Independence Realty Trust Inc (IRT) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Independence Realty Trust fourth-quarter conference call.

(Operator Instructions)

As a reminder this conference is being recorded.

I would now like to introduce your host for today's conference, Mr. Andres Viroslav. Sir you may begin.

Thank you, Bruce, and good morning to everyone. Thank you for joining us today to review Independence Realty Trust's fourth quarter and FY16 financial results. On the call with me today is Scott Schaeffer, IRT's Chief Executive Officer, Jim Sebra, IRT's Chief Financial Officer, and Farrell Ender, President of Independence Realty Trust. This morning's call is being webcast at our website at www.irtliving.com there will be replay of the call available via webcast on our investor relations website and telephonically beginning at approximately 12 PM Eastern time today. The dial-in for the replay is 855-859-2056 with a confirmation code of 61132125.

Before I turn the call over to Scott, I would like to remind everyone that there may be forward-looking statements made on this call. These forward-looking statements reflect IRT's current views with respect to future events and financial performance. Actual results could differ substantially and materially from what IRT has projected. Such statements are made in good faith pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Please refer to a IRT's press release, supplemental information, and filings with the SEC for factors that could affect the accuracy of our expectations or cause our future results to differ materially from those expectations.

Participants may discuss non-GAAP financial measures in this call, a copy of IRT's press release and supplemental information containing financial information, other statistical information, and a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measure is attached to a IRT's most recent current report on Form 8-K available at IRT's website www.irtliving.com under investor relations. IRT's other SEC filings are also available through this link. IRT does not undertake to update forward-looking statements in this call or with respect to matters described herein except as may be required by law.

Now I'd like to turn the call over to IRT's Chief Executive Officer, Scott Schaeffer. Scott?

Thanks for joining our call today.

Independence Realty Trust ended 2016 as an internally managed equity REIT that owns 46 properties consisting of 13,000 units with approximately 400 employees. 2016 was a very productive year highlighted by the December 20 closing of the management internalization transaction. As we stated on a previous call with internal management we expect to save approximately $2.5 million per year on G&A expenses while eliminating the increased management costs related to growth under the external management contract structure. As part of the internalization transaction we entered into a six months shared services agreement with RAIT, which affords us the time needed for smooth transition. I'm pleased to report that we are right on schedule with the transition and expect to complete on or before the June 20 termination of that agreement.

Looking forward into 2017 we remain committed to our strategy of owning and operating a portfolio of apartment communities in primarily non-Gateway markets. These markets share attractive fundamentals including healthy job and population growth, limited additions of new supply resulting in strong demand from renters. We believe that these market dynamics will continue to drive rents higher in our portfolio throughout 2017 while keeping a strong [stable] occupancy rate.

For 2017 we're focused on a number of strategies. First, recycling out of our class C properties and reinvesting into higher-quality communities. Farrell, will discuss our capital recycling plans shortly. Two, maximizing the operating efficiency of our properties. Three, reviewing and repositioning our financing structures for flexibility and liquidity while continuing to reduce our leverage. And finally, delivering a tenant focused living experience throughout the portfolio supported by our strong experienced property management team.

At this point I like to turn the call to Farrell to discuss IRT's portfolio and capital recycling plans. And then followed by Jim to go through the financial results.

Thanks, Scott. We are pleased to announce another strong quarter results for the portfolio. Focusing on the fourth quarter our same store portfolio saw a revenue increase of 3.4% as compared to the fourth quarter 2015. Increase in expenses was limited to 80 basis point generating an NOI growth of 5.7%. Rental rates increased 2.5% from $861 in Q4 of last year to $883 in Q4 2016. Average occupancy over the quarter was 93.2%, a 1% increase over Q4 2015. NOI margin for the same-store portfolio for the fourth quarter was 57.6%.

When we look at the full year 2016 as compared to the full-year of 2015, NOI for the total portfolio grew by 6.9%. Same-store revenue growth was 3.2% while the non-same-store portfolio provided revenue growth of 4%. The same-store portfolio expenses grew by 1.5% while we saw savings of 3.3% on the non-same-store portfolio. NOI margin for the entire portfolio for the fourth quarter was 59.1%.

