Jul 27, 2017
Operator
Good morning, ladies and gentlemen. Welcome to the MAA Second 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, July 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, Lynn. Good morning.
This is Tim Argo, SVP of Finance for MAA. With me are Eric Bolton, our CEO; Al Campbell, our CFO; Tom Grimes, our COO; and Rob DelPriore General Council.
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 Web site.
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. We were pleased with the solid results for the second quarter with FFO performance ahead of our expectation.
Pricing momentum continues to move in a favorable direction and occupancy remains strong. Our portfolio of properties balanced across various sub-markets and price points of the Sunbelt region, combined with our strong operating platform, continues to demonstrate an ability to better tolerate the elevated pockets of new supply present in several markets.
The integration of the Post portfolio is making terrific progress. And as expected, the emerging positive trends in higher rents and occupancy are starting to build momentum.
The initial opportunities surrounding expense synergies, resulting from our reconciling operating practices and taking advantage of our larger scale, have yielded some early wins on operating expense performance. We expect these trends to continue over the balance for the year into 2018.
While, it’s clear the current new supplied trends have caused some moderation from last year’s rent growth results, especially for new moving residence, we continue to believe that at this point in the cycle our legacy MAA portfolio locations continue to offer some offsetting balance or protection against the new supply pressures, which are more evident within the legacy Post of market locations. Our property teams are doing a great job in taking care of our existing residence with renewal lease pricing across the combined adjusted same-store portfolio continuing a solid trend in the 6% range with a steady pattern of improvement and renewal pricing being generated out of the legacy Post portfolio.
Resident turnover remains low with 12 month rolling turnover rate at 50.9% halfway through the year, essentially matching last year’s performance of 50.8%. So overall, while leasing conditions have become more competitive when compared to prior year, we continue to believe that a combination of our balanced portfolio, focus on solid employment growth markets of the Sunbelt, coupled with the growing margin expansion opportunities from our merger with Post, will yield continued FFO growth and NOI performance that are in line with our expectation.
The transaction market remains highly competitive as investor capital and interest in the multifamily market continues to outpace opportunities being brought to market. As noted in our earnings release, we did not make any acquisitions during the second quarter.
However, we continue to underwrite quite a few deals, and we’ll continue to be patient and disciplined in our underwriting as more new development projects are brought to market over the back half of the year. Our lease up and development pipelines are making solid progress.
The six new properties currently in lease up were 82.5% occupied at the end of the second quarter, and we expect to stabilize four of these communities in the current third quarter. Our six projects remaining under construction are also making solid progress with additional leasing just getting underway now in Austin at Post Afton Phase II and in Atlanta at Post Millennium Midtown.
So in summary, we like the momentum we’re seeing during our peak leasing season and we remain excited with the upside opportunities to capture over the next couple of years from our merger with Post Properties. Our balanced portfolio of properties and strong operating platform continue to demonstrate an ability to deliver stable results through the cycle.
Before I turn over the call over to Tom, I do want to express my appreciation to our entire team here at MAA. I appreciate your efforts over the busy summer leasing season, and not only delivering great performance today, but also your extra efforts focused on completing our merger and consolidation activities, which are further strengthening MAA’s platform for the future.
And with that, I’ll now turn the call over to Tom.
Tom Grimes
Thank you, Eric and good morning everyone. Progress made since the first quarter is encouraging, and we were especially pleased.
We are especially pleased with the improvement in pricing trends emerging from the legacy Post portfolio. For the second quarter, on a lease-over-lease basis, blended rents, which include both new and renewal leases for the combined adjusted same store portfolio grew by 2.6%, an improvement of 130 basis points from the performance in the first quarter.
Breaking that down a little bit. Lease-over-lease rents for the new resident lease written during the second quarter were down 70 basis points.
This is a significant 250 basis point improvement from the performance in the first quarter. This positive momentum on new lease pricing for the combined adjusted same-store portfolio continued in July with new lease pricing turning positive, now up 30 basis points.
Renewal lease pricing within the combined adjusted same store portfolio remained stronger in the second quarter, growing 6.3%. The positive trends are most evident within the legacy Post portfolio as blended rents on lease-over-lease basis improved 150 basis points from the first quarter to the second quarter.
The trend continued in July with Post blended lease-over-lease rents growing 2.6%. July’s blended rent performance represents 370 basis points improvement in rents from the first quarter for the legacy Post portfolio.
This improvement drove the blended rent growth for the combined adjusted same-store portfolio up to 3.1% in July. The trends are similar for average daily occupancy.
In July, the MAA portfolio remained steady at 96.1%, and the post portfolio, which ran 90 basis points behind the legacy MAA portfolio in the second quarter, closed the gap to 50 basis points to 95.6%. 60 day exposure, which is all banking units and notices first 50 day period for both portfolios, is now just 7.4%, very strong for this time of year.
