Mid-America Apartment Communities Inc (MAA) 2015 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for your participating in the MAA fourth-quarter 2015 earnings conference call. At this time, we would like to turn the conference over to Tim Argo, Senior Vice President of Finance. Mr. Argo, you may begin.

Thanks, Priscilla. Good morning. This is Tim Argo, Senior Vice President of Finance for MAA. With me are Eric Bolton, our CEO, Al Campbell, our CFO, and Tom Grimes, our COO.

Before we begin with our prepared comments this morning, I want to point out that as part of the discussion Company management will be making forward-looking statements. Actual results may differ materially from our projections. We encourage you to refer to the Safe Harbor language included in yesterday's press release, and our 34 Act filings with the SEC, which describe risk factors that may impact future results. These reports, along with a copy of today's prepared comments, and an audio copy of this morning's call will be available on our website.

During this call, we will also discuss certain non-GAAP financial measures. Reconciliations to comparable GAAP measures can be found in our earnings release, and supplemental financial data.

When we reach the question and answer portion of the call, I would ask for everyone to please limit their questions to no more than two, in order to give everyone ample opportunity to participate. Should you have additional questions, please re-renter the queue, or you're certainly welcome to follow up with us after we conclude the call. Thank you. I will now turn the call over to Eric.

Thanks, Tim. MAA wrapped up calendar year 2015 with another quarter of strong performance. Importantly, we expect the favorable leasing conditions across our region, and the trends supporting record high occupancy, and solid momentum in rent growth to continue in 2016.

As outlined in our earnings release, our forecast for MAA for the coming year is defined by continued record occupancy results, consistent with what was captured in 2015, and rent growth that is also consistent with the strong momentum from last year, and that remains well above long-term averages. Operating expenses are expected to remain well in check, with real estate taxes being the only item driving any pressure, and reflecting the continued strong valuation and leasing fundamentals, that are supporting the apartment market.

During the fourth quarter, we captured positive pricing momentum across the portfolio, on both a year-over-year and sequential quarterly basis. Tom will provide you with more details surrounding leasing conditions across our markets, but overall, we believe the supply and demand dynamics across our high growth Sunbelt region, coupled with a portfolio that is uniquely diversified across both large and secondary markets, and that offers a price point appealing to the largest segment of the rental market, will drive solid results in 2016.

As noted in yesterday's earnings release, we were successful in securing a couple of acquisitions in the fourth quarter, both of which have an efficient and accretive phase II benefit to them, which enabled the deals to work within our disciplined underwriting model. We expect the transaction market in 2016 will be similar to 2015, with robust transaction activity, fueled by a high level of new development and lease-up projects bring brought to market, with the continued high level of investor and buyer interest surrounding current valuations.

We remain disciplined in our approach, and have forecast in 2016 a comparable volume of acquisitions and new development funding as compared to 2015, that we plan to match fund with the disposition activity and internally generated free cash flow. With the start of expansion at our newly acquired Denton property in Kansas City, we now have $117 million of new development underway, with each of the five projects representing highly accretive phase II expansions of existing successful properties.

During 2016, we also anticipate another active year of redevelopment through our very accretive kitchen and bath remodeling program. Al will recap for you the changes in our balance sheet, and transactions completed in the fourth quarter which further expands our growth capacity.

As noted in our earnings release, through a combination of the capital recycling completed last year, and the free cash flow now being generated, the balance sheet was further deleveraged in 2015, with debt to market cap at 32.2% by year end. We anticipate continued strengthening of the balance sheet in 2016. In summary, we believe MAA's balance sheet is well-positioned for future opportunities as they emerge.

Before turning the call over to Tom, I want to say to all our MAA associates, how much I appreciate all of your hard work and tremendous results in 2015. Thanks to your efforts, MAA produced top tier total investment returns for our shareholders in calendar year 2015, and we are well-positioned to continue our legacy of outperformance over the full cycle as we head into 2016. And with that, I am going to hand it over to Tom. Tom?

Thank you, Eric, and good morning, everyone. Our fourth-quarter NOI performance of 7.3% was driven by revenue growth of 5.4% over the prior year. We have good momentum in rents, and saw effective rents increase 4.4% on a year-over-year basis, and 70 basis points sequentially. Strong average physical occupancy contributed 70 basis points over the prior year.

Overall expenses remain in line, up just 2.4%. Expense discipline has been a hallmark of our operation for years. Our industry-leading initiatives, such as our vendor-owned inventory shop stocking program which will be completed this year, have allowed us to keep the expense line consistently in check.

