Mid-America Apartment Communities Inc (MAA) 2016 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for participating in the MAA third-quarter 2016 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.

Thank you, David. Good morning. This is Tim Argo, SVP 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. I'll now turn the call over to Eric.

Thanks, Tim, and good morning. Third-quarter results were at the top end of our guidance as solid same-store results which were captured against a record occupancy performance of last year, coupled with favorable trends in G&A and interest expense drove core FFO per share of $1.49, representing an 8% jump as compared to Q3 of last year. As outlined in our earnings release, we have raised full-year guidance for core FFO to a range of $5.86 to $5.96 per share.

We continue to capture solid leasing trends across the portfolio. Average daily occupancy within the same-store portfolio in the third quarter was a very strong 96.4%, compared to the likewise very strong 96.5% occupancy in Q3 of last year. Effective rent per unit increased 4.2%, with higher performances coming from Orlando, Tampa, Atlanta, Charlotte, and Fort Worth.

As noted in our release, we were successful in closing two acquisitions during Q3, one in Houston and one in Greenville, South Carolina. Both transactions are newly constructed properties and represent compelling long-term investment opportunities for those two markets. We were also successful in completing the disposition of seven older properties in the third quarter as part of our efforts to steadily recycle capital to protect and enhance MAA's long-term earnings profile. Additionally, we currently have five other properties under contract for disposition and expect to close on these transactions in the fourth quarter.

Our merger with Post Properties is making good progress. Both companies have shareholder meetings scheduled for November 10, and we anticipate a closing of the merger effective December 1. Processes associated with integration of the two companies are well underway, with the go-forward organization structure and team members now in place. As outlined in our announcement of the merger, we anticipate that upon completion of integration activities by the end of 2017, we expect to capture overhead synergies of $20 million. The specific line items and decisions associated with capturing this opportunity have been identified, and we remain very confident in achieving this performance benchmark.

As we continue to engage in the more detailed tasks surrounding the integration of the two companies, we remain very enthused and confident about capturing the improved operating margins in NOI lift from the legacy Post portfolio that is important to the overall value proposition of the merger. Our work to date associated with inventorying and comparing the more detailed operating practices of the two platforms, further assessing opportunities surrounding our larger scale, and enhanced marketing efficiencies, and evaluating the redevelopment opportunities all combine to have us also feeling very confident about this aspect of the value proposition. We will begin to lay out more details upon closing the merger and as part of providing our initial guidance for calendar-year 2017.

Before turning the call over to Tom, I want to express my appreciation and thanks to the associates working at both MAA and Post for their hard work and great support during the past few weeks as we have worked through the difficult task of merging the organizational structures and preparing for consolidated operations, while also taking care of our residents and existing operations. Our newly combined company will have a number of strong attributes that position us well for the future. The professionalism and dedication that our combined team of associates demonstrates each day are key among these qualities. Now, I will turn it over to Tom. Tom?

Thank you, Eric, and good morning, everyone. Our second quarter NOI performance of 3.7% was driven by revenue growth of 3.6% over the prior year. Revenues were up 1.5% sequentially, which is 30 basis points higher than the sequential change last quarter. We had good momentum in rents as all in-place effective rents increased 4.2% from the prior year. In the third quarter, new rents and renewal rents executed during the quarter increased 4.3% on a blended lease-over-lease basis. We achieved 96.4% average daily occupancy, which is strong on an absolute basis but slightly lower than last year's record performance.

Fourth-quarter trends continue the positive momentum. October's average daily physical occupancy of 96.1% is in line with October of last year. Our 60-day exposure, which is current vacancy plus all notices for a 60-day period, is just 6.6%, below the prior year about 55 basis points. New and renewal rents have built on the strong trends of the third quarter. On a blended lease-over-lease basis, October rents have increased a seasonally strong 3.3%.

On the market front, the vibrant job growth of the large markets is driving strong revenue results. They were led by Fort Worth, Orlando, and Atlanta. But secondary markets continue to close the effective rent gap with the large markets. Since third quarter of 2015, the rent growth gap between large and secondary markets has narrowed 80 basis points. Revenue growth in Jacksonville, Charleston, and Memphis all stood out.

As mentioned, momentum is strong across our markets with occupancy, rent growth, and exposure all showing positive trends. Our only market worry bead is Houston, which represents just 4% of our current portfolio. It's worth noting that Houston will drop to less than 4% of NOI after the merger. We continue to closely monitor and protect occupancy in this market. As we approach the end of October, Houston's average daily occupancy is 95.9%, and 60-day exposure is just 6.1%.