We expect the gap between the portfolios, on both rent growth and occupancy, to continue to narrow as the benefits of our operating approach come to bear on the post communities. We’ve completed most of the foundational work associated with repopulating our revenue management system with updated data from the legacy post locations.
And they are benefiting from the improved occupancy and exposure positioning. We are pleased with the improvement of this portfolio and our critical busy summer season, and believe that we’ll be positioned as we head into the slower winter months.
Expense performance follows a similar pattern. RM costs were down by 2.2%, led by a few early wins in the Post portfolio.
As a result of the improved scale, our national accounting pricing improved in both portfolios, but was more impactful in the post results. In addition, the renegotiation of in-market contract services, such as interior paint vendor and pool cleaning services, aided the post results.
We have improvements still to come. At the end of the second quarter, the Post communities are still running 25% higher on a maintenance cost per unit basis than the legacy MAA portfolio.
We expect this gap to close as our approach to turning units, which is less reliant on expense of contract labor takes hold. Driven by these improvements, in revenue and expense, the NOI margin on the post portfolio increased 130 basis points from the second quarter of last year.
While elevated supply levels moderated rent growth, we’re seeing good growth in main markets; Forth Worth, Raleigh, Charleston and Jacksonville stood out from the Group. In both portfolios, Houston remains our only market level worry-bid and represents just 3.7% of our NOI.
We will continue to monitor closely and protect occupancy in this market. Currently, our combined Huston market’s daily occupancy is 95.3% and 60 day exposure is just 7.9%.
Renter demand remained steady and current residents continue to choose to stay with us, move-outs for the portfolio are in line with prior year and turnover remained low at 50.9% on a rolling 12 months basis. Move-outs to home buying and move-outs to home renting remained consistent at 20% and 6% of move-outs.
As you know, much of the Post product is in the inter-loop, and is in inter-loop areas that are seeing the most supply. While this puts pressure on the newer product, it creates opportunity on the older product in excellent locations.
There’re 13,000 Post units without compelling redevelopment opportunities. We can make these great locations more competitive by updating the product.
We have room to raise the rents and still be well below the rates of the new product coming on line. Momentum is building on the Post redevelopment program through genuinely completed 423 units.
On average, we’re spending 8,600 and getting the rent increases 13% more than a comparable non-redeveloped unit. For the M&A portfolio, during the quarter, we completed over 2,300 of interior unit upgrades.
On legacy MAA, our redevelopment pipeline of 15,000 units to 20,000 units remains robust. 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. Leasing has gone better than expected at Charlotte and Midtown and Nashville, and that stabilization date has been moved up a quarter to the fourth quarter of this year.
Innovation in Greenville and residents in Fountainhead and Phoenix stabilized on schedule during the quarter. Our four communities scheduled to stabilize in the third quarter are on track to do some.
We are actively leasing the [indiscernible], Post South Lamar II and Post [indiscernible] Midtown, and they are progressing well. It has been a busy quarter for our teams and we’re pleased with our progress.
The momentum building in the Post portfolio is particularly encouraging. We look forward to continuing to capture value creation opportunities on both revenue and expense sides of the equation.
Al?
Al Campbell
Thank you, Tom and good morning everyone. I’ll provide some additional commentary on the Company’s second quarter earnings performance, balance sheet activity and then finally, on guidance for the remainder of the year.
Net income available for common shareholders was $0.42 per diluted common share for the quarter. FFO for the quarter was $1.48 per share, which was $0.07 per share above the midpoint of our guidance for the quarter.
The earnings outperformance was primarily related to favorable interest G&A and integration costs during the quarter, with the each producing about $0.02 per share of favorability. And additional $0.01 per share was provided by favorable performance in our lease-up and development properties, which are included in our non-same store portfolio.
Our combined adjusted same-store NOI performance was in line with expectations for the quarter. And the integration expense savings were mainly related to timing of cost, which we expect to incur over the remainder of the year.
I’ll outline our revised guidance for the full year in just a moment. During the quarter, we completed the construction of two communities, Post Parkside at Wade II located in Raleigh, and Post Afton located in Huston.
We’re also beginning the construction of one new community, a Phase II expansion in 1201 Midtown, a community located in Charleston that we acquired late last year. During the second quarter, we funded an additional $50 million of development costs, brining our year-to-date funding to $110 million.
Our current development pipeline now contains six projects with the total projected cost of $396 million with only $103 million remaining to the funded. The six projects are expected to produce an average 6.5% stabilized NOI yield once completed and leased up with four of the projects projected to be completed by the first quarter of 2018, and the remaining two completed in the back half of 2018.
Just after question end, we sold three wholly-owned communities, located in Lakeland Florida, Montgomery Alabama and Fort Worth, Texas. The total proceeds of $88.4 million represented a strong pricing for 28 year old assets on average and produced 5.3% economic cap rate.