The markets that outperformed were Memphis and Little Rock, which experienced almost no new additional supply and provided revenue growth of 7.3% and 6.3%, respectively. We also saw strong performance at our Columbus property, which experienced revenue growth of 7.1%. This is attributable to the combination of both market fundamentals and operational upside as we transitioned the community onto our platform in late 2014. We identified significant operational upside when we were looking to acquire the community, implemented our standard operating procedures immediately after acquisition, and saw the benefit in 2016.

Two of the more challenging markets have been Oklahoma City and Charlotte. As we've mentioned on previous calls, the impact of the energy downturn on Oklahoma City has been mitigated as the economy has diversified over the past decade but still accounts for 6% of the overall economy and does have an impact. Throughout the year we have been able to manage occupancy in the in the low 90% range with little to no rent growth and saw a slight drop in rents in the fourth quarter.

To combat the softening market we offer concessions averaging half a month of free rent. While the need for most of these concessions has passed we continue to offer a half a month at selected units at three of the five properties. We expect Oklahoma City to see improvement in 2017 with positive job and population growth and limited new additional supply. We're forecasting revenue growth at 3.3% for 2017 over the full year 2016.

Fountains at Southend is our community in Charlotte which we acquired as part of the Trade Street acquisition. It's a new classic community located on South Boulevard in the popular Southend neighborhood. Property benefits are being directly on the light rail line that connects the neighborhood to uptown Charlotte. There is significant amount of new construction in this sub-market which is impacting the property. In the fourth quarter we offered concessions averaging one month of free rent to stay competitive with the new lease up specials being offered in the market. Property is currently 96% occupied and concessions are no longer needed. Long-term, we feel good about the community's prospects as it is located in one of Charlotte's most desirable neighborhoods. We have forecasted 2.9% revenue growth for this community in 2017.

Our core Class B properties which represent 58% of our total portfolio's revenue provides significant stable revenue growth. This group consists of 29 communities and 8000 units with revenue growth of 4.2% in fourth quarter as compared to 1.6% for our class A portfolio which contains 12 communities and 3500 units. We continue to believe that the Class B apartment market offers the most opportunity to consistently increase rents and is much less likely to be impacted from construction of new apartment supply. We also believe that the Class B apartment sector has much less exposure homeownership as we see far fewer move outs due to home purchases in our class B portfolio as compared to our Class A portfolio.

The balance of the portfolio are four Class C properties that we intend to sell by the end of the second quarter and reinvest the proceeds to Class B communities. These four properties account for 1300 units with a book value of $61 million. We anticipate total sale proceeds of approximately $85 million at a blended 6% economic cap rate. The property sales will generate $45 million in net proceeds for reinvestment after retiring the underlying property level debt.

We currently have two properties under contract to purchase totaling $44 million. The first will close this month is located in the (technical difficulty) of Tampa. The acquisition price is $29.75 million and equates to a 6.3 economic cap rate.

The second property, which we have managed for a [tick] ownership group since 2009 is located in Lexington, Kentucky. We will be purchasing this community for $14.4 million which equates to a 6.75% economic cap rate. We believe will be able to create additional value by performing our typical upgrades to the community common area amenities. Additionally upon closing we will begin an unit update program which we anticipate will provide rent premiums generating a return on equity in excess of 20%. Current ownership is not able to take advantage of these opportunities because the ownership structure and a lack of capital to invest in the community. In addition to these two acquisitions we have ample capacity to acquire an additional one or two communities as we execute on the property sales that we have identified.

Looking towards 2017, we starting the year on a positive note. The same store portfolio which now includes all of our communities except the four held for sale, so revenue growth of 4.6% for January 2017 as compared to January 2016 and NOI growth of 5.5% over the same time period.

I'll now hand the call over to Jim to discuss the financial results.