January demand trends continued the positive momentum. Average physical occupancy of 96.1%, ran 94 basis points ahead of last year. Our 60 day exposure, which is current vacancy plus all notices for a 60 day period, is just 7%. This is 120 basis points stronger than the same time last year.

January blended rents on a year-over-year basis are up 5%. Occupancy and exposure at the critical beginning of the year are better than we have seen in recent years. On the market front, the vibrant job growth of the large markets is driving strong revenue results. They were led by Orlando, Fort Worth, Atlanta, and Phoenix.

The secondary markets achieved 4.4% revenue growth. In these markets, we are benefiting from improved job growth, as well as a sophisticated operating platform that has a competitive advantages across our footprint and markets. Revenue growth in Charleston, Greenville, Savannah and Jacksonville all stood out.

As mentioned above, the momentum is strong across our markets, with occupancy, rent growth and exposure all showing positive trends. Our market worry bead is Houston, which represents just 3.5% of our portfolio. We will continue to monitor Houston closely, and protect occupancy in this market.

Turnover for the quarter was down by 7.5%, and down 180 basis points on a rolling 12 month basis to 52.5%. Move-outs to home buying was down 100 basis points, and remained below historic norms. Move-outs to home rentals was down 6%, and represents just 7% of our total move-outs.

Our focus on minimizing the time between occupants, again paid off. The improvements in average days vacant between occupants for the quarter of 2.5 days helped drive down the fourth quarter average physical occupancy -- or drive the record average physical occupancy to 96.1%.

During 2015, we've completed 5,781 interior unit upgrades. 3,200 of those were on legacy CLP communities. We expect to redevelop 5,000 units next year, and expect the mix to continue to favor the legacy CLP portfolio. As a reminder, on average we spend $4,500 per unit and receive a $95 increase over a comparable non-renovated unit, generating a year one cash return of well over 20%.

Our active lease-up communities are performing well, and we completed construction of 220 Riverside in Jacksonville in the fourth quarter. As you will notice in our release, we moved the stabilization of this community up to Q1 of 2016 rather than Q2, because of better than planned lease-ups, supported by rents above pro forma.

Colonial Grand at Bellevue II and Retreat at West Creek I both stabilized on schedule for the fourth quarter. Station Square at Cosner's Corner II and Cityscape at Market Center II are currently 67.5% and 82.1% leased, and expected to stabilize in the fourth and third quarters of this year, respectively. We ended 2015 in strong fashion, and are well-positioned for 2016. Al?

Thank you, Tom, and good morning, everyone. I'll provide some additional commentary on the Company's fourth-quarter earnings performance, balance sheet activity, and then finally on initial guidance for 2016.

The record occupancy levels, continued pricing momentum, and solid expense control during the fourth quarter produced record levels of core FFO per share for both the quarter and the full year 2015. Core FFO, which excludes certain non-cash and non-routine items was $1.45 per share, representing a 10% increase over the prior year. And recurring capital expenditures for the quarter were $8.6 million or $0.11 per share, which produced core AFFO of $1.34 per share, providing strong coverage of our $0.82 per share quarterly dividend.

Core FFO for the full year was $5.51 per share, also representing a 10% increase over the prior year. And our core AFFO year was for $4.80 per share, representing a 12% increase over the prior year.

The outperformance for the quarter was primarily produced by same-store NOI growth, driven by continued record high average occupancy levels during the quarter, 70 basis points above the prior year. And our operating expenses also remained well under control during the quarter, increasing only 2.4% over the prior year, with favorable real estate tax appeals providing some benefit in the fourth quarter.

During the fourth quarter, we acquired two new communities for a total investment of $79 million, including the land parcels for two phase II expansions, which were both started during the quarter. These purchases bring our full-year acquisition investment to $327 million for seven new communities containing 1,782 units.

We also funded an additional $13.6 million of development costs for the five communities under construction during the quarter, all phase II expansions, leaving $74 million of the $117 million total projected costs to be funded as of year end. We expect NOI yields in the 7% to 7.5 % range for these communities, once they are completed and stabilized.

We also invested $8.3 million in our redevelopment program during the fourth quarter, bringing our full-year investment in the program to about $31 million. We continue to capture [rent] increases of 10% above the non-renovated units in this program.

During the fourth quarter, we completed several important financing goals for the year. We recast our unsecured revolving credit facility, increasing our borrowing capacity to $750 million from $500 million, extending the maturity to 4.5 years, and improving the terms to reflect our stronger credit profile. We also refinanced a $150 million term loan, improving the rate by 25 basis points, extending the maturity and modifying the terms to be consistent with our renewed credit facility.

