we are, while we certainly are in a lot of the same markets, we’re in different submarkets I -- and I would certainly argue that with adding Post 20,000 plus units to our existing 80,000 units, I would say it probably definitely adds more performance upside in a strong part of the cycle, early part of the cycle. I don’t -- it’s hard to argue just at a very high level that it may not weaken a little bit, the downside part.
But we don’t -- protection if you will, but we don’t think so. So we’ve got as a consequence of still retaining a strong level of diversification in both inner loop and suburban and also being very well balanced now between, sort of, A and B price product and candidly having an operating platform that just keeps getting stronger and stronger and the balance sheet that keeps getting stronger and stronger, we think that the protection, if you will, during the down part of the cycle is the stronger and since it has ever been.
And arguably, I would suggest that we may have improved our up-cycle or our product cycle performance profile a little.
Operator
And we’ll take our next question from John Kim with BMO Capital Markets. Please go ahead.
John Kim
Thank you. It’s only been a couple of quarters since integration, but looking at NOI margins it actually declined sequentially during the first quarter.
So I’m wondering what gives you the comfort that you could improve it this year and is that really stated goal for 2017?
Eric Bolton
Well, it is the stated goal, but first of all, it’s not two quarters, it is four months. Second of all, we think that the margin enhancement opportunity, as I said a moment ago, just if you step back and just remember that this Post portfolio is a portfolio that was carrying 44% higher average rent but yet MAA was getting 100 basis points higher NOI margin.
There’s just a lot of opportunity, a lot of different places. And what, and so if you look at December, the month of December and look at first quarter, you have seasonal factors are going on there.
So I wouldn’t read too much into that comparison. It’s more of a seasonal trend.
I think as the year plays out and you can start to really get seasonal, take some of the seasonality out of the equation, you start we looking at year-over-year or comparable quarters year-over-year. I think that’s where you will really start to see some evidence of margin enhancement.
John Kim
But you think we’ll be able to see beginning in the second quarter versus fourth quarter based on the leases you signed so far?
Eric Bolton
Well, I mean we saw margin improvements in the Post.
Tom Grimes
130.
Eric Bolton
As you move into the third quarter you will start seeing it more as we, third and four for cash majority of those synergies for the year. So more heavily in those that period, John, I would say.
Tom Grimes
I think important to look year-over-year we improve the margins of total same-store about 60 basis points and for the whole portfolio 130 on the other side of the portfolio.
John Kim
Okay. The gap between new and renewal leases, I know you’re expecting that to condense a little bit.
But I’m just wondering if that 800 basis point spread is the widest you’ve seen?
Tom Grimes
It is probably the widest we’ve seen in this cycle, but it is always widest at this time of the year. The gap gets wider and the slower winter months and then it tightens in the summer months.
Operator
And we will go next to Conor Wagner with Green Street. Please go ahead.
Conor Wagner
Tom, where was overall renewals in April. I know you are in the Post portfolio, but for the combined portfolio, please?
Tom Grimes
Sure. Renewals for the group was, in April was 64.
Conor Wagner
Great. Thank you.
And then Eric, if you could tell me what you are thinking about the development platform and possibly adding some land to it. If you guys are exploring those opportunities?
Eric Bolton
Con, we are exploring them. We haven’t really done anything at this point in terms of any commitments.
The only thing that I suspect that we will get started this year is an expansion of community that we owned in Charleston that we closed on in December of last year that has a Phase II component to it. But we are, David and his team are pretty active out looking for opportunity at the moment.
We haven’t really committed anything at this point. If we defined a very compelling site with an opportunity to get that site productive pretty quickly and it all make sense given where we are in the cycle, we wouldn’t hesitate to pull the trigger on it.
But I think that one of the things going forward that will be very sensitive to as development is never going to be a huge part of who we are even if today at just over $500 million pipeline, it’s still constitutes about 3% to 3.5% of enterprise value. We think it will probably -- we would like to keep it in that range.
So we’ll never -- we never see it approaching -- I don’t think we will ever see approaching 6%, 7%, 8% of who we are in terms of enterprise value. Secondly, one of the things that we’re going to be very focused on is ensuring that if any land position is taken, that it’s something that we’re confident we can get productive in short order within 12 to 18 months kind of time frame.