Our customer base remains stable. Moveouts for the portfolio were down for the quarter by 1.4% over our prior year, and turnover remained low, at 51.3%, on a rolling 12-month basis. Moveouts to home buying remained at 20% of total moveouts. There was also little change in moveouts to home rental, which represents just over 7% of moveouts.

During the quarter, we completed over 2,400 interior-unit upgrades, bringing our total units redeveloped this year to just over 5,400. Our premerger redevelopment pipeline of 15,000 to 20,000 units remains robust. As a reminder, on average, we are spending about $4,500 per unit and receiving average rent increases of approximately $100 over a comparable non-renovated unit, generating a year-one cash return of well over 20%.

Work is underway defining the scale and scope of the redevelopment opportunity for the Post portfolio. Indications are that it will be a significant value-creation opportunity. We are excited about adding units from the Post portfolio to our redevelopment pipeline.

Our lease-up communities are performing well. Station Square at Cosner's Corner II and Cityscape at Market Center II both stabilized on schedule during the third quarter. River's Walk II will stabilize on schedule in the fourth quarter. Colonial Grand at Randal Lakes II in Orlando is 30% leased and on schedule to stabilize at the end of next year. Our three new acquisition communities in Tempe, Greenville, and Houston are all on track.

We are pleased with our progress thus far on the Post merger. The operating structure of the combined companies has been finalized and communicated. There's a high degree of overlap in both systems and markets. We have enjoyed meeting the Post on-site teams and believe that adding these solid teams, as well as excellent product and locations, to our operating platform will create value for all of our stakeholders. We are in good shape for the fourth quarter and set up well for 2017. Al?

Thank you, Tom. Good morning, everyone. I'll provide some additional commentary on the Company's third-quarter earnings performance, balance sheet position, and then finally on the revised earnings guidance for the full year. Net income available for common shareholders was a $1.12 per diluted common share for the quarter. Core FFO for the quarter was $1.49 per share, which represents an 8% increase over the prior year. This performance was $0.04 per share above the midpoint of our previous guidance.

Our same-store performance continued to be solid, which was in line with our expectations. About half of the outperformance, or $0.02 per share, was related to the favorable impact from the timing of our planned bond deal, which we previously projected for the third quarter which is then posted onto early next year due to our merger activity. And we'll talk a little bit more about that in a moment. An additional $0.01 per share is related to the timing of our transaction activity during the quarter, and the final $0.01 per share is related to the favorable G&A expenses for the quarter.

As Eric mentioned, we acquired two new communities during the third quarter. We invested a total of $133 million for these two new communities, bringing our total acquisition volume year to date to $264 million. We also sold seven communities, averaging 22 years of age during the quarter, for gross proceeds of $152 million, which represented a 6.3% cap rate. We also exited two additional secondary markets with these sales, ones in Salem and Greensboro, North Carolina. Our plans for the year included selling an additional five communities, which are expected to close during the fourth quarter.

We completed one community during the quarter, River's Walk Phase II in Charleston. And we had three communities, all expansions of current properties, remaining under construction at the end of the quarter. We funded $13 million of the construction costs during the quarter and have an additional $33 million to be funded on the existing pipeline. We continue to expect average NOI yields of about 7.5% for these communities once completed and fully stabilized.

During the quarter, we paid off $75 million of maturing public bonds, which we expect to refinance as part of a large public bond offering early next year. Also during the third quarter, Fitch upgraded our senior unsecured rating to BBB+, with a stable outlook. And S&P placed our credit ratings currently at BBB flat, on Positive CreditWatch to reflect the anticipated increased strength of the balance sheet from the announced Post transaction. Given the merger announcement and related activities, we have postponed our original plans for a bond deal late this year in order to allow the merger to close, which we expect to provide support for financing early next year.

Our balance sheet remains in great shape at quarter end. Our leverage, defined as net debt to gross assets, was 39.7%, which is 100 basis points below the prior year, while our net debt was only 5.6 times recurring EBITDA. At quarter end, 89% of our debt was fixed or hedged against rising interest rates, at an average effective interest rate of only 3.9%, with well-laddered maturities averaging over four years.

At quarter end, we had almost $570 million of combined cash and borrowing capacity under our unsecured credit facility, providing both strength and flexibility. Given our current expectations for acquisitions and dispositions over the remainder of the year, along with our projection for excess cash, we do not expect any new equity needs other than the shares issued for the merger transaction this year. Also, we expect our leverage to decline upon the closing of the merger with Post, ending the year in the mid-30s as a percent of gross assets to value.