Thanks, Farrell.

GAAP earnings this quarter was a loss of $0.61 per share or $41 million, driven by the internalization costs of $45 million. Core FFO this quarter was $0.17 per share or $11.7 million, up about 9% from $10.8 million for the same quarter of last year.

As Scott mentioned, we completed the internalization of IRT during Q4. We are currently in the six-month shared services period with RAIT and plan to move into new office space with a completely separate IT and back office staff before the end of Q2 2017. As a result of the internalization we updated our financial statement presentation and separated property management expenses as its own line on the face of our income statements. Additionally, we've updated our definitions of property NOI and the same store portfolio to be more consistent with our internally managed peers.

From a balance sheet point of view, we ended the quarter with $1.3 billion of gross assets representing 12,982 units, $21 million of cash and $744 million of debt. IRT's debt is 100% fixed rate with a well staggered maturity profile and an average interest rate of 3.6%. As of year-end, as Farrell mentioned, we identified four assets as held for sale, aggregating $61 million of net book value. We are active in the sale process and expect these sales to close during Q2.

During Q4 IRT completed a $25 million common share offering in early October netting proceeds of $213 million. Additionally, the underwriters exercised the over allotment on October 21. This exercise provided IRT with $32 million of additional proceeds. The total proceeds plus balance sheet cash were used to del ever our balance sheet by $147 million, repurchase all of Rail's 7.3 million common shares for $62 million and pay $43 million to complete the internalization in December. As of year end, IRT's leverage has decreased with debt to gross assets declining from 64% historically to 54.3% and IRT's net debt to EBITDA improving from 11.6 times historically to 9.4 times after including the approximately $2.5 million of cost savings we expect post internalization.

Before handing the call back to Scott, let's discuss our earnings guidance for 2017. For 2017, our GAAP net income is estimated to be between $0.40 and $0.44 per common share. Core FFO for 2017 is estimated to be between $0.72 and $0.76 per share, $0.74 at the midpoint. This guidance reflects the sale of the four properties previously mentioned and using the estimated $45 million of proceeds to acquire approximately $85 million in properties. Our guidance also assumes that our same store portfolio NOI will increase between 3.5% and 4.5% during 2017 as compared to 2016. The earnings release and the supplement does contain some additional information on the assumptions inherent in that guidance.

Scott, back to you.

Thank you, Jim. Operator, at this point I would like to open the call for questions.

(Operator Instructions)

Drew Babin, Robert W Baird.

Good morning. A couple quick questions. First one on your portfolio composition, obviously, the properties held for sale are ones that you would classify as C type assets. What are some of the redeeming qualities within your Oklahoma City portfolio, at some of your lower rent assets that would cause you to break them out as B assets rather than C?

Well yes we use our own judgment as well as (technical difficulty) to back it up it's really a percentage of the overall market rents. If you fall below 75% you're usually deemed Class C, and the age and the quality as well.

Ahead of -- Drew, ahead of the equity offering last fall we asked CoStar to review the portfolio and to rate the assets A, B, or C and the four we identified were the four that CoStar had -- or the four that we are holding for sale are the four that CoStar identified as C Class Assets.

Okay just a product of Oklahoma City having lower overall rent.

And one of the properties, Drew, has a significant amount of one-bedroom units which skews the overall average rent.

Okay. That's helpful. And one more question just on external growth. The last call you talked about a pipeline I believe about $220 million of potential acquisition opportunities. I would assume the properties under contract are within that. Should we assume your remaining opportunity set that is sort of that [219 minus 44] going forward or are there more opportunities that you're currently evaluating?

It obviously ebbs and flows as we underwrite transactions, in addition to the two that we mentioned we have five properties on the current pipeline, approximately $130 million. Obviously we won't close on the all of that. We're doing our due diligence to figure out which ones best suit the portfolio.

The plan is to match up the acquisitions with the proceeds from sale. So that, really, the net effect will be an increase in asset class; we'll be rid of the C assets have more B assets within the portfolio. But at the same time not need any new equity in order to close on those purchases and keep the leverage situation the same.