Banking a bunch of capital in the balance sheet that is -- it’s not, sort of what we do. So that -- those principles sort of guide how we move forward.
Conor Wagner
Okay, thank you. And then maybe as it seems, if you guys has to comment briefly on operating trends you see into the D.C.
market?
Tom Grimes
Operating trends on the D.C. market are positive.
I think you know Ron and the team there are a stable good bunch. And I think we see steady improvement in that area and are thrilled with the redevelopment opportunity.
So I think strengthening is how I would characterize that improving.
Operator
And we will take our next question from Gaurav Mehta with Cantor Fitzgerald. Please go ahead.
Gaurav Mehta
So can you talk about the improvement in new and a lease growth in April versus first quarter. I was wondering if you could comment on in which market do you seeing that improvement?
Tom Grimes
Yes, sure, Gaurav. When we look on a seasonal basis, it’s a really following the trend with the sharpest improvement in those areas where Post and MAA overlap.
So with the upswing, it is Atlanta, Dallas, Orlando, Tampa, where we’ve seen sort of the biggest changes.
Gaurav Mehta
Okay. And I guess, in your prepared remarks in regards to Post portfolio you also mentioned a focus on loading exposure to certain market.
I was wondering if you could comment on what’s the timing on selling assets in of those markets Atlanta and Dallas where you plan to lower exposure?
Eric Bolton
Well, we have targeted in our guidance 125 million, 175 million of dispositions this year. We are about to come to market fairly soon with that group.
There is some Dallas, Atlanta in that group. But we’re going to be approaching that in a fairly sort of study fashioned.
We will -- we do have a goal over the next two to three years to pull down our exposure in Dallas and Atlanta just to really get the portfolio allocation where we are more comfortable with it. But there is no immediate plan to do anything radical in terms of a major shift.
You will see that the steady work down over the next two or three years.
Operator
And we will take our next question from Austin Wurschmidt with KeyBanc. Please go ahead.
Austin Wurschmidt
Just wanted to touch. You mentioned that the new lease rates, softening lease rates drove the reduction and same-store revenue.
But got the sense that renewals were also a little bit stronger than you expected, and I was wondering if that’s offset any bit of softness in new lease rates at all?
Al Campbell
Renewals were about where we expected them. In Austin I think we expected to be able to make improvement on the Post side and then America side has been solid in that 6% to 6.5% range for some time.
Eric Bolton
What we roughly expect and going forward new lease pricing will improve into positive and the renewals will remain strong.
Austin Wurschmidt
And then could you just a break down how, what you expect renewals to come in for MAA and Post into May and June?
Eric Bolton
Sure. They are, we’ve got Post continues its improvement from May to 59.
Mid-America continues above 6. June is a little early to tell, but I want expect those trends to continue.
Austin Wurschmidt
Okay. Thanks for the detail.
And then you talked about a lot of the NOI synergies that you expect to capture in 2017 from Post is being in back half weighted. I just wondered if you’re still comfortable with that 4 million to 5 million that you had previously underwritten.
Eric Bolton
We’re absolutely to that and we are comfortable with that. And we were very encouraged to the first quarter that we had a little quicker start on the expenses that we have thought, that’s even add to that curve.
But a large part of that still going to be in the back half of the year as we really begin to compound the revenue improvements somebody’s things that Eric and Tom will talk about in the third and fourth quarter.
Austin Wurschmidt
Great. Thanks.
And then can you just remind us again of when you expect the transition onto a single revenue management platform?
Al Campbell
We have transitioned the revenue management platform. Work got done in the first quarter or on one system.
Austin Wurschmidt
Is that mentioned or sooner than anticipated, correct?
Eric Bolton
No, again the revenue management component of it is, was went as planned.
Al Campbell
It’s more the back office accounting and then also the property management system that is where the leases are contained separately. Other all system kind of sits on top of that.
Its own function and that is combined and working well.
Eric Bolton
And that transition is really just an upgrade in systems that gets early fourth quarter or early first next year.
Operator
And we’ll take our next question from Robert Stevenson with Janney. Please go ahead.
Your line is open.
Robert Stevenson
Eric, are you talked a couple of times during the call on the upside that you guys expect on the NOI margin from the Post assets. Beyond that, what’s the biggest upside out of Post going forward today, if you start the clock today that you expect to achieve?