And, of course, we also executed a very successful bond issuance during the fourth quarter, issuing $400 million of 10 year notes at a coupon rate of 4%, priced at 98.99%, which completed our refinancing plans of 2015 debt maturities. We were very pleased with the investor support and execution of this issuance, which we think and we believe provides further confirmation of the strength of our balance sheet.

At year end, our leverage defined as net debt to gross assets, was 190 basis points below the prior year at 40.6%. Our recurring dividend continues to grow, and reflect the quality of our earnings profile, covering fixed charges at about 4.5 times. At year end, 96% of our debt was fixed or hedged against rising interest rates, at an average effective rate of 3.8%, with well-laddered maturities averaging five years. And we also have over $700 million of total cash and credit available at year-end.

Finally, we did provide and issue our earnings guidance for 2016 with the release. Core FFO is projected to be $5.68 to $5.88 per share, or $5.78 at the midpoint, based on average shares and units outstanding of about 79.6 million. Core AFFO is projected to be $4.98 to $5.18 per share or $5.08 at the midpoint, representing about a 6% growth over the prior year. The primary driver of 2016 performance is expected to be same-store NOI growth, which is forecasted to be 4% to 5%, based on a 3.75% to 4.25% growth in revenues, and 2.75% to 3.75% growth in operating expenses.

Our revenue projections include expectations of continued record high occupancy levels, averaging 96.1% through 2016, combined with continued rental pricing above long-term trends, similar to 2015 levels ranging 4% to 4.5%. We expect operating expenses to remain well under control, with real estate taxes continuing to present the only [year] pressure, as the strong operating performance pushes valuations higher.

We expect acquisition volume to be similar to 2015, with $300 million to $400 million of purchases included in our projections. We also expect to fund an additional $50 million to $60 million of construction costs, to the completion of the five communities under development.

We plan to essentially match fund these investments with $200 million to $300 million of multi-family dispositions, $30 million to $60 million of commercial assets and land dispositions, and with $90 million to $95 million of internally generated free cash flow. And given the timing required to recycle assets, along with the initial loss of NOI yield, our forecast for the full year includes $0.04 to $0.06 per share of dilution related to these 2016 disposition plans.

Our current plans do not include the need for new equity during 2016, and we expect to end the year with our leverage, at another slight year of reduction, from the prior year.

That's all that we have in the way of prepared comments. Priscilla, we will now turn the call back over to you for questions.

(Operator Instructions)

We will take our first question from David Toti with BB&T Capital Markets.

Hey, gentleman. Good morning.

Good morning, David.

Eric, a quick question for you. Unlike many of your peers, the Company appears to be projecting a pretty decent acquisition volume in the year ahead. Can you give us a little bit more thought, as to where you see attractive opportunities in the market? Is it because you are largely in markets where the REITs aren't competing, are you seeing yields become more attractive? What is the motivation for that particular volume?

Well, first of all, it's pretty consistent with what we did this year, and we think the conditions in the marketplace in 2016 are going to be somewhat similar to what they were in 2015, if not more robust. As we get later in the cycle, we just see more development projects and lease-up communities being brought to market. And our deal flow is running higher this time this year, than it was at the same point last year. So we think the transaction market is going to be very active over the course of the year.

And so, we put a number out there $300 million to $400 million which is consistent with -- we did a little over $300 million this year, and we will see what happens. I'm optimistic that we will see some things that are becoming increasingly compelling, or we may find some situations where we have these phase II opportunities associated with them like we did in December. And I think that we will see how things play out over the course of the year.

We have assumed in our guidance that we will do $200 million to $300 million of dispositions. So we are going to wait on that. That will be more backend loaded over the course of the year, depending on what opportunities emerge on the acquisition front. So that, David, it is not a specific detailed answer to you, but it's really more a reflection of -- we think conditions are going to be consistent, if not a little bit more robust from an activity perspective. And that may yield some opportunities for us.

Okay. No, that's very helpful, Eric, thank you. My second question is just a quick one. I seem to recall the unit CapEx -- the money you're spending on upgrading units to be producing yields that were around 12%. Am I remembering wrong? They seem to be a little bit lower today.

I think what you are probably [referring] to is in internal rate of return, David, which is an 11% to 12% range. But the rent growth from -- compared to a non-renovated unit has consistently been 10% or 10.5% I think for a while.

Okay.

IRR is higher than that.

Okay. Thanks for the detail today.

You bet.

Thank you. And we will move next to Nick Joseph with Citigroup.

Thanks. I wonder if you could talk about how you built up to guidance. The stock is selling off this morning, and we saw a similar reaction last year, at this time to initial 2015 guidance. But since then 2015 guidance clearly proved to be conservative. The stock has been a top performer. So did the guidance process this year change at all relative to how you've set in the past? And how do you think about the opportunity, and what you would need to see, in order to exceed initial guidance, similar to what you saw last year?