Okay. Great. That's helpful. Thank you.

Vincent Chao, Deutsche Bank

Hello guys. Curious now that you have done the equity offering, internalized and now it sounds you will be funding your acquisitions with dispositions. Do you have guys have any explicit leverage targets that you would like to be at by year end?

We want leverage to be lower and that's our goal. By year-end, just naturally, we think we will be down below 9 times EBITDA. On a percentage of asset value it won't come down as quickly because it's just organically -- without raising new equity which we are not interested in doing at the current share price -- it will only come down relative to the amortization on some of these existing debt. So it will come down from an asset leverage basis just a little bit slower. But I'd like to be in the 7s on a debt to EBITDA and down in the low 40s ultimately. But that is going to take us some time.

Yes over the long-term.

Right. So there's no explicit actions that you are taking to try to get it to 7 times other than the natural growth in EBITDA?

Correct. At our current share price that is correct.

Right. Okay. And just the assets held for sale in addition to being C assets, I guess as you think about being internally managed today you've got a portfolio that is a bit diversified but just to maximize efficiencies and things like that, should we expect you to also consider selling some of these smaller markets that you're in? And are you specifically seeking out to expand in particular markets? I'm assuming that Memphis is probably in there, just curious how you are thinking about that?

Great question. We are constantly reviewing the portfolio as a whole. And we always will be interested in trading out of some of the assets that we feel do not have potential that something that we can acquire new might have. So, yes, you may see us cycling out of something even as we classify as a B today if we think the market does not have the growth potential that other markets may have. And as far as the other point, we're always looking for growth and efficiency in operations. So we have identified a number of markets where we have exposure but would be interested in increasing that exposure just to enhance the efficiency of the management.

Right. I guess as we think about 57% margin for 2016 where do you see that going over the next couple of years? And would that require significant rejiggering of the portfolio in terms of scaling up certain markets and scaling down in others?

Yes, we certainly see that margin continue to increase through 2017. The portfolio as a whole was 59% margin. We definitely look at that margin getting better once the [full portfolio] together in 2017. And we sort of look to rent growth, et cetera. That margin creeping into the low 60s through to the end of 2017 and certainly part of early 2018. And we're always looking at the portfolio for operational upside and ways to continue to manage expenses down.

Okay. Thanks.

Daniel Donlan, Ladenburg.

Thank you and good morning. Just going back to Vince's question. It looks like -- you have 21 markets, 10 markets, you have less than 400 units, which represent about 22% of NOI. So I'm just curious as to why these aren't considered more on the chopping block in terms of sales? You don't have the benefit of having a large property management group that was in some of these markets that didn't necessarily own the assets, but they managed them. How efficient can you be in the some of these markets where you have it looks to be just the one asset, there might be six or seven markets where you have one asset?

We like those markets, generally, and were looking to grow more into those more markets rather than exiting them. We think of a long-term these are areas that have better-than-average growth potential. So at our current size instead of selling to be smaller we would rather grow into those markets that we like and bring efficiency that way.

Are there any of those 10 markets -- is it all 10 markets that are under 400 units or a handful?

Obviously we're very focused on growing out markets where we only have one property. On the pipeline the three of the properties are in Columbus, its a market we would like to expand into, one is in St. Louis. It's a product of where the opportunities are going to come from. We can't always predict that. At three years of age and growing the portfolio, as Scott said, we'll continue to grow into those markets where we only have one or two assets.

Right. And any thought behind may be using a third-party operator for some of the smaller markets or is that completely off the table?

It's off the table. I don't like third party operators. I think they're more interested in their own fees than creating value and cash flow for the owner. And our management structure with the regional focus that we have, the regional base focus, handle these markets fine.

Okay. So the capital recycling you plan on doing this year, do you think you are going to be able to sell around the same -- sell for around cap rates around where you can acquire or do you expect it to be throwing the timing of any type of recycling [up]? When do you think the capital recycling will be on the margin accretive or dilutive?