We also exited two tertiary markets with these sales. During the second quarter, we successfully used our enhanced credit ratings to complete a bond offering.
We see $600 million of 3.6% unsecured 10 year notes an issue price of 99.58%, using the proceeds to pay down our line of credit. Therefore, we also prepaid $156 million of secured mortgages, further increasing our unencumbered assets to 83% of our total gross assets.
For our bond covenants at quarter end, our leverage to bond as debt to total assets, was 34% and our consolidated net income, our consolidated income, covered our debt services of 5.2 times. We also had over $877 million of combined cash capacity on our credit facility to provide protection and support for our business plans.
Finally, we increased our earnings guidance for the full year to reflect the second quarter performance and updated expectations for the remainder of the year. We are updating guidance for net income per diluted common share, which is reconciled to update FFO and AFFO guidance from the supplement.
Net income per diluted common share is now projected to be $2.69 to $2.89 for the full year of 2017. FFO is now projected to be $5.77 to $5.99 -- $5.97 per share or $5.87 at the mid-point, which includes $0.15 per share of merger and integration costs for the full year.
AFFO is projected to be $5.18 to $5.38 per share, or $5.28 at the mid-point. We’re maintaining our guidance expectations for the combined adjusted same-store portfolio, which is expected to produce NOI growth for the full year in 3% to 3.5% range.
Since summer, we are increasing our FFO guidance for the full year by $0.03 per share, representing the additions from Q2 performance discussed earlier, partially offset by the $0.02 per share of integrations costs now expected to be incurred later in the year, along with an additional reduction of $0.02 per share related to provide the acquisition timing and yields for the year. And given the competitive environment, Eric mentioned earlier, we now expect our remaining acquisition opportunities to occur later in the year in all to be lease up communities.
Our guidance for acquisition volume and total merger and integration expenses for the full year remains unchanged. We did increase our range for disposition volume as our actual pricing expectation is exceeding our initial estimates.
We also narrowed the range of expected G&A costs and development investment for the full year. We remain on track to capture the full $20 million of overhead synergies related to the Post merger on run rate basis by year end.
And we also expect to continue capturing additional NOI opportunities, including our forecast, primarily in the later part of this year as operating practices and platforms become fully integrated. That’s all that we have in the way of prepared comments, Lynn.
So now, I’ll turn the call back over to you for questions.
Operator
[Operator Instructions] And we’ll go ahead and take our first question from Nick Joseph with Citigroup. Please go ahead, your line is open.
Nick Joseph
Just in terms of same-store revenue guidance, I know you maintained it. So it looks like you’re assuming acceleration of growth into the back half of the year at about 3.5% versus the 2.5% you did in the first half.
So I am wondering if you can give the components of that in terms of occupancy assumptions, rate growth assumptions and the other revenue that makes you comfortable with that acceleration.
Al Campbell
Nick, this is Al. I’ll tell you, if you remember we talked about in Q1 that what we needed to see for the rest of the year for our revenue guidance, it was to see renewals continue to be very strong about 6%, which we definitely saw in the second quarter, about 6.3% on average.
And we needed to see that new lease pricing, which was down little longer than we expected in Q1 and continue to see those positive trends that we began to see in April. And we did see that in May, June and I think Tom mentioned July, and a very strong -- renewals were strong over 6% and new leases moved to positive territory, lending to about 3.1%.
So that’s all the positive change that we needed to see in terms of the back half. We need to continue to see that blended rent in the below the 3% range.
We expect to see that from a couple of reasons; one, the MAA portfolio is very stable, very strong; we expect it to have some seasonality as we move through the back of the year; but hold strong in terms of renewals and new lease pricing; then, we expect to continue to capture some of the opportunities in revenue on the Post side really supporting that further. And so the combination of those two gives us really firm support for our belief in the revenue guidance that we’ve got.
I would tell you, we expect it to grow as we go through the year. I think our expectations for Q3 are 2.5% to 3% range-ish and Q4 are 3% to 3.5% as we continue to capture those synergies that we talked about.
Eric Bolton
And Nick, this is Eric. I would also add though that we also feel very confident in the expense guidance that we have out there as we talked about.
We’ve seen some real opportunities emerging on that side of the equation. And as a consequence of that, we feel very confident where our NOI is likely to come out this year relative to expectation.
Al Campbell
Let me just add a point on that too, Nick. I am sure you could do the math on that.
So to Eric’s point, NOI is where we are year-to-date and what we expected here. We expect to be well into the range on that, expenses are coming on fast and we’re having a really good performance in that, as Tom mentioned.
So that likely will come at first lower end of the range. And the revenue likely as well, given the first half year results and the projections I just talked to you, will probably be lower end of range as well, supporting well into range on NOI.