Thanks, Nick, this is Al. I will tell you a bit, how it was prepared this year. No real changes there. I'll tell you what we're expecting for 2016, first and foremost, is not any deceleration in momentum in our business.

And what we are projecting is, for our occupancy level of 96.1%, which is by the way a record high for the Company that we had in 2015, to carry through 2016 -- and I'm talking about average 365 days a year, for the year which is pretty strong occupancy. That's full. And so, on top of that -- and so, you're flat with 2015 though, to hold that level. On top of that, we expect pricing levels to be consistent with 2015, again well above long-term averages or norms. We expect pricing to go out 4% to 4.5%. And so, that is really producing the revenue growth, and then we have the expense control we talked about that drives the bottom line of NOI.

The comparison to 2015, I think the challenge there is, that we had about 150 basis points of things in our 2015 revenue that were unusual -- I won't hesitate to call them one-time, but similar to that one-time items such as we built our occupancy 75 basis points in the year. Getting to that 96.1% was on average 75 basis points in revenue above the prior-year.

And then related to that, we -- while we were building occupancy, we also had higher fee performance, related -- some it related to building out occupancy, fees as you have app fees, processing fees, pet fees, all of those things. And also, as we've talked about some of them in the year, we've had a little better performance in 2015, in capturing the final remaining portions of the synergies from our merger.

We really had a strong performance in 2015 in the fees. To give context, they grew 15% in 2015 over 2014. We certainly expect to hold the majority of those fees, and carry that in 2016, but that growth rate -- it will be more of a normalized growth rate going forward. So I hope that gives you the --

I'll tell you, Nick, I mean, the takeaway from that is that -- and when you look at 2015, the surprise factor was occupancy. And we had anticipated that coming out of 2014, that we would hold the 2014 occupancy, which was pretty strong. And we didn't really contemplate seeing occupancy lift as much as it did, over the course of 2015.

And we, and frankly, I think many in the sector were surprised at how strong the markets were last year. And I think everybody for the most part, was raising guidance over the course of the year.

As we got into 2016 guidance, we are coming off a year where our average daily physical occupancy was higher than we have seen in our 22 year history. We ended the fourth quarter with the highest average daily physical occupancy we've ever had.

So to go into 2016 with an anticipation that we are going to beat that again, and get above average daily physical occupancy of 96%, we just -- we're a little hesitant to take that bet.

And now we think we are going to hold it. We think that the conditions are great in our markets, and great in our region, and we think we're going to hold that record occupancy. And we think we're going to get very solid rent growth of 4% to 4.5% as well, again in line with what we saw this past year. But just the incremental lift in occupancy is not expected to repeat itself again in 2016, and that is the big difference between 2016 and 2015.

Thanks. That makes sense. And then going back to David's question, What is the impact of the redevelopment spend on 2016 same-store revenue growth, and what was the impact on 2015 same-store revenue growth?

Consistently about 25 basis points in -- 20 to 25 basis points impact pretty consistently.

Okay, thanks. And then, just finally, can you talk about your performance expectations at the large versus the secondary markets in 2016?

Yes, I think that we would expect to see is the job growth in the large markets continue to lead the way, absent some sort of macroeconomic change on the demand side. We are expecting those to lead, and expecting the Atlanta, Orlando, Phoenix, probably to perform top set of that group.

In the secondary markets, where we get a little less supply, we are seeing job growth build there, and would expect to see places like Charleston, Greenville and Jacksonville do well. But we would expect that large markets would continue to outperform secondary markets at this point.

Where the secondary markets really make a huge positive impact to our performance Nick, is if you want to start looking at a real sort of sea change in the leasing environment, where either we see a supply get way out of hand relative to the demand, or we get into a recessionary environment or we see job growth really start to pull back. That is where the secondary markets really start to hold up a whole lot better than which you typically see in the larger markets. But this point in the cycle, with fundamentals still being as a strong as Tom was outlining, we think that there is still will be a reason for the large markets to continue to outperform at this point, the secondary markets.

Thanks.

You bet.

Thank you. We will take a next question from Gaurav Mehta from Cantor Fitzgerald.

Hi, good morning. Just wanted to go back to your comments on acquisitions and dispositions. Can you speak about the cap rate spread that you are expecting, between what you are selling, and what you are buying?

Well, if you look at it on a cash flow cap rate basis, certainly, just looking at what we sold this past year, 21 properties that we sold, the cash flow cap rate was around 5.8%. I mean, we are buying at around 5.5%, so from a cash flow perspective, it's pretty close.