I think it would be accretive. I think we will be selling at lower cap rates than were buying. The assets that we are selling are all viewed as value add. Typically when someone is buying as a value add they are paying a lower cap rate because they believe they can generate upside by additional investment. It seems to be the real focus today. And I want to take advantage of that buyer philosophy. While it still exists. So the assets that we have identified as, I think Farrell mentioned, will be sold for an average of 6% cap rate. I think the acquisition one was at 6.3% and one was at 6.7% and we expect that to continue.

Okay. And as far as Lexington and Tampa I'm not familiar with the assets. I'm sorry if I missed this. Would you classify them as Class B?

Yes they are 1997 -- the one in Tampa was actually a 1990 property that was completely renovated unit, interiors, all the exteriors, classified as a B. And the property in Lexington is 2000 vintage. We've been managing for a while for a [ticks] indicator and know the property very well.

And going forward how do you think you are going to classify your strategy? There seems to be -- there is a dearth of Class B focused apartment REITs out there. The only one that is 100% focused (inaudible) net asset value. I'm kind of curious, you said that's where you received the most opportunity but you are still doing some Class A assets. I'm curious if there's a strategy maybe buy Class A in some more secondary markets and Class B in some more primary markets. How should we think about IRT in the next two or three years in terms of what your Class B versus Class A makeup will look like?

You should think about additional growth in the Class B space. That's what we like. I like the predictability and the stability that goes along with that asset class. The Class A that we have is largely through the Trade Street acquisition and that just was transaction that we felt could be very accretive and we were right. And that's how we ended up of the majority of our Class A assets. If there are opportunities out there to buy Class A will try to take advantage of them. But going forward as we grow the portfolio and build it out you should think about it as more Class B, B plus acquisitions.

Eleven of the 12 Class A properties were through the Trade Street acquisition.

Right. As we look at your value add CapEx $5 million to $6 million, what ROIs are you projecting? I'm sorry I missed that.

Majority of that is the unit renovations we're doing at the Pointe at Canyon Ridge in Atlanta. We are already seeing [20-plus] returns on the units we're delivering upgraded. Again, its a $5000 on average unit upgrade getting a $138 rent premium per month.

As you look at the rest of the portfolio, what portion do you think of your NOI is value-added? Can it be a bigger part of your growth going forward or is it kind of -- is it more selective in terms of maybe you look at one or two assets each year or is it going to look to become more comprehensive? I'm just kind of curious your thoughts there.

Yes, right now it's a small portion. We are doing a property in Memphis and the Pointe at Canyon Ridge as I mentioned. Going forward we're continually looking at where we can add value. We're testing four other properties in the near term to see if we can achieve the rent premiums we think we can. If we do, then we will continue to do them at these properties. We will always consider that. We take a lot of feedback from our property manager on the ground what is going on the markets and always look to add value if we can.

Okay. Last for me sorry for all the questions. Looking at the future acquisitions in Class B, will they have more of a value add component to them or will it just depend asset by asset. Some maybe will have been recently renovated. I'm curious your thoughts there.

Yes we are generally looking at stable cash flow in properties. The Lexington opportunity is one that we knew because we managed it and we knew the current ownership was somewhat capital constrained and we had a relationship with them. So if those situations arise, we will definitely take advantage of it. But generally speaking we are just looking for stable 10 to 15 year old properties that provide steady cash flow.

Thanks. Appreciate it.

Craig Kucera, Wunderlich.

Good morning guys. I appreciate the color on Oklahoma City and your Charlotte asset. I did note that one of your assets in Louisville had a pretty decent drop in rent. Do you have any comments on Louisville? Are you feeling about the market or was that an asset specific situation?

Yes, it really was. Overall the market did really well this year. It is one we are pretty confident about. There is some supply coming next year. Most of that supply is, 50% of it is downtown. The other 50% it is in the second beltway. All of our communities are on the first belt way close to the city. Close to the employment drivers From that perspective I think we're fine. We've noticed it as well. We've taken it up it with our property management staff and we are focused on it.