Nick Joseph
And then just in terms of the performance of large markets versus secondary markets. It looks like the secondary markets actually outperformed in the quarter.
In terms of the trend, do you expect to continue or was that something unique to this quarter?
Eric Bolton
I think that the trend will continue, at this point in the large markets, it's a supply issue. And the opportunities in the Post portfolio will add over time as revenue builds.
So I think this is a place where I think those performances will -- that gap will narrow overtime as we get the Post revenue process rolling along.
Al Campbell
I would tell you, Nick, that I think that absent the opportunity embedded within the Post portfolio, the delta between the large and the secondary markets are probably continue to play out as if we saw in Q2 for a while, given the supply dynamics that are going on with these larger markets having more supply. But the operating opportunity upside in the Post portfolio is going to really, we think, become increasingly evident in our results over the next several quarters.
And likely, will offset some of that supply pressure to the point that we may see large markets resume outperformance in the secondary markets a little quicker than regular supply dynamics would support.
Eric Bolton
Nick may be a good example of that would be in our DC market. That is a place where folks are arguing between whether it’s a bad market or a mediocre market.
But our Post blended rents for that market for the second quarter were up 4.6% and we feel good about the opportunities that we see in this Post portfolio.
Operator
Thank you. And we’ll take our next question from Drew Babin with Robert.
W. Baird.
Please go ahead, your line is open.
Drew Babin
Talking about the increased disposition guidance resulting from pricing, and not necessarily higher volume of assets sold. The 5.3% economic cap rate on the July sales was surprise.
And I guess if you could give a sense of, or give us a sense of what remaining dispositions for this year might look like in terms of being in MAA legacy or post legacy asset or just some color on the timing as well.
Eric Bolton
By definition to some degree is the surprise given that was above our range. But we knew that the pricing would be good, just frankly turned out to be a little bit better than we expected.
We do have two other dispositions that we have planned for this year, both around the contract, both our legacy MAA locations, both are in the Atlanta market. And we should have those closed sometime in the fourth quarter.
Tim Argo
And our revised expectations are included in our revised guidance.
Drew Babin
And on the acquisition side, obviously, the acquisition guide has been changed despite just not a lot of activity so far this year. Is that -- I guess what gives you confidence that that number is a possibility in the second half of the year?
Is there anything specific you’re seeing, or is it just a wait and see type of approach to see what comes to market?
Eric Bolton
Look, two things, one is that, we do think that the deals being brought to market are more likely to get to grow as opposed to shrink as more supply continues to come on line. So we just think that there will be more opportunities coming into the market.
And secondly, historically, for the last several years, we’ve always had more success in making acquisitions in the back half of the year as compared with the first half of the year. We just find developers and sellers are little bit more motivated as we approach year end.
And so we, for those two reasons, we’re hopeful that we will continue to be able to capture opportunity in the range that we’ve given.
Drew Babin
And then one quick one on DC. I mean acknowledging, it's not -- that works for markets for MAA, it looks like it's worth asking.
Clearly, it sounds like you’re not tremendously worried about DC as a market. Can you just talk about the positioning of legacy post assets around DC exposure the sense rather than healthcare, different dynamics within Washington that might help and/or cover that portfolio relative to the market?
Eric Bolton
I would tell you much like our portfolio spread throughout the Sunbelt that portfolio in DC is spread throughout. So there is a little bit -- there is some Northern Virginia exposure, there is Alexandria exposure.
We’re right there of the river and Pentagon City that has some, obviously, some military exposure to it. And there is a little bit in Maryland.
So frankly, it spread across the group. The one consistent opportunity though is that one I think is pricing or two consistent opportunities that we see are pricing practices and redevelopment in those areas.
And that’s honestly where our optimism about DC comes as we see opportunities operate differently. And that gives us an outside of the market growth opportunity.
Operator
Thank you. And we’ll take our next question from John Kim with BMO Capital Market.
Please go ahead, your line is open.
John Kim
On the deceleration of same store revenue growth this quarter, despite the slight pickup in occupancy. Can you just remind us, is this entirely due to rates or do you also offer incentives currently?
Al Campbell
And talking about the decline in revenue from Q1 to Q2, it really bodes down to the pricing -- new lease pricing that we had in Q1. If you remember, we talked about the fact that new lease pricing is typically negative with the first part of the year.
But our experience in Q1 was it stayed negative for the quarter long that we expected. Good news was as we moved in April we saw that trend change and move in a positive direction.
But that impact of Q1 really does leases fully rolled into our portfolio in Q2. And so that’s when we felt the most impact from that period of time.
And in fact, we expected Q2 to be our lowest revenue quarter for the year that was when the big surprise for us. But we also knew that the trends that we expect for the rest had begun in April.
We saw that in May, June and even July continue. And so it impacted Q2 the most.