When you look at an NOI yield, initial NOI, particularly if you assume as we do, that the some of the acquisitions that we make are still in lease-up, and not yet fully stabilized, it [gaps] out more so. It can be 150 basis points or so. And therefore, that's why from an earnings perspective, we've assumed $0.04 to $0.06 of earnings dilution in our guidance, predicated on that GAAP and NOI yield, both as a function of the higher-yielding assets that we are selling, coupled with the non-stabilized nature of what we assume we'll be buying.

Okay. And my second question is, you mentioned Houston as one of the markets that you are monitoring. Are there any other markets that you are concerned about in 2016 outside of Houston?

No, I mean, Houston is the one with that demand dynamic that has traded down. We would like to see a little more job growth come out of Little Rock and Norfolk, but we are relatively lightly exposed to those markets. But Houston is the main worry bead.

But no other ones that we are particularly concerned about. I mean, when you look at the job growth, and the supply dynamics, and the ratio between those two, they are all well above what would be defined as healthy absorption.

Okay. Thanks for taking my questions.

Thanks, Guarav.

Thank you. We will move next to Rob Stevenson with Janney Montgomery Scott.

Thanks. Al, can you talk about -- I mean, in terms of the fees, what was the gross level of fees in 2015 versus 2014? And what's in the 2016 guidance in terms of the magnitude, in terms of the overall, little over $1 billion of revenue that you guys had this year?

(Inaudible) It is certainly, not in scope, as large as the rents and others. It's probably about $50 million. And again, the majority of the growth this year came from app fees, processing fees, pet fees, and those are the main drivers of the growth.

[Everything] associated with increasing the occupancy.

Right. The large part of that $50 million is, you also have water reimbursement, cable reimbursement, other things -- and the growth came in some of fees related to growth and occupancy this year.

Okay. (multiple speakers) So it was like $42 million in 2014, and [up] $50 million in 2015? And I mean, just modest sort of growth in 2016, is how you're thinking about it this year?

Exactly right. Exactly right.

Okay. And then, when you look at the guide -- the core FFO guidance, when you are sitting here today, what is -- what is the difference between core and NAREIT from the things that you know today?

The biggest thing is fair market value of debt adjustment. And the others are our acquisition costs, and then gains, loss, or our extinguishment of debt and some small things. But the big number, what's driving the difference is really fair market value of debt. And I will tell you Rob, we chose to, when we did the merger a couple of years ago, we had that significant number for that-- we chose to pull that out of FFO, because it is non-cash, and we were getting, in sense a credit in interest.

And we just felt like it was better to show it without that, because it is not cash. And so, some other people do it differently. We know it's a little bit confusing, but we're -- that's the main difference. And we will continue to do that, until that -- it will burn off in another couple of years, and that significant difference should decline.

Okay. And then lastly, what does 100 basis points of turnover cost you? If turnover goes up 100 or 200 basis points this year, how does that -- how do you think about that impacting the expense side of the equation?

It's usually about a $0.01 to $0.015 per percent on that, Rob. I mean, it is meaningful in our business, in terms of actual impact to FFO, given the size and scale of the Company, it is smaller than you would think.

So 1% equates to a $0.015 roughly of FFO.

Okay. Thanks, guys.

Thank you. We'll take our next question from Dan Oppenheim from Zelman & Associates.

Thanks very much. I was wondering if you could talk a little bit more, in terms of the large and secondary markets? I think, your comments about large outperforming in here 2016. Certainly, I think people can look at some of the trends recently, in terms of that and think that will continue. But you mentioned Houston, in terms of challenges, but there are a number of other larger markets, where there is more supply coming. And just wondering, how you think about that, in terms of -- not so much the absolute level, but the level of deceleration that could come through in large markets versus some of the secondary markets?

Yes, Dan, essentially what we are saying, or what we're seeing is in large, that 2015 looks an awful lot -- or 2016 looks an awful lot like 2015. If you drill down the way we keep -- try to keep in mind, the balance between demand and supply is the jobs to completion ratio, and they are at about [7%] for both years in a row.

And job growth 2015 for that combination of markets is to 2.7%, and it's about the same for 2016. I think, related to our portfolio specifically, this has been worn out in the media I think a little bit, but it is true, the demand in some of these large markets is coming into the urban areas, where we have a little less exposure -- excuse me, the supply is coming in with a little less exposure, an important clarification there, Eric, thank you -- is where we've got a little more in the interlope satellite cities and suburban exposure.

Got it. And then, in terms of what you talked about, the blended rent growth of about 5% in January. Trying, curious in terms of where the -- what are you are seeing in terms of the renewals you are sending out, that went out for February and March, versus the new leases?