Finally, as Eric mentioned, we are again increasing our earnings guidance for 2016 due to the stronger-than-projected performance. We're increasing our core FFO projection by $0.06 per share at the midpoint to reflect both the $0.04 per share of third-quarter outperformance and $0.02 per share for our revised expectations for the remainder of the year. We expect interest expense for the fourth quarter to be about $0.03 per share favorable due to the late timing of the planned bond deal offsets by about $0.01 per share of costs relating to cleanup from Hurricane Matthew. We were very fortunate to avoid significant damage from this recent storm, but we will incur some costs during Q4 for repairs and cleanup.

Core FFO is now projected to be $5.86 to $5.96 per share, or $5.91 at the midpoint based on average shares and units outstanding of 79.7 million. Core AFFO is now projected to be $5.16 to $5.26 per share, or $5.21 at the midpoint. The major components of our guidance including same-store growth, transactions, and financing assumptions remain similar to our prior guidance, with one exception of the bond deal timing as discussed.

As mentioned in our release, given the merger transaction is not yet approved, this guidance does not reflect the anticipated impact of the transaction. If the transaction closes as planned, we expect to end the year within this current guidance range although nearer the lower end given the initial dilution expected from the merger transaction.

We expect to provide guidance for 2017 and more details regarding the merger transaction with our fourth-quarter press release. As discussed during our merger announcement call, we plan to capture synergies and additional earnings opportunities from the merger with Post and will recapture this initial dilution from the transaction over the first 12 to 18 months. And what we have seen thus far continues to support this expectation. We plan to outline this further with our fourth-quarter release. That's all that we have in the way of prepared comments, David, so now we will turn it over to you for questions.

(Operator Instructions)

Rob Stevenson with Janney.

Good morning, guys. Eric, help frame the thought process as you go forward between the large markets and the secondary markets in terms of how do you -- it seems like most of the sales keep coming from the secondary markets. Do you turn using the Post platform and do development in some of these secondary markets to maintain the exposure? As this cycle gets late in the tooth because that has typically been where your stability has been during down cycles? Is it just a factor of post Post you are going to be much more large markets? How should we be thinking about that as the Mid-America platform moves forward in terms of market distribution?

Rob, I will tell you, we remain very committed to the overreaching objective of keeping a diversified and balanced attribute to our earnings stream, and we think in our region of the country, high job growth region of the county, one of the best ways to create that full cycle profile, if you will, is maintaining a healthy allocation between both large and secondary markets -- high-growth large and secondary markets. As of today, we have about 65% weighting in large markets and 35% weighting in secondary markets. After the close of the merger, it will be more along the lines of 75/25.

Now, you're right in that a lot of the asset sales that have taken place have come out of the secondary markets but primarily that is a function of prioritizing disposition focused on older assets where the after CapEx margins are starting to show signs of moderating and we feel like we can pull money out of those specific properties and recycle into better margin, better growth opportunities. Given the history of our Company, it just so happens a lot of the older assets were in some of the more secondary or tertiary markets. So just as a consequence of our overall recycling objective, we've seen the allocation between large and secondary and of course the Post transaction is going to change it.

I will tell you this going forward, you will probably see the 75/25 revert back to closer to, I'd call it a 60/40 weighting, 65/35 weighting kind of where we are today. We are going to continue to look for opportunistic acquisitions as well as opportunistic development opportunities in both large and secondary markets, as exemplified by this quarter. We bought one in Houston, one in Greenville. So we did one in each segment. We remain very committed to the whole strategy that has really defined us for the last 20 years, and we will ebb and flow a little bit just as a consequence of recycling and market opportunities but fundamentally, we do not plan to change who we are.

Okay. Tom, you talked about the redevelopment in the portfolio. I mean you guys have done close to 5,500 units in the existing Mid-America portfolio. When you look forward to 2017, 2018, 2019, assuming the market is cooperative and no recession, et cetera, what is the remaining opportunity in the core Mid-America portfolio? And then I know it is early but what is the magnitude of the number of units that you think are appropriate within the existing Post portfolio to do the rehab on?

Sure. On the MAA side, Rob, we have got north of 15,000 units remaining and would expect to see next year in the range of what we did this year. We are really working through. We are in the sweet spot of the Colonial portfolio at this point. On the Post side, it is still early but we are very excited about those locations and how the interiors of those units will add up against the market norms in those locations and what that opportunity is. And so I would tell you right now, it looks like it is 10,000 units or better.