We feel good about momentum in the portfolio going into the back part of the year.
John Kim
Okay, so no incentives on renewals?
Eric Bolton
The effective 2.4% of rent growth includes the impact…
Tom Grimes
We’re a net rent shop, so can say, every number that we give you on the rent, lease-over-lease or ERU or effective rent per unit is all -- has all concessions in that number.
John Kim
And then out of your large markets, there’s been a few of them where you had a significant drop of over 100 basis points, sequentially, so that includes Austin, Charlotte, DC, Nashville, Phoenix. Are there any of those markets that surprised you this quarter?
Tom Grimes
I think, frankly, it works as we expected. We are seeing pressure in those areas.
We’re still optimistic, I think, Charlotte is a different story than what’s a Austin and it’s more bifurcated between the Downtown pressure where the suburban assets are doing a bit better. But not much on the large market side surprises us, John.
Operator
Thank you. And we’ll take our next question from Rob Stevenson with Janney.
Please go ahead. Your line is open.
Rob Stevenson
Tom, you said that the legacy Post portfolio closed some of the NOI margin differential during the quarter. What is the NOI margin differential right now as we sit here today between Post and MAA legacy portfolios?
Tom Grimes
We’ll grab that. But at the initial, it was 100 basis points and we’ve closed -- I mean, we frankly exceeded that two quarters in a row with improvement of 130 basis points on Post each quarter.
Al Campbell
And at this point, Rob, we’d effectively brought the Post portfolio on top of it, slightly ahead of the MAA legacy portfolio. And as you remember, we talked about that over time over the first 12 to 18 months we expected that Post portfolio to actually exceed maybe 100 to 150 basis points because it well should given the rent structure of that portfolio.
So we’re well, call it halfway there and we feel very good about that.
Tom Grimes
Pretty excited about that progress, Rob.
Rob Stevenson
What is the timeframe you think to get that extra, the other half done? Is that end of year or is that into ‘18?
Tom Grimes
I think that’s later in’18, Rob. I mean what happens when you can get in and move the expense side down, we saw quick early wins there and jumped on that immediately.
The pricing trends we love, but that’s pricing trends on a month or a quarter and it just takes some time for all that to come down through. So we’re doing great on expenses and we’re right where we would expect to be on revenues on post portfolio that just takes longer.
Rob Stevenson
Al is there any material difference between where the legacy Post portfolio is now and where the MAA portfolio is on a real estate tax rate basis on asses values and everything else relative to what you guys think is reasonable?
Al Campbell
No, I think there is totally -- there is a different product type and even location in those two portfolios on average. So I think that’s built-in.
And I think there’s not tremendous difference right now, Rob. I think the opportunity on the real estate tax side is not a situation we go and can change valuations very quickly.
It’s going to take time where our approach was a constant downward pressure and we think overtime that bought better results for us. I think what we’ll see on the Post side of the business is maybe that constant downward pressure result in improvements over the next few years.
But right now, on a relative basis not a significant difference than what we’ve felt.
Rob Stevenson
Eric, what was behind the sale of the land parcels during the quarter? What they does -- you mentioned you want to go forward yourself on those?
Eric Bolton
They all vary, some just in -- we just didn’t feel like those were size fit that would make sense for us to build out. And some of it is still some legacy, so if we picked up from Colonial.
But largely, these are out parcels that for a host of reasons, we just don’t feel like make sense for us to develop.
Rob Stevenson
How should we be taking about development, going forward? I mean, you inherited the bulk of the current pipeline is stuff you inherited from Post.
When you fast forward into early ’18, the current pipeline is going to fall by 75%, you’re going to be left with not that much left in progress with the 2018, the two lateral half ‘18 deliveries. How are you thinking about backfilling or you’re going to be running at about $100 million of development?
How should we be thinking about that, going forward?
Eric Bolton
We would like to and we are actively working to find opportunities to start to repopulate that pipeline with projects. And David Ward and his guys are out looking at a number of opportunities right now.
We’ve got a couple of parcels of land that we do own that we do feel like will make sense to develop on, one in North Dallas. In particular, I’m thinking about, there is an opportunity that we are actively working on in Raleigh, another opportunity we’re looking at in Denver.
And so we do believe that over the course for the next six months, we will start to begin to slowly repopulate that pipeline. Looking at deliveries that would then probably come online in early -- mid-year 2019 is what we’re working on at this point.
But we intend to have something approaching no more than 3% to 4% of enterprise value, I mean, which is kind of where we are right now, really at about 3% of enterprise value. In terms of the development exposure, as you point out, that’s going to dwindle down next year.
But we hope to get it back in 2019 and beyond.
Rob Stevenson
The project that you were just talk about, are those Post -- Mid-America Post development assets, or are these assets if you guys are likely to do with some merchant developer, like MAA used to do in the past?