Got it. Looking at your guidance, your same-store NOI has been trending in the 6% plus range, was near 6% here in the fourth quarter but you are guiding towards 4%, is that being conservative or are you seeing any softness in demand trends or pockets of supply that make you a little more concerned? Not overly concerned given that you're talking 4% but get your thoughts there?

Yes, I think it's conservative for sure. We did see some positive movement in January. (Technical difficulty) being not cautious, but that our guidance is certainly on the conservative side. But we don't see any -- as Farrell mentioned, we certainly see supply type stuff but we're not terribly concerned about it. We think we're well covered.

We do have a wild card in 2017 and its real estate taxes which obviously we don't control. A number of our markets have multi year reassessments coming up this year. And until we get those tax bills in, we estimated for our guidance purposes what I believe to be a worst-case scenario. And that obviously affects our NOI guidance.

One last one for me. I wanted to follow up on the acquisitions. The cap rates that you mentioned, the 6.3% and 6.7%, are those on in-place NOI or is there any sort of CapEx to bring that to that? Could you give us some color on those numbers?

They're economic cap rates based on the trailing 12 months as of December. We think it will be better going forward based on our [underwriting].

Okay. Thanks. That's it for me.

Brian Hogan, William Blair.

Good morning. Most of my questions have been asked and answered. But the property management revenue, obviously the internalization went into effect on December 20 so just 11 days there. How do you think of those revenues going forward? Basically take that what we saw on the fourth quarter and kind of annualize it, if you will?

For 2017, yes. The company really does not intend to be in the third party management business long-term. But the majority of those revenues come from the management of [great financial] trust owned properties. And we've agreed to continue to manage them since the management team has been managing them for some time to we didn't want to just cut them off and make [Raco] find a new manager. So we have agreed to continue to manage them. And at some point I think that that will change but for the time being we will continue to have that revenue. But again it's not a business line that we are looking to stay in or to grow

All right, so it would be about $9 million of revenues in 2017? Is that fair?

No. Keep in mind the management revenue, the $29,000 -- there is some [gross if] that occurs it because of reimbursement of property management expenses so the revenue forecast for 2017 on that is roughly $500,000.

For the full year?

For the full year.

All right. And then just to be clear the property management expenses, those disappear entirely?

The property management expenses our managing certainly mainly the portfolio properties that IRT owns as well as the portfolio properties that they manage for third parties. Some of those expenses will go down as the management contracts move away over time.

So I guess how should we think about that line item, given that the new ownership was down quarter over quarter? What is the appropriate run rate for that line item?

I think it's just a re-class from moving the property OpEx down to property management expenses. It wasn't that it was new it was we presented it to be consistent with our -- industry peers do it. Where we moved it from property operating expenses down into its own line item.

I appreciate that. I appreciate the additional disclosure. But did the property management expenses, is it for the full year 2017 is $6 million a reasonable number? I'm trying to get a handle since it's a new line item

That's certainly a reasonable number. Maybe slightly lower than that. But it's in that ballpark.

All right. The commentary by market, I appreciate that. Are you seeing anything from a homeownership that's driving changes in mentality? I appreciate you having Class B properties and somewhat immune to that. But can you discuss the homeownership trends you are seeing?

I mean they have been pretty flat. We haven't seen any change in terms of the percentage of move outs based on home purchases. It's always been as a combined portfolio around 19% to 20%. When you look at the Class A portfolio, primarily what we acquired through Trade Street it jumped up to 28%. It's been pretty consistent throughout the period that we've owned that portfolio. I don't know if that answers your question.

Yes, he's saying 19% of our move outs are related to people purchasing homes. And if you look at just the Class A portfolio that would be 28%. Obviously in the Class B portfolio is much lower than that, It's probably 17%.

How much churn do actually see in a year? I appreciate the stable occupancy rates and filling them back up, but you see a lot of turnover?