Yes, sure. We're getting about -- on -- we're getting about 6% on the renewals through March.

Great. Thank you.

Thank you. We will move next to Tom Lesnick with Capital One.

Hey, guys, good morning. First question, you guys have obviously made a significant improvement in physical [occupancy] in the secondary markets over the last year. But looking at average effective rent per unit obviously, large is still outpacing secondary by a pretty wide margin.

I was just wondering, is there some limiting factor in the secondary markets, like personal income growth that's keeping that number down? Or was that a strategic decision on your part, to keep secondary market rent growth a little bit lower to push occupancy this year? And is that something we could expect to see you guys push on the rent side, now that occupancy is at 96%.

Sure. Tom, and affordability in secondary is a non-issue. It is actually, we have better rent income ratios in secondary than in large -- I mean both. We're talking 100 basis points difference, one roughly 17.5[%] and one 16.5[%] so not materially different. But that is a non-issue there. And I think now there is -- it is a real balance on rent and occupancy, and one leads to the other as you know.

Demand in secondary looks very good at this point. Occupancy in January, average physical is actually higher now in secondary than large, and we are in very good shape on our exposure. So we're optimistic about rents in secondary at this point.

What I would also tell you Tom is that to some degree, the spread in average rent between our large and secondary segment of our portfolio is a function of the fact, that we have I think a higher percentage of older properties. Some of the legacy assets that we've owned for a long time are in some of the secondary markets.

Now that is changing, and that is evolving as we continue to build out our presence in markets like Kansas City, San Antonio and Fredericksburg, some of these newer markets we've been getting into with new assets. But when you look at the age of the assets across the portfolio, we have percentage-wise, a higher concentration of older legacy assets in some of the secondary markets. And I think that probably accounts for some of that pricing spread that you are mentioning.

Got it. And then, looking at same-store operating expense, the dispersion of year-over-year comps in the secondary markets is pretty wide this quarter. I was just wondering if there's anything in particular that was driving dispersion there, across all of the secondary markets?

Sure. I mean, taxes is one factor in it, and then Charleston obviously stands out. We had a weather event in Charleston where you probably read about it, tons of rain there. And we didn't have any material damage actually, no units down or anything like that. But we did have a fair amount of landscape work that had to occur in that market during the fourth quarter, just drying things out and replacing some damaged stuff.

I think in aggregate, it was probably real estate taxes drove -- (multiple speakers)

That's typically the largest driver of those.

Because a lot of the credits came in the Texas markets, which are all in our -- except for San Antonio, our large segment.

Got it. And then, one final question, now with occupancy over 96%. Looking at where we stood relative to the last year, how have your average days of turn time changed over the last year or so?

I mean average days of turn is -- with that is down 2.5 days, we'd expect it to drop another 2 next year. I think the thing that probably bodes the best for revenues is the exposure at the end of January is down 120 basis points. And that is sort of the leading edge of our pricing power.

Great. Thanks, guys. Appreciate it.

Thanks, Tom.

Thank you. We will move next to Drew Babin with Robert W. Baird.

Good morning.

Morning, Drew.

First question, on one place where you really outperformed the expectations in 2015 was property tax expense growth. The initial guidance for the year was the same, as it was for this year 4.5% to 5%, and you hit the low end of that.

And I know especially in the third quarter, you had some successful appeals both in terms of assessments and millage rates. What are you assuming for 2016 with your forecast, in terms of whether you can quantify it as kind of a win percentage on the assessments? And could that -- and what is the potential for that number to possibly come in at the lower end of the range?

Yes, I will try to give some color on that, Drew. I think, what happens at the beginning of there, in any year, you just don't have a lot of information to go on. And you got to get a feel for, and you talk to the assessors, and get feel for what's happening in each jurisdiction, and you start your estimates. As you move into the second quarter, you have a little more information, third, a lot, and fourth, you are finalized.

Now think of this year, so what happened last year, is we started out -- the pressure is coming from Texas, Florida, a little bit in Georgia as we have some reevaluations occurring there. But we start out the year with an expectation, and in 2015, really high numbers come out of Texas.

We got them in the second and third -- particularly the third quarter we started to get some information, believing that was going to moderate a little bit in the fourth quarter. We got that finalized notice. And so, that's why it came down in 2015.

Looking into 2016, we're still getting very high numbers out of Texas. And then, we've got some evaluations in Georgia, and some in Florida. So I would tell you where we sit today, we expect to -- think about assessors, what they do -- they are doing their valuations of their assessment in 2016, looking backward to 2015, record high -- record year for the Company in many areas.