Eric Bolton
No, these would be really depend -- I mean, a couple of them are where we would be the developer. And we are having conversations with several folks right now along the lines of what we’ve done in the past where it’s a pre-purchase of something with the merchant builder or pre-purchase to something they’re going to build.
Those things get complicated sometimes in the negotiations in terms of lease-up and so forth. But we will be pursuing both where we will be the developer, we will not be the general contractor ever, but we would be the developer.
And we’re also looking at some pre-purchase of things to be built.
Operator
Thank you. And we’ll take our next question from Rich Anderson with Mizuho Securities.
Please go ahead, your line is open. Mr.
Anderson, please shut the mute function on your telephone.
Rich Anderson
So Eric, lot of momentum and a good story about integrating Post into your system and all the margin improvements and all that. I’m curious how much is Post come into the rescue in terms of your perspective of the fundamental picture for multi-family, if not for merging the two companies.
How much more negative would you feel about your prospects and maybe how would be operating differently with your legacy MAA portfolio in hand?
Eric Bolton
We’d be fine. I mean we were absolutely fine with our legacy MAA structure and balance sheet.
I mean what Post brought, frankly, was an opportunity to be a little stronger in different part of the cycle than what legacy MAA would be on its own. And brought, as I’ve mentioned in the past, also another mechanism, another avenue of opportunity for us to grow externally and deploy capital through development.
But this is a part of the cycle where the legacy MAA assets on a combined basis tend to hold up a little bit better as demonstrated by the fact the secondary market group outperformed the large market group in the quarter. So we don’t view Post, the addition of the Post assets, is coming to the rescue at all.
We view that as addition to post assets as an add-on to what was already a pretty strong full stock performance profile that’s only gotten stronger as a consequence of adding assets and locations that will give us more exposure, better performance doing in different part of the cycle.
Rich Anderson
And then just unrelated follow up question. You’ve been -- component of the S&P 500 now for several months.
I’m curious if you’ve been having any different conversations with non-dedicated REIT investors, and if you can comment at all on a different perspective from maybe a changing investor base? If the answer is no, then this is simple answer.
But if is there anything there that you can communicate as getting a different class of investors into your stock?
Eric Bolton
Well, I think that there has been another simple change, Rich, in two ways; one, we just see a lot more people that we used to see, having these meetings and whether it’s NAREIT or any of these other conferences that we attend; property tours have really picked up. And so we’re seeing a lot more people, different groups of people that we’ve seen in the past.
And secondly, we’ve always believed that our strategy and our approach in the way we think about creating value over the long haul has a strong appeal to the generalist investor, if you will. And so the opportunities that we have to tell our story and to talk about the track record and the philosophies that we bring to the multi-family RIET space, I think, it continues to resonate pretty well with this group.
And so we’re excited about the positive impact long-term and we think from being exposed to this more generalist crowd.
Operator
Thank you. And we’ll take our next question from Austin Wurschmidt with KeyBanc Capital Markets.
Please go ahead, your line is open.
Austin Wurschmidt
Just wanted to touch on seasonality a bit, and how you guys are thinking about that as we enter the back half of the year. When do you start to see the impact to new lease rates and seasonality?
And should we expect something different within the post portfolio versus legacy MAA? I guess, just given some of the operational upside that you’re starting to see.
Al Campbell
I think what’s built into our expectations of back half of the year is largely MAA portfolio continue to stay pretty stable with a slight seasonality as we expect. But remember through from April through June, July, the MAA portfolio was 3.3%, 3.5% in lender rent growth, so very stable.
And we expect it to stay stable, maybe moderating a little bit. But then support coming from continued capture of the post synergies in the back half.
So I think we expect revenue to be in third quarter to be higher in the second quarter, and then fourth higher than the third, and so the continued trend in that. The one seasonal item that I will bring out that I would remind people of that will make, if you don’t remember, it may look unusual.
Last year, Post had a very significant reduction in real estate taxes in the third quarter, a 10% reduction as every quarter and adjustment in that quarter. So one thing we’ll see moving to third quarter is our expenses.
I think they’ll still be around -- they’ll still be not outsized significantly but that would impact that. I think our NOI for the third quarter will be slightly impacted that, maybe the lowest for the year I think coming back in the fourth quarter being the strongest in the year.
And so those are the general trends that we expect.
Austin Wurschmidt
And then on the Post side. Was there any occupancy opportunity late in the year that you could talk about, and what’s the potential upside there?
I think more towards the fourth quarter.
Tom Grimes
I think there is probably 10 to 20 basis points in the fourth quarter, in the third quarter, both portfolios had really strong years last year. And so that will be a difficult comp.