Okay. Perfect, guys. I appreciate it.

Thank you. Drew Babin, Robert W. Baird & Co.

Good morning.

Good morning, Drew.

Following on Rob's question on redevelopment opportunities within Post, would you expect that some of the assets might find themselves kind of on the development and redevelopment page in the supplemental as kind of more impactful redevelopments, or do you envision the renovations being more the kitchen and bath on turnover type projects?

There would be the kitchen and bath on turn opportunities. We are pretty disciplined about that, and we will likely not do a full evict everybody or ask people politely to move out and take the whole units down. We feel like that maximizes the opportunity.

Now there are inside of that, there's what we call a heavy and a light and there will be some opportunities to do some granite and stainless upgrades as well as some light fixture changes as well, meaning just doing floors and fixtures and some items like that. But we are still mapping out those opportunities but really excited about the condition of the property, the locations, and the opportunity there.

That's helpful. On the disposition side, the 6.3%, which I assume is an economic cap rate on what was sold in the third quarter, would that be a good run rate kind of modeling dispositions going forward, obviously to much lower cap rates than some of the assets that have been sold over the last few quarters. Obviously, the remaining assets would be of higher quality, but should we feel confident underwriting that type of disposition yield in the next year?

I would say so. Yes. The five that we have got under contract, if all proceeds as we expect, they will be similar cap rate achieved on those.

Okay. Finally, the 4.3% blended rent increase in 3Q, can you break that out by renewals and new leases?

Yes. Sure. That was let's see, it was on third quarter, it was 2.4% and 6.6%.

Great. Thank you.

Jordan Sadler, KeyBanc.

Good morning. It is Austin Wurschmidt here with Jordan. Just sticking on the Post transaction, as you have combed through that portfolio, how are you thinking about asset sales on the combined portfolio into 2017, and particularly interested in maybe some markets where you are going to have a much bigger presence, for example, in Atlanta. And then I would also be interested in any updated thoughts on what you are intending to do with the DC portfolio, either keep or potentially selling those assets?

I would tell you that we are just really starting to dig in a lot on our plans regarding portfolio and any sort of cap or recycling that we are going to be doing, putting our plans together for next year, and really for the next three years. I would tell you that probably my biggest priority exists on recycling some capital, probably out of Dallas and Atlanta. Those two markets are going to comprise a fairly healthy percentage of overall portfolio concentration, and it's a -- both would be a little bit higher than I think we want to maintain over the long haul. So there will probably be recycling opportunity in those two markets. It would be more a priority for us.

DC, we were up there last week and starting to really understand more about that opportunity. As I think you know, the DC market is starting to finally show some signs of recovery, and bottom line is we are going to be patient with our analysis and thinking about what to do up there. We think that holding onto those assets at this point makes a lot of sense, particularly given where we are in the recovery cycle of that market and thinks that they bring. Again, a different kind of earnings profile, element to the portfolio. And with our objective of really aiming to create balance in our earnings stream, we think those assets are good for the portfolio at this point.

Great. Thanks for the detail there. And then just any other opportunities as you have started the dig in. You mentioned the integration is well underway. That might not have been as obvious when you completed your initial underwriting either on the operational side, revenue management related.

Well, again, we will get into more specifics as we get the transaction closed and we start to put out our 2017 guidance. We are really digging in on the mechanics and the details, policies and practices, on everything from how we manage and utilize LRO to how we manage and turn apartments to everything. I will just say that we feel very optimistic about what we are seeing at this point and feel very confident in the overall value proposition.

Great. Last question for me. On the Houston acquisition, just curious about how you guys underwrote that and how you are thinking about market rent growth in Houston over the next 12 or 18 months.

This is a very opportunistic situation that was presented to us off-market with the developer and a capital equity partner that we know very well, we've done business with over the past. They were motivated to cycle out of the investment. This is a -- Houston Heights district is a very high end area just northwest of downtown about 3 miles northwest of the CBD of Houston. Very restrictive covenants about supply in this particular little submarket. In fact, this of the first community delivered in that submarket since 2008, which is saying something when you're talking about Houston.

We went in there very conservatively, We basically assumed no rent growth for the next two years, 1.5% rent growth in the third year. I believe Houston will likely do better than that, but that is what we assumed and on that basis, it underwrote at a level that we felt pretty good about. 5%, 6% stabilized NOI yield first year based on what I consider to be probably lower rents than certainly what we will see long term so we felt it was a pretty opportunistic buy at this point.

