Mid-America Apartment Communities Inc (MAA) Q4 2018 Earnings Conference Call Transcript

As expected the opportunities above the revenue side of the equation surrounding different revenue management practices and significant redevelopment opportunities within the legacy mail portfolio eat been slower ought capture than the charge side given the new equip pressures at a amount of markets. However, despite this stress the improving pricing trends within the legacy mail portfolio at the past attach of accommodation are encouraging.

And at affection we will exist executing above our higher amount of redeveloped opportunities this year within that separate of the portfolio. Our four projects at lease-up outline ought carry increasingly productive and at string with our expectations. We expect ought scream on entire four properties stabilize at the lesson of this year. We expect ought scream on our new development projects at Raleigh and Denver begin initial leasing and occupancy at the hind half of this year with our newest scheme at the Frisco submarket of North Dallas coming online early next year.

We started a new expansion scheme at our Copper Ridge community at North Fort worthy this month above existing owned land. at this point, we're because healthful working pre-development at new development projects at Phoenix, Denver, Orlando and Houston that were expect ought begin afterward this year. at summary, we're encouraged with the continued momentum at pricing that we're capturing despite the new equip headwinds at few of our larger markets.

We trust our portfolio focused above the healthful occupation growth Sunbelt district diversified across markets submarkets and charge points appealing ought the largest segments of the authentic (ph) markets outline ought site MAA because hard action at the complete authentic property cycle. Our remains bit is at a healthful site and certainly able ought uphold the outside growth opportunities we're currently executing on, at any others that can emerge. after two years of merger activities that are now intimate our platform is hard and stronger. We emerge send ought the action opportunities at 2019.

I'm going ought become the summon at ought Tom now.

Thomas L. Grimes Jr. -- Executive Vice President, leader Operating Officer

Thank you, Eric and good morning, everyone. Our operating action because the fourth region came at because expected with protection momentum at hire growth, continued healthful median daily occupancy and improving trends that site us up healthful because 2019. The results of the integration trade above the operating platform were evident at our leasing momentum during the quarter. We saw blended lease-over-lease action of the combined portfolio become by 1.6% at the fourth region which is 150 base points higher than the same time bear year.

Average daily occupancy remained healthful at 96.1%, because a arise of the hard definite trend and blended pricing we saw revenues buck seasonal trends and they accelerated from 2% at the third region ought 2.3% at the fourth quarter. entire elevated equip levels eat pressured hire growth at few of our markets especially Dallas and Austin. We're however seeing good revenue growth at a amount of our other markets. among our highest concentration markets Phoenix, Richmond, Tampa and Orlando are our strongest revenue growth markets. charge action was hard because the fourth region at 3%. This includes 5.8% growth at authentic property taxes which was partially offset by reductions at protection patch and maintenance too because marketing.

For the year our entire charge growth was just 2%, nevertheless we've captured the scale and labor opportunities available during this merger, we however expect ought outline our disciplined charge practices. Our annual operating charge growth appraise because 2012 has been just 2.4% healthful below the sector average. The favorable trends continued into January. entire pricing indicators are trending ahead of bear year.

Currently, same-store January blended lease-over-lease rates are up a sturdy 3.1% which is 260 base points better than January of bear year. median daily occupancy because the month is a healthful 96%. Our 60-day exposure which represents entire hole units and move-out notices because a 60-day epoch is a cheap (ph) 7.2%. We are well-positioned because 2019. Our concentrate above visitor service and retention coupled with social trends supporting hard renter demand continued ought descend down inhabitant turnover. Move-outs because the overall same-store portfolio were down 7% because the quarter. Move-outs ought homebuying and move-outs ought house renting were down 5% and 12%, respectively.

On a rolling 12-month basis, turnover was at historic cheap of 48.5%. This even of turnover was achieved nevertheless increasing renewal rents, at conspicuous 6.1%. above the redevelopment front, at the fourth region we completed 1,600 units which brought us ought a entire of 8,200 unit inside upgrades because the year. because 2019, we again expect ought intimate terminate ought 8000 unit inside upgrades.

As a reminder, above median we spent $6,100 per unit and accuse an additional 11% at hire which generates a year one cash-on-cash retort at excess of 20%. Our entire redevelopment pipeline now stands at the neighborhood of 17,500 ought 20,500 units. Our brisk lease-up communities, Sync36 and mail brook North at Denver, mail Centennial Park at Atlanta and phase two of 1201 Midtown and climb delightful -- at the climb delightful submarket of Charleston are entire leasing up at string with expectations.