Q4 we had a 51% renewal rate. A little bit lower than we like. We're pushing for 53%.

All right. Last question from me. The Trade Street portfolio, you've done very well in improving that performance. Is there more growth there, more to do -- more than the corporate average from the same store sales perspective?

I mean the expense savings are basically have been recognized. So from that perspective, no. I think we will continue to look at each market. Look at each property. And see 3% to 4% rent growth in most of them. We have some exposure to the new supply. In markets like Orlando and Charlotte we may see lower because of that. Generally speaking it's been a pretty stable portfolio.

All right. Thanks for your time.

Matt Boone, FBR Capital Markets.

Hello, guys, it's actually David Corak. Good morning. I apologize if I missed some of these. And you just touched on one a little bit. But looking at your markets can you just give us the markets that you are seeing actual supply market pressure today. And how you see that shaping up and playing out in 2017?

Competitive. Orlando's another market that we see similar (technical difficulty) situations. That market has had tremendous job growth and population growth and there's a lot of supply coming online because of that. It's a similar thing and that market where something will come on line -- a product will come online and we'll feel the impact over short-term and once it's leased up it will stabilize. They are all very healthy markets with significant population and job growth, it's just that short-term when a new community gets delivered.

Okay. Just from having boots on the ground are you seeing anything come on line in the next year in markets where maybe there isn't anything now?

No. I mean again we selected markets that really are -- don't have the supply coming that's coming on line -- talking about San Fran and New York. One market may be Dallas, but again, that is seeing significant job and population and they've been able to absorb most of it We're in 21 markets. Only seven of them had negative absorption in 2016. They didn't absorb the amount of supply that was delivered. Of those, only two had less than 80% absorption, which was Charlotte and Orlando. Most of these markets are absorbing what is being supplied. Again what we are offering isn't competing directly with that new supply to begin with.

And then I think the last analyst touched on this a little bit, can you kind of comment on what your assumptions are in terms of top line growth for the Trade Street portfolio versus the current 2016 portfolio, the current 2016 same store pool?

I'm sorry, the top line guidance for 2017?

How is that broken out between Trade Street and the 2016 pool?

We incorporated them together as one whole portfolio now, we can break it out and get back to you.

Okay. That's fair. Thanks guys that's all for me.

Vincent Chao, Deutsche Bank

Hey guys. Just had another question. Given all the uncertainties out there today, a lot of policy changes being considered, just curious if you are seeing any impact in the investment markets. You mentioned the cap rates you are looking to sell at, as well of some of the deals that are under contract. Just curious how the conversations have changed given some of the -- again some of the uncertainties out there.

Well, clearly there's a rising rate environment cap rates are going to be moving. They move with interest rates, just on a lag. You know it's one of the reasons that we are focused, as we are selling assets, to be selling them at what we believe to be as value add marketing presentation because they are in that situation the cap rates are less of a focus.

You know we are mindful of where our values our going. And want to be careful not to be buying at cap rates that are looking to be increasing or buying before they look to be increasing. We're looking at it both ways. the one that farrell mentioned at 6.7% cap rate on trailing 12. We think that will be a great acquisition. Very good for the portfolio. Even the one in Columbus at a 6.3% where it's filling in a market that we already have exposure to. You know we think that with some continued rent growth we can mitigate any increase in cap rates from that starting point.

Got it. I guess beyond just the impact from rising rates is the sort of policy uncertainties -- has that had any impact on discussions? In terms of whether or not that's border tax or immigration policy or GSA (technical difficulty) reform or things like that?

No, we really don't have a lot of exposure to markets that would be affected by those issues. And I think that if you look at where our portfolio sits, in the Midwest down into the Southeast, the talk of growing employment and growing wages only helps to support our model.

Got it. Thank you.

At this time I'm showing no further questions. I would now like to turn the call back over to Scott for any closing remarks.

Thanks for your time today we look forward to speaking with you again after the first quarter. Have a good day.

Ladies and gentlemen, thank you for your participation today. You may now disconnect. Everyone have a great day.