And so, we expect those initial valuations to come out high, and we expect to jump on them early, hopefully have some success. And we have some success, in fighting, what we think will come out, built in our numbers. But hopefully, we will meet that, and even be able to have more success. But I will tell you right now, given the performance we had in 2015, the valuations are based off of income, it's hard to see those taxes begin to moderate significantly until the cycle changes. And so, that is what we are projecting for 2016.

Okay. And one more. Despite the fact that, that cost has likely bottomed, both on the secured and unsecured side, private equity remains pretty aggressive, and really bidding cap rates lower. If we look at the cushion between their cost of capital and what they're paying for assets, are you hearing anything from private players you talk to about LTVs, debt rates, that they are able to get to kind of [feel] this? Just curious, if you have any color there, or anything that is maybe a read-through, to the way that you are looking at acquisitions, obviously with the lower level -- leverage levels?

Yes, I mean, we continue to see private capital securing loan to values in the 70%, 75% range pretty easily, and the agencies remain very active. And coming out of the National Multifamily Housing Council's annual meeting back in January, all of the feedback, and all of the information that we got is that private capital, both domestic and foreign indicates a huge appetite for multifamily real estate. It appears that the financing windows are wide open, very much from a loan to value perspective, very much consistent with what we saw in 2015.

I think that despite the slight bump that the feds made in interest rates earlier, the expectation is that rates are going to continue to remain pretty low this year. So from our perspective, it's really hard to see how the valuation market is going to change much. I think it's going to be another active year, another fueled by a lot of investor interest.

I think the only thing that potentially is going to evolve, is I just I think there may be more deal flow. I think there may be more transactions in the market than we've seen in 2015. But I think it will still be a very robust environment.

Great. Thank you.

Thank you. We will go next to Wes Golladay from RBC Capital Markets.

Hey, good morning, guys. You guys gave the color on the renewal leases for January. What are you seeing on the new leases?

New leases in January were -- on a year-over-year basis were [4.9%].

Okay. And then, you guys mentioned your record occupancy. Do you plan to be more aggressive on the renewal leasing, I guess, at least in the near-term? And can you verify, you guys are baking in essentially flat rate growth, or the similar rate growth versus last year?

Yes. Our rate growth, we expect to be very much in line with the 2015, and that's -- half of that [sort of] is baked in, in essence.

And then, our pricing approach is more aggressive at this time this year, than it was last year, both because of the factor of lower exposure and the system automatically relates that. But we are also managing the system at a property level, at a market level, at a floor plan level, depending on the time of the year and the cycle. And we are more aggressive on our settings this year, than we were at this time last year.

Okay. So if we were to pick a point, where you guys would probably be surprised to the upside, would that be the area you'd think it would come from?

Probably.

Most likely.

Okay. And then, you mentioned more deal flow on the -- for the acquisitions. Now would this be more of the urban core properties you are looking for? And are you seeing any developers get in trouble yet? Or are they just seeing the capital markets, seeing the stock market, and that might bring them to the table?

Well, we are not particularly targeting more urban core. What I would tell you is, is that is just where so much of the supply is being delivered, that I think that that's where the opportunities will emerge, as some of these lease-ups run into trouble, or they are not leasing at either the velocity or the rents that they had pro forma-ed. So I just think that, as this cycle continues to play out, that is more than likely where the opportunities will emerge.

We are not seeing, what I would consider to be real operating distress or lease-up distress. I mean, frankly, where we see our opportunities are, where we see private capital come in, tie up a deal on very, very aggressive terms. And then run into some kind of a problem in getting their financing, or they don't get the loan proceeds equivalent to what they thought they were going to get. And they go back to the developer to try to re-trade the deal, and the developer sort of blows up, and then they come back to us.

And so, I mean, every deal we bought last year was on a rebound. And I think that, from an operating perspective, we are not seeing any real weakness yet. But I just think as the deal flow picks up, we think that may very well yield some increased opportunity.

Okay. Thanks a lot.

Thanks, Wes.

Thank you. We'll take the next question from Tayo Okusanya from Jefferies.

Yes. Good morning, everyone. I may have missed this earlier, but could you talk a little bit about the timing in 2016, of the acquisitions versus dispositions?

We have acquisitions -- we are projecting, pretty evenly spread throughout the year, Tayo, beginning somewhere in March, maybe a $40 million to $50 million deal a month through call it, October-ish. And then, the dispositions, a little bit, more toward the mid, the back part of the year, really looking to match fund those as much as we can, as Eric mentioned at the start of the call. And so, you can start midpoint of the year and layer those in.