Looking send because Eric mentioned our overall equip at our markets is expected ought better modestly at 2019. We acknowledge the third-party news and crosscheck this equip news with our own asset-by-asset information. action by just will change besides at this point we trust overall we will scream on some refuse at deliveries. Our Dallas and Austin property are expected ought linger challenging with supplier levels continuing at the 3% ought 4% of inventory range. We expect Charlotte ought soften because equip picks up intimate our assets. We expect the might at Jacksonville, Orlando, Tampa and Phoenix ought outline because entire currently emerge equip decreasing. We're pleased ought eat the merger integration wrapped up and largely understand the tireless efforts of our associates because we retool the corporation at the bear two years. We are starting 2019 at a much better site than 2018 and we emerge send ought the coming year. Al?

Albert M. Campbell -- Executive Vice President, leader econmic Officer

Thanks, Tom and good morning, everyone. I'll supply some additional commentary above the company's fourth region wage performance, remains bit activity and then at length above the key components of our initial guidance because 2019.

FFO because the fourth region was $1.55 per segment which included $0.02 per segment of non-cash charge related ought the accounting adjustment of preferred shares acquired during the mail merger. Excluding this adjustment our FFO per segment because the fourth region was a penny at the midpoint of our preceding guidance with majority of this outperformance produced by favorable entertain charge during the quarter.

Our overall same-store action because the fourth region is at string with our expectations because continued pricing momentum produced a 2.3% year-over-year growth and entire revenues which accelerated because Tom mentioned are from the 2% at the third quarter. Overall blended hire pricing growth combined new and renewal pricing finished the year, the complete year of 2.5% which was 80 base points at the preceding year.

Same-store charge growth of 3% because the fourth region was mostly driven by a 5.8% growth at authentic property tax charge which represents 36% of entire same-store operating expenses because stress late (ph) at there from definite municipalities mostly Atlanta and Dallas impacted at fourth quarter. And because the complete year authentic property tax charge grew 4.2% because compared ought our initial guidance of 3.5% ought 4.5% because the year.

During the fourth region we completed construction of one development community an expansion community a, phase of community at Charleston which leads ought three committees undeveloped -- below development at year-end with a entire projected price of $118.5 million of which nearly $87.5 million linger ought exist funding owing ought year-end. We because healthful acquired two soil parcels during the fourth quarter, one at Denver and one at Houston both related ought planned new development projects expected ought begin during 2019. Given our modern pipeline and planned new projects we expect entire construction funding ought expand at 2019 ranging among $100 million and $150 million. We outline ought expect NOI yields of 6% ought 6.5% above median from our development portfolio once they're completed and fully stabilized.

During the fourth region we had two communities completely leased up and reached stabilization which we standard because 90% occupancy because greater than 90 days. And we saw four communities at lease-up at year-end including the recently completed community we mentioned earlier. median occupancy because our lease-up portfolio ended the year at 62.4%. because Tom mentioned, leasing has gone healthful because the people and we expect growing wage contribution during 2019 and ought the 2020 because two of these communities are projected ought stabilize at the first half of the year and the bear two stabilizing afterward at the year.

Our remains bit rest at large figure at year-end. during the fourth region we had a pretty significant quantity of financing activity because we paid off the bear $80 million of Fannie Mae secured belief facility which matured at December and additional $530 million of secured mortgages maturing at early 2019. Given the volatility of the belief markets during the fourth region we revised our financing plans and entered a 30-year fixed-rate secured mortgage because $172 million and a $300 million variable-rate unsecured six-month vocabulary lend which we expect ought substitute at 2019 with additional fixed-rate financing. at the intimate of the year we had at $490 million of combined cash genius below our belief facility. Our leverage because defined by our bond covenants was virgin 32.6% nevertheless our net debt-to-recurring-EBITDA was just below 5 times.

Finally, we are providing initial wage guidance because 2019 with the liberate which is detailed at our supplemental news package. We're providing guidance because net revenue per diluted normal segment which is reconciled ought FFO and AFFO per segment at supplement. We're because healthful providing guidance and other key affair metrics expected ought descend almost at 2019. Also, although we do expect ought outline volatility at our NAREIT reported FFO results related ought non-cash accounting adjustment above the preferred years, we did no embrace the adjustments at our forecast because these are both non-cash and indeed impractical ought predict. Net revenue per diluted normal shares projected ought exist $2.11 ought $2.35 because the complete year 2019. FFO is projected ought exist $6.03 ought $6.27 or $6.15 at the midpoint. AFFO is projected ought exist $5.39 ought $5.63 per segment or $5.51 at the midpoint.