Austin Wurschmidt
And then just on the expense side, it sounds like you’re confident that you’ll be within the lower end of that range of the guidance you’ve laid out for the year. I mean is this savings that you’ve already outlined and you’re just seeing it earlier?
Or is it on top of what you anticipated when you underwrote the portfolio?
Eric Bolton
Probably Tom and I can tack in this. But it's primarily coming from quicker capture of the Post opportunity.
We had lined out both revenue and expense synergy opportunities and we had about $4 million to $5 million that we capture in 2017 with the other $10 million or so, $8 million to $10 million capture in 2018. And what we laid out initially was probably two-thirds will come from revenue and one-third comes in expense in 2017.
I think we’ll probably see that flip-flop. We probably see two-thirds come from expense as we really had good opportunity on that early and one-third from revenue this year with the revenue opportunity over the full period being actually there may be little more, and some of that will come in ’18.
Tom Grimes
I think that’s a fair assessment.
Operator
Thank you. And we’ll take our next question from John Guinee with Stifel.
Please go ahead, your line is open.
John Guinee
I haven’t been on the call before. Hi Eric, it's been a long time.
Question for you, what I’ve noticed in all these supplemental from the apartment world is nothing on average unit size, nothing on per square foot of rental income, per square foot in terms of development costs. When you guys are talking internally, are you relying as much on per unit or per square foot numbers?
How do you think about that?
Eric Bolton
We generally think about -- when we’re talking about development costs, we generally think about in terms of per unit. When we think about rents, it’s a combination of -- it depends on the nature of the conversation we have.
We do think a lot about per square foot rent levels out in the market and do some comparisons like that. But it, on balance, I would tell you whether we’re modeling on development or thinking about competitive position in the given market, on rents to see on per square foot basis.
And then we’re talking about acquisition costs, development costs, as we think about on a per unit basis.
Operator
And we’ll take our next question from Neil Malkin with RBC Capital Markets. Please go ahead, your line is open.
Neil Malkin
First question, I know, the Post portfolio be included in the same store [bridge] results. If you go back a couple of quarters, looks like more of a market deceleration probably was actually happening.
I was wondering if you could give us some perspective on. What is it looks like on the ground in your bigger market Atlanta, Dallas, Charlotte, Tampa?
Can you just talk about what’s going out in terms of supply and demand, particularly, because you have an elevated suburban exposure? I was wondering if you’re seeing impact from supply hit all areas.
Eric Bolton
It is not equal as you mentioned, and now just a few of them. At Atlanta, good job growth at 2.6%, but the bulk of the supply is really concentrated in that bucket P3 Road area, so in our loop and that’s affecting those Post assets.
The 85 Corridor or 75 Corridor, those are all -- seen much less in the way of supply. I think completions in Atlanta will have about 8,600 that will drop next year to 6,500.
And then you mentioned Charlotte and it’s for sure a tougher uptown, downtown picture with rent growth in the suburbs closer to 4%, and it’s flat in the downtown area. And then Dallas is probably the market where we would expect to see more supply coming up next year, maybe about 2,000 units or so.
And it’s a little more wide-spread. It is focused in that Downtown corridor and then runs up a bit to point down to Frisco and [44.21] a bit.
Neil Malkin
And then I guess and there is follow-up in different way. In your market job growth is very strong wages is very strong, the rent continued to slow down.
I mean, is the Post portfolio having an outside impact on the pace of revenue growth or rent growth? Or what do you think is driving those phenomena just given the strength on what you could think would be the demand side and ability to pay?
Eric Bolton
Post is a current drag on revenues, frankly. And that’s why we’re so excited and you see the differential between the numbers that I mentioned earlier, the 350 basis point improvement on rents from the first quarter to July.
We feel like that is non-market related and we’ve got the opportunity to push outside of that. But Post assets baked in pricing materially slowed our large market group and our overall revenues.
And we are quickly, I think, unlocking the value pushing new lease rates up, pushing renewal rates up, which translates into blended rent increases that just takes time to compound and drive revenues up.
Neil Malkin
And then last from me, you talked about looking at project in Denver. Is that a market you want to build exposure to?
Tom Grimes
At this point, yes, it is. I mean we’ve been studying that market for quite some time.
As I think you may recall, Post had a development there that we’re already committed to. There’s another site that we have under contract, the post had on contract that we like very much.
And so the short answer is, yes, that’s the market that we expect to grow in.
Operator
Thank you. And we’ll take our next question from Conor Wagner with Green Street.
Please go ahead, your line is open.
Conor Wagner
On the redevelopment program, you mentioned the legacy MAA versus Post. But obviously, a lot of that is Colonial.
Can you give us an update on how that’s gone and what’s left for you within Colonial to redevelop?
Tom Grimes
Of that pipeline that I mentioned on the legacy MAA portfolio of roughly 15,000 units, that is primarily the Colonial pipeline that we’re winding down. So we’ve still got room to run in that area.