Eric Bolton
Well, certainly the combined balance sheet of the two companies has certainly resulted in a much stronger consolidated balance sheet and we, as Al mentioned, will be approaching the bond market later this year as a consequence of putting the two companies together. As you recall, when we closed the merger, S&P upgraded us to the third run of investor grade that day.
Moody’s did so recently. And we sliced off a fair amount of interest expense on an annual basis just as a consequence already and we think going forward that will continue to pay some benefits.
I would tell you that other than the NOI opportunity, the redevelopment opportunity is quite significant and as Tom mentioned in his comments, that is proving to be, just I think that opportunity is going to be bigger, far better than we ever really imagined it would be. So we’re very excited about what we see happening there.
And that’s something that will play out frankly over the next three or four years. And beyond that then I would tell you was one of the benefits of putting the Post platform with MAA was frankly just another opportunity to deploy capital in accretive manner through new development.
And at this point in the cycle, we’re being pretty careful about any commitments in terms of cranking up anymore new development. But we’ve certainly again believe that, that platform supported by our operating platform and balance sheet is going to be another component of long-term value creation that we’re very attracted to.
Robert Stevenson
Okay. And when you guys look at supply, not just in an overall market or submarket, but supply and that should directly impact your assets or especially the Post assets given the sort of more urban nature of that.
Are there any markets or submarkets where you think that the worst is yet to come from a supply standpoint in terms of lease-up concession, etcetera, that is going to sort of push down rental rate growth within the Post portfolio?
Eric Bolton
Not that you’re not already aware of, Rob. I mean that sort of bucket core door is seeing the expected level of supply come onboard.
Same with uptown in Charlotte and inner loop Dallas, let’s say. But, I think largely, we were beginning -- we felt that and we will continue to and then it improves in ‘18.
Al Campbell
The only market I would add that worth monitoring is Dallas. I think that Dallas inner loop area is getting a fair amount.
So we will keep an eye on that one. But I would agree.
I think all of the others are there is no reason to expect that it is going to deteriorate from where it is today.
Tom Grimes
And then Houston drops in half again and Nashville drops off by 3,000 units. There are some bright spots out there as well.
Robert Stevenson
Okay. And then Tom, while you were talking earlier about the weakness in new leases in the Post portfolio.
Was that concentrated in a couple of assets that we’re facing some supply issues, was that fairly widespread. How would you sort of characterize that?
Is that a submarket, market or just a portfolio sort of issue at this point?
Tom Grimes
It was fairly widespread. It was sort of probably weakest in Houston the gap wise and then strongest places like Tampa or D.C.
Robert Stevenson
Okay. And then last one for Al, I think that I heard you say something about $0.01 impact on property taxes.
Was that sort of positive or the negative side and the remainder of ‘17?
Al Campbell
That was to the negative side unfortunately on that and I think but really what that is as we just moved our range to 5.5% to 6.5% with 50 basis points increase and we still feel good about the expectations for tax rates and the valuations. It’s really more related to as we get information get into it.
We think we may have little less favorability on appeals that we’re making that will fall into favorable results in ‘17 from ‘16 than we had in 15 to ‘16 and so we feel like overtime into it, as we go forward, tax rates will continue to moderate a little bit, but in ‘17 we have a little bit of noise.
Robert Stevenson
Okay. How we reconcile that and so if property taxes are roughly at third of the expenses load and those are going -- you are revising that upward, but then you’re taking same-store expenses, same-store expense guidance down for the year, what overwhelms the increase in property taxes, where are you seeing the benefits to be able to lower the same-store expense guidance?
Al Campbell
Benefits that we’re seeing in getting earlier on some of the synergy opportunities have been really, really good, Rob. And so we’ve been able to get into contracts with contract labors and our vendors and insurance pricing have been able to get favorability early than we expected, maybe little more than we expected and so that more than offset that pretty increase in real-estate taxes and expenses.
Operator
And we will go next to Omotayo Okusanya with Jefferies. Please go ahead.
Omotayo Okusanya
Two questions from me. The first one around the reduction in the same-store revenue guidance.
The new rental rate that was again trending negative in the first quarter. Again you kind of mentioned that part of the whole process of why you are signing leases at those rates was the kind of setup to go into the spring leasing season.
But I guess, I’m trying to understand a little bit, how exactly those benefits you go into the spring leasing season, if you sign the lease and that tenant is going to be in there for at least a year?