The capital driver of complete year 2019 action is our same-store guidance. revenue growth projected ought exist 2.3% at the midpoint is based above continued healthful median daily occupancy of 95.9% at the midpoint. And projected median blended hire pricing which is new leases and renewals combined of 2.7% because the year, which is a modest improvement at 2018. We expect operating expenses ought become at 3.1% at the midpoint coming off of two years of same cheap charge growth.

We expect authentic property taxes ought outline ought compose the most stress increasing $4.25 at the midpoint. And this expected same-store revenue and operating charge action produces NOI growth of 1.8% at the midpoint. We expect the acquisition surroundings ought linger competitive. We scheme entire acquisition volume because 2019 ought hill among $125 million and $175 million and ought create mostly of non-stabilized deals.

We because healthful scheme ought outline our portfolio recycling efforts projected temper volume of $75 million ought $125 million responsible closing at the second half of the year. We expect the intimate of 2019 with our leverage intimate modern levels because a percent of complete property producing an median effective entertain appraise of 3.9% or 4.1% which is nearly 20 base points at the preceding year at the midpoint which represents an $0.08 per segment collision ought our earnings.

And a division of this projected expand is related ought the continued collision of rising short-term entertain rates with the remaining division mostly owing ought the declining mark-to-market adjustment related ought the debt acquired from Colonial and mail mergers because the favorable lovely just tax adjustments from both mergers essentially burned off during 2018.

Our guidance because healthful assumes entire overhead price which we included G&A and characteristic management expenses combined will hill among $96.5 million and $98.5 million reflecting more normalized race appraise because 2019 which includes a full-year convey of investments we made at our people, facilities, systems and web presence ought better our operating platform capabilities, scalability, our cybersecurity and -- with entire of this which was planned because separate of the merger integration efforts.

Our entire overhead price because 2018 were really below our original estimates because the year and really declined from 2017 mostly owing ought timing of some of these planned investments and the collision of few non-recurring items during the year which impacted legal casualty insurance and medical insurance policies because the year. We expect our entire overhead growth because the longer vocabulary ought exist nearly 5% annually which is at string with the sector average.

That's entire I eat at the manner of prepared comments. accordingly operator, we'll now become the summon hind at ought you because questions.

Questions and Answers:

Operator

(Operator Instructions) And we'll progress ahead and acknowledge our first question from Trent Trujillo from Scotiabank. interest progress ahead, your string is open.

Trent Trujillo -- Scotiabank -- Analyst

Hi, good morning and thanks because taking because taking the questions. You called out equip pressures at Austin, Charlotte plus Dallas and Atlanta outline ought scream on high levels of permitting new supply. And same much thank you because breaking out your NOIs into higher and lower and alike equip buckets because 2019. besides how can you exist confident at your capacity ought conserve pricing energy and emerge same-store revenue acceleration at the aggregate level, if these pressures stick at your largest markets? And I suppose another manner of saying this, can you perhaps report nearly the magnitude of equip increases versus the magnitude of decline?

H. Eric Bolton Jr. -- Chairman and leader Executive Officer

Let me start. Trent, this is Eric and Tom can give you some more specifics. I mean, our confident -- our belief if you will because it pertains ought 2019 hire growth despite the equip pressures is indeed based at what we scream on because continued same healthful demand. And we scream on no proof that the demand side of the equation is weakening. We outline ought scream on same cheap move-out occurring and the occupation growth numbers outline ought exist encouraging. accordingly with that even of demand while we begin looking at our particular locations and because Tom mentioned at his summon we acknowledge the AXIO news and other arrange of macro even news and we do a deep dive with it, into concrete neighborhoods and accordingly forwards where we're located.

And ultimately we do scream on this mingle of almost 48% of the portfolio suggesting slightly lower equip stress 44% slightly higher and nearly 8% being lovely consistent, besides indeed the belief that we eat is indeed driven by the demand side of the equation. because expect because that's there, we believe the new trends that we're seeing are going ought outline ought embrace up. One other affair I'll add, I do trust that because we become afterward at the cycle that developers can become evermore aggressive with some of their lease-up practices at an trouble ought become tiny quicker.