Okay. That's helpful. And then, same-store NOI growth in the fourth quarter, I mean, versus 3Q, there is a material slow down in secondary markets. Again, markets like Little Rock, Arkansas that you mentioned, and Jackson, Mississippi, and some of these other smaller markets, Huntsville, Alabama. Can you just talk specifically about, what is happening in some of the secondary markets, that there was the slowdown?

Yes. And Tayo, I mean, it's a good observation that they transition from third quarter to fourth quarter, a little bit lower on revenue. But in this -- there is a seasonal factor to these markets. And I don't think it is odd to see them drop down slightly, going from third quarter to fourth quarter. There is lower traffic. There is lower demand, and that pattern has repeated itself over the years with us.

And as usual, we see it pick back up at the beginning of the year. And those markets, the secondary markets, average physical occupancy for January is 96.3%. So we've seen a pop-up there. So I would expect that, what you are observing is not change in the market dynamics, but seasonality as we move from third quarter to fourth.

It just -- (multiple speakers)

And we'll see it come back.

It just seems to have dropped so much more versus the primary markets, which is what I was trying to get at.

Sure. And I think that is a difference in households moving to those markets. The secondary markets are -- in the fourth quarter, they are just a little bit slower. And you've got a lot more going on in the large markets.

Okay. And then, just last one for me, just Charlotte and Raleigh, North Carolina, where still good job growth, but people are increasingly concerned about supply. Could you just talk a little bit about what you are seeing there, and what your outlook is for 2016?

Charlotte, in particular is an urban/suburban story a little bit, and looking at the amount of product that's coming in, in the South End and South Church area, is noticeable. There is a lot happening there, though a lot less happening in the suburbs, and that is where the majority of our exposure is. So we like the job growth. And on the product that we have in Charlotte, it is -- there's not a lot of comps going in next door to it.

Similar story in Raleigh, over the last couple of years, we saw a fair amount of supply come in the Pryor Creek sub market, where we are exposed. It's one of those appealing sub markets, but that has burned off. And it's shifted more to downtown as well, where we have one asset.

Helpful. Thank you.

Thank you. We'll take our final question today from Jordan Sadler with KeyBanc Capital.

Hey, guys. Good morning, and thanks for taking the question. Just big picture -- I know you mentioned move-outs for home purchases declined in the fourth quarter, but we have seen that sort of nationwide tick up a bit. Is there any concern that move-outs for home purchases could start to increase, particularly in your more suburban locations?

Honestly, there is no sign of that. And that is something that has trended down pretty much every quarter this year. And there doesn't seem to be an interest, both in psychology and lifestyle reasons that people are interested in moving at this point. We are just simply not seeing that.

What is the average age, I guess, when you look across the portfolio of your renters?

We are right at 38

That's helpful. And then, just lastly, I was just curious, when you think about the dispositions, how are you combing through the portfolio, and ranking I guess, potential candidates for sale? And how does that balance between your large and secondary markets?

We take a look every year at every individual investment we have, and we look at the after CapEx cash flow been generated off the investment, and what it likely is going to trend out at, over the next few years. And make a decision on which ones, do we think are going to yield us the weakest, or declining, if you will, cash flow? And target those as ones, that we would need to recycle capital out of, into something more compelling.

I think that -- we do this every year. And so, this -- we've sold over 13,000 apartments in the last five years. And so, we take a very proactive approach to keeping a certain level of recycling taking place every year. As we look at 2016, should the investment opportunities show up, and it then presents an opportunity to recycle money out of some investments, I would expect 2016 to be sort of evenly split, between both large and secondary markets. We have a good mix in both.

Great. Thanks for the detail.

You bet.

And it looks like we do have a follow-up. We will back to Tom Lesnick from Capital One Securities.

Hey guys. Just one quick question. Looking at the acquisitions for the quarter, of the $79 million, how much is allocated to the non-NOI producing [Denton] Phase II piece?

Sorry, how much is going into non-same-store, or was for that Denton (multiple speakers)?

No. The Denton Phase II development site, how much of that $79 million was that -- (multiple speakers).

(multiple speakers) Yes, that was smaller. Let's see the number allocated to that was about $10 million. It was smaller, it was 55 units and smaller, so about $10 million of that.

Okay. And are you guys are able to provide a cap rate or anything on the acquisitions that are actually producing NOI at this point?

I think what I will say, is once they are stabilized, we would say 5.25% likely, but obviously those aren't stabilized, but that is sort of the projection once they are stabilized.

Okay. Appreciate it. Thanks.

And we have no further questions today. I would like to turn the call back to Tim Argo for any closing remarks today.

No further comments. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. You may disconnect at this time.