Al Campbell
Well, it basically if in the first quarter, let’s just say that over the course of the year, you have 100% of your leases to renew, or to, or 100% of units to reprice. In the first quarter you’re going to reprice, I don’t know, 20% of them, 18% of them.
In the second and third quarter, you’re going to reprice 65%, 70% of them. And so we would rather reprice or be in a position, stronger position to reprice when you’re going to be repricing a higher percent of your portfolio over the course of the year.
So you can, if you will, sacrifice a little pricing on a smaller portion of the portfolio in order to gain more robust pricing on a bigger percent of the portfolio in the second and third quarter and net-net for the year come out with the better results.
Tom Grimes
I mean, you’ve got there. I mean all of the pricing a lot of them, if you will, is driven by exposure.
And what Eric was saying, we improve the exposure on the Post assets by 190 basis points and it’s now 7.2%, going into that season and that pushes the rates up on more people more aggressively.
Omotayo Okusanya
Okay. I think I got to understand that.
But I guess the backdrop of rising supply in some of the key markets, how confident are you that, again that upside in pricing that you want in the spring will actually happen as again you have more supply in the market. Isn’t that kind of what’s putting more pressure on the new rental rates?
Eric Bolton
But you also have more leasing velocity that takes place in the summer months as well. If you go demand picks up, but in the summer months versus the winter months.
Al Campbell
And we believe there is a non-market opportunity there. Going back to Eric’s point about the margin, we feel like there is rent gap to close based on the progress that we’re making on a renewal side of Post and where we look at where those units are price in the market that and when you add in redevelopment, that we can grow the Post new lease trends is greater than market opportunity.
Omotayo Okusanya
That’s helpful. And then just also on the same-store OpEx for 1Q.
You saw a much bigger decline in your larger markets versus just smaller markets. Does that have anything to do with just the fact that you have more of an overlap of the Post properties in the larger markets and some other synergies we’ll driving that versus the smaller markets?
Al Campbell
Yes, that’s a fair point.
Tom Grimes
That’s correct.
Operator
And we will go next to Neil Malkin with RBC Capital Markets.
Neil Malkin
Eric, I think in the last call you talked about stricter lending standards making it more difficult not only in general for incremental supply to occur this cycle but because of that, more lending would be focused toward the more certain or more highly thought after urban markets and would actually have even more beneficial impact to your Sunbelt markets with less construction financing happening there. Are you still confident in that?
Are you still seeing that? Or are you seeing a willingness of banks to lend for to you for construction financing in your market?
Eric Bolton
Well, all I can really speak to is our Sunbelt markets in the Southeast. What I can tell you is yes.
I mean all of the developers that we talked to continue to indicate that financing for construction projects is becoming more difficult to achieve. More equity required, lower loan to values, requiring them to either introduce more equity into the transaction and or bring in some sort of mezzanine financing to bridge their funding needs net-net, putting pressure on returns.
And so, I think that evidence is starting to manifest itself, as I mentioned earlier, permits so far this year are down 10% versus where they were last year. And when you look at the current pipeline and deliveries that we know are going to come online as we headed into the next year, known deliveries are down next year from what we’re seeing this year.
So I continue to believe that there is a likelihood that we are likely to see the worst of the supply pressure this year. Things can change, as I said earlier.
But based on everything that we’ve got visibility on right now, there is nothing that causes us to believe that supply pressures are headed towards in acceleration in 2018.
Neil Malkin
And then can you talk about your pipeline or opportunities that for recently completed or in leased up properties?
Eric Bolton
Well, it’s -- we are looking at a lot of things right now. And we continue to have -- I think more opportunities are being brought online in terms of development and lease-up is underway.
And I think just as we get later in the year, the opportunities become more compelling, because we often see in the first, let’s call it six months of the year, that people that plan to sell tend to get out there and market their opportunities broadly to the market. And often we see a lot of deals go under contract in early part of the year that for a host of reasons don’t get close, and then as we get into Q3 and Q4, the opportunities often come back because they fall out of contracts.
So we just tend to be much more successful in leveraging our execution capabilities and all cash acquisition capabilities and to sort of the value that were looking for in the back half of the year. And so as supply does sort of come online increasingly over the course of this year and we get into that busy season where, I think a lot of people are counting on a lot of good things happening.