And that's what indeed -- we haven't seen the proof of that yet, besides I believe it's the rational ought expect that it can become at definite areas. And that indeed led us ought introduce the conception that, we'll assert healthful occupancy besides it can no exist pretty at 96.1% that we did at 2018. We trust that indeed ought safeguard long-term revenue growth that -- hire growth indeed matters and we wanted ought outline ought capture that hire growth trend that we're seeing. We believe we'll do so, and ought counter the price of the tiny occupancy at 2019, we're, OK with that. We believe that's at long-term play ought make.

Thomas L. Grimes Jr. -- Executive Vice President, leader Operating Officer

And then just underlying trend, the belief above the revenue side, the hire trends I'll influence above because Q4 and January just ought site those at perspective because first region blended rents expand was 45 base points better than bear year. And second region was 100 base points better, third region 60 base points, fourth region 150 base points. at January 260 base points. accordingly we feel good nearly the underlying results that we're seeing above the pricing trends.

Trent Trujillo -- Scotiabank -- Analyst

Okay, that's large color. because it relates ought the transaction just above the third region call, Eric you mentioned that you're seeing perhaps some early indications where occupation race force become hind ought you because things are starting ought fray a tiny bit. It can eat been same preliminary, besides your guidance does summon because some lease-up acquisitions and you stated significant genius above your remains sheet. accordingly can you perhaps give us an update above how you're viewing the transaction market, the occupation flow? What opportunities are out there? What are you looking at? And how competitive it is ought discover accretive occupation that face the standards at this time?

H. Eric Bolton Jr. -- Chairman and leader Executive Officer

So, it's however very, same competitive. because you can know, I mean, the just tends ought acknowledge a tiny segment of a breather during the very, early separate of the year. I know our transaction team is out at the Nashville Housing assembly because a broker event. It has carry almost annual council exact now. And they often become hind with a fate of leads if you will, a fate of opportunities. I know they're talking nearly this week. There continues ought exist just a high even of entertain by personal major at the space. accordingly we fully expect that this next year 2019 will exist because competitive because what we saw at 2018.

But having said that again we're just getting afterward at the cycle, and I believe that some of the lease-up properties will perhaps race into a tiny segment more headwind than what they can eat experienced at '18, and because a result of that we're optimistic that, that can create a tiny stress which create some better buying opportunities because us. We are going ought linger disciplined besides we outline ought eat expect that, the '19 is going ought send a little more opportunities. I mean, the volume is however high, besides we're going ought outline ought linger optimistic nearly '19 opportunities.

Trent Trujillo -- Scotiabank -- Analyst

All right, thank you because the time. understand it.

H. Eric Bolton Jr. -- Chairman and leader Executive Officer

You bet.

Operator

(Operator Instructions) We'll progress ahead and acknowledge our next question from Nick from Citi. interest progress ahead your string is open.

Nicholas Joseph -- Citigroup -- Analyst

Thanks. It's been two years besides now that the integration with the mail is complete, eat you seen any distinction at same-store growth and margins at 2019 among the two portfolios?

Thomas L. Grimes Jr. -- Executive Vice President, leader Operating Officer

Yeah. Hey, Nick this is Tom. What we're indeed seeing -- at Mid-America is $2.6 and portfolio ought mail is $1.7. What ought me is most interesting is the appraise of acceleration above the mail side which was second region $0.4 and now $0.7 -- $1.7. That's above the revenue growth side.

H. Eric Bolton Jr. -- Chairman and leader Executive Officer

Yeah, what I used to speak Nick is that, we saw incredible opportunities that we harvested at the first two years above the charge side of the equation because we renegotiated contracts and got some same vast benefits of scale that we're able ought convey ought the mail portfolio above the charge side too because arrange of retooling some of the practices at become activities and with labor cost, and that's what indeed fueled some lovely cheap year-over-year charge growth that we've had because the bear two years no virgin -- and especially at the mail portfolio besides at aggregate, the overall MAA portfolio had lovely healthful charge performance, besides what's been slower ought become online has been the opportunities above the revenue side, and a fate of that is a obligation of indeed three things.

First of entire you've got a -- there's some exercise and then there's some nation things that you eat ought arrange of become stabilize and become exact and that takes a tiny time. Two, the just conditions because a obligation of higher equip levels eat been more pressuring the mail locations which is -- we're battling that. And then, a third we eat ought just basically become into the revenue management practices. And because you know especially while the opportunity lies at the district of hire growth it takes time because that momentum ought build. You eat ought progress across a complete leasing cycle and reprice portfolio and convey entire of the exercise and entire of the revenue practices together.

Previous : How to Wire a Simple 120v Electrical Circuit