Conor Wagner
And then Tom, if you could tell us a little bit more about DC. What you outlined on the Post assets is obviously positive.
But you had a sequential occupancy drop, and as you mentioned, people think it's either bad or mediocre. Outside of the opportunity you have to just improve the Post assets, what are you seeing in the market broadly in terms of demand trends?
Tom Grimes
We are paying a little bit more for our demand with increased search cost. So I would say, it is moderately harder to get people through the door, but certainly not impossible.
And honestly, Conor, I hadn’t spent a ton of time really understanding that because the controllable easy opportunities are right in front of us and we’re kind of focused on that. I’m not willing to become the stage of the DC market, just yet.
But we feel good about our opportunities there.
Conor Wagner
And then finally on the move out to home purchase, you mentioned 20% overall for the portfolio. Is there any difference there in terms of just -- we know the overall number will be different between Post and legacy MAA.
But is there any difference in the trend there in terms of a pick-up in move out to buy activity on legacy Post?
Tom Grimes
They are right on top of each other, Conor, maybe a 100 bps lower on the Post portfolio, right now.
Operator
Thank you. And we’ll take our next question from Buck Horne with Raymond James.
Please go ahead, your line is open.
Buck Horne
Just thinking about the development pipeline a little bit. Have you guys noticed any trends in construction labor availability and/or materials pricing, things like lumber, concrete, otherwise that obviously those factors going up.
Is that affecting development starts in your areas? Are you seeing any signs that one or other inputs going into construction are easing, or making it more difficult to get starts underway?
Eric Bolton
Buck, I would tell you that we haven’t seen anything that would suggest developments getting easier. I think all signs continue suggest that if anything, it's harder.
You mentioned construction costs associated materials and labor. Labor, in particular, I think is the area that is continuing to become increasingly problematic for developers.
But what we continue to hear also is just that securing financing continues to be a challenge. It’s available but certainly more expensive than it used to be, and the loan proceeds that one can achieve, is not as great as it used to be is what we consistently hear.
So as I mentioned, we are out looking at a number of opportunities and modeling a lot but as it is on the acquisition side, development is hard to pencil right now on a basis that certainly for near term deliveries that makes any sense. So I think that, on balance, I think the pressures are higher to support development today than they were a year ago.
Buck Horne
And I do want to follow-up a little bit on the comment about Denver. Going back into that market or adding to that market from what Post had.
Is that something where -- is that a market where you do feel like you could internally develop enough property to get to scale? Or would you feel like you need to make a more portfolio level acquisition to build up an efficient operation there?
Eric Bolton
Well, we think through is a combination of both acquiring existing stabilized assets acquiring current lease up properties or to be built properties plus what we could do on the development side that that’s the market that offers enough opportunity that we could get to scale that make sense for us there. We’re going to be patient with it.
It's not something we feel like we have to accomplish in the next year. So we’re going to be very, very consistent in our underwriting and our approach to thinking about how we grow our presence there.
We do like the dynamics of that market long-term. I think it does add some diversification to our portfolio that creates some benefits and so -- but we’re going to be patient with it.
But whether it's buying or building, we think the market will yield enough opportunities to make it worth our effort.
Operator
Thank you. And we’ll take our next question from Hardik Goel wijh Zelman and Associates.
Please go ahead, your line is open.
Hardik Goel
Just had a quick question on the Post portfolio specifically and what’s your guide is -- new lease growth was there for the first quarter and the second quarter?
Eric Bolton
For the second quarter for Post, did you say new?
Hardik Goel
New…
Tom Grimes
It was down 4%. And I don’t have the first quarter handy, but I think it was probably 200 bps, or so…
Al Campbell
Yes, and been down about 7% in Q1.
Hardik Goel
And I am guessing that’s part of where all the upside to the revenue guidance in the back half of year is going to come from. Where do you see that really ending the year?
Al Campbell
I think what we’ve seen so far is the first part of the year was where the spread was really large that talked about the Q1 was the big, the new leases are down. And what we saw was just on blended proposed, I mean, just blend from there I think is a best way to think about it.
We were below one blended negative one for three, almost four months in a row through April but they only moved into May and we went positive 0.7, positive 1.3 in June and move to July, positive 2.6. So that’s a very good trend and that’s where the momentum we’re talking about building.
It definitely has been a drag on MAA’s performance but the momentum and the positive aspects of what we’re doing and proxy forms is definitely kicking in, and now we expect it to drive some performance in the second half.
Operator
Thank you. And we have no further questions at this time.
I would like to turn the program back over to Mr. Argo.
Tim Argo
Thank you, Lynn. We have no further comments and just want to [indiscernible] if anybody has any further questions.
Thanks.
Operator
This does conclude today’s program. You may disconnect your line at any time, and have a wonderful day.