Undoubtedly, there is going to be, I think more opportunities that will become available later this year. So we’re going to be patient and see.
I mean, we’re given sort of the scale that we have, the balance sheet that we have and the focus that we have on this region. We know the deals and in most cases everybody wants us looking at the deals.
And our pipeline is fairly active right now. But we are being patient.
Neil Malkin
Okay, great. And last one from me.
Can you talk about the Post properties in terms of how things are going on the ground? I’m assuming there’s probably some turnover from leasing or property managers, maybe to had some impact on the first quarter.
How that’s going, how that’s transitioning, do you feel comfortable that you had everything in place, kind of all the potential issues that’s [indiscernible] if any?
Eric Bolton
The answer is yes. So we think that we’ve got everything settled here at this point.
These things are hard. I mean they’re just tough.
And you’ve got two organizations, very proud. Post around for 40 years and quite a legacy and there is a lot of emotion in all of this.
And so you sort of have the challenge to work through initially. Secondly, frankly, we just, at the property level and frankly at the corporate level, we approach the business in philosophically in some ways and in fact procedurally different.
And as a consequence of those differences, we have different expectations for different positions. They may be called the same thing in both companies, but our expectations and the accountabilities that we establish in some cases were different.
And so with those two factors, you have some people that sort of adjust and you have some people that don’t adjust. And frankly you have some people that are in positions that ultimately we conclude they are unlikely to be able to be a good fit for that position given sort of the way we expect the position to perform and so changes are made.
So yes, we made again a conscious decision to address all that ASAP and we have made a conscious decision to address all that in the winter slower leasing season. And I would tell you at this point we are set.
We feel like, I mean we’ve got a great team of folks in place. We’ve got all of the, sort of the onsite leadership stabilized and we think we’re in a great position as we had into the summer months now.
Operator
And we will take our next question from Dennis McGill with Zelman & Associates. Please go ahead.
Q - Dennis McGill Just going back to new lease growth in the first quarter, the negative 3%. Just back into that the impact on the guidance.
Is it about 200 basis points worse than what you would have thought going in the quarter?
Al Campbell
You’re talking about for Q1? Q - Dennis McGill Q1, right, the negative 3% on new leases.
Al Campbell
Yes. The expectation was more at the end of the quarter in March.
I mean, we expect to be in that range in the early part of the quarter. We expected the new lease pricing to improve and as we move in the March and that was the expectation that was different.
Q - Dennis McGill So the 3% negative was fairly consistent through the quarter, is that what you are seeing?
Al Campbell
In April, just to follow-up with your point. In April, as Tom said, we did see about 200, 190 basis points swing in that.
We usually see that in March a little earlier with those points. Q - Dennis McGill Yes.
Al Campbell
The range is correct. We uses in March and we saw in April and we have [indiscernible] to our guidance.
Q - Dennis McGill Okay. And then as you think about just the impact within the quarter and compare where you ended up versus what you might have thought at the beginning of the quarter, what do you think drove the stepped-up competition.
I would assume you have your arms around which products are around you and come into markets. So is there anything in particular you can put your finger on that would have cause either yourself or developers and you get more competitive?
Al Campbell
No, not really. I think that -- I mean again it’s -- I think we were focused on not only the market conditions but the other sort of thing that we alluded to is that -- we had we made a conscious decision to address what we felt like were some weakness in exposure and occupancy levels that we wanted to get addressed and before we head into that busier season, And I think also, as Tom alluded to, we also made a conscious decision to really focus on renewal practices in a very aggressive way in the first quarter and we’ve seen great results as a consequence to that.
So I think that what we’re talking about here is a balance as a fairly modest level of adjustment, 25 basis points in terms of a midpoint adjustment on revenue expectations. It really just gives us back to, we just -- I think the supply levels broadly have just put into the slower leasing season of the first quarter combined to just create a little later in the quarter pickup in pricing trends, on new lease pricing than what we typically see.
And as Al alluded to, April was a significant jump in improvement and we usually see that earlier in the first quarter and so just a little later as a consequence of supply terms.
Operator
And at this time, we have no further questions and I will turn it back over to you, Mr. Argo.
Tim Argo
Thank you. We appreciate everyone being on the call and see many of you at Mary.
Thanks.
Operator
This conclude today’s program. Thank you for your participation.
You may disconnect at any time.