Great. Thanks for answering the questions.

You bet.

Robert Wagner, Green Street Advisors.

This is Conor. Good morning, guys. Bob couldn't be with us today. Overall, Eric, if you could continue commenting on Houston. Have you seen other deals where -- I know you guys have been looking there for a while, where sellers have been less willing or just overall the transaction market. Is this deal indicative about the transaction market in Houston is opening up, or sellers still trying to wait for better pricing?

I think it is probably not indicative of where the market is right now, Conor. I think that we -- as you say, have been looking at a lot of opportunity trying to chase opportunity there for the last couple of years and have not really found. We have seen a few transactions take place but not much and this was just a unique situation that was presented to us and we jumped on it. I think everybody is fully aware that supply trends and new permitting trends have pulled way back in Houston, and I think we have to get through 2017.

But I think anybody that has got the wherewithal and the ability and/or the interest in holding on to 2018 is going to do that. I think Houston -- we are going to continue to keep an eye on that market and like it long term but I think that it is probably too early to suggest that this transaction is indicative of anything really turning there in terms of transaction activity.

Great. Thank you. You mentioned supply, the supply picture in Houston. Any markets next year where you are most concerned about supply growth? Or then any [convert] standing markets where the supply growth picture next year becomes more favorable.

No, Conor. I think the -- in general, we are sensing 2017 looks a lot like 2016 in terms of supply. The developers are beginning to have trouble with financing or aligning items up in that area and then it probably peaks and 2017 and backs off in 2018. As Eric mentioned, Houston deliveries will be roughly half. We will see half of the levels that they were this year, and Atlanta, Dallas, and Nashville will see modest increases but job growth remains very strong in that area and then really the remainder are in line with 2016.

Thank you guys very much.

You bet, Conor.

Tom Lesnick, Capital One.

Hello, guys. Thanks. Good morning.

Good morning, Tom.

I guess first, and I'm sorry if I missed this, but, Tom, could you maybe provide the renewal and new lease-over-lease comps for both your primary and secondary as well as your overall portfolio?

Yes. It is [2-4 and 3-1] for the third quarter, and give me just a second and I will get it for large and secondary. Did you have another question while we are -- while I'm just grabbing the primary secondary?

Yes. Actually, yes. On the Colonial transaction, you guys included the debt mark-to-market add back in your definition of core FFO, and some of that is still tapering off. Do you guys have any estimates of what that would be based on where rates are on today on the Post portfolio?

Tom, we do. We talked about that a little bit. I'll tell you, I think a bigger point is we are looking at how we are going to handle that with this transaction given all the -- there's a lot of discussion in the industry about non-core measures and handling of that. SEC is very focused on that, and of course the REIT industry is right in the bullseye on that. I think what you are seeing, we are going to take a look at that and most likely what we are going to do going forward next year is focus more on NAREIT FFO and discuss the transaction merger integration costs.

That means that the fair market value adjustment will be included in that instead of pulling it out as part of core FFO. I think many of our peers do include that. We are going to go ahead and do that and that up so that we're within NAREIT FFO. Having said that, I think the number is around $35 million, something like that in total that we've talked about, and we'll give more details on that when we give guidance for 2017.

All right. And, Tom --. Sorry. Go ahead, Tom.

I was just saying I got that, appreciate it. And for the comps?

Yes, for third quarter, large market growth was 3% on new lease and 7% on renewal, and secondary is 1.5% on new lease and 6% on renewal.

Perfect. Thanks very much.

You bet.

Thanks, Tom.

Tayo Okusanya, Jefferies.

Good morning, everyone. Along the lines of the Post merger, about from the $25 million of synergies that you guys have talked about. You've also kind of now talked about these redevelopment opportunities within the portfolio. Anything else you are targeting out there that should give investors much more confidence about the amount of synergies overall they can get from the deal over a two to three-year holding period?

I would tell you, first, let me make sure. It's $20 million of overhead, not $25 million. The $25 million was on Colonial, $20 on Post. But as far as the areas of opportunity and the opportunity to recover earnings dilution, first of all, it's important to recognize we are taking on the Post portfolio, and what is going to happen is the dilution that we see will be, frankly, at its highest point at the very first month or two and then it begins to taper off over the coming 12 to 18 months. We think that by the time we get to the end of 2017, that the recovery associated with overhead synergy, the $20 million number, would be fully realized by the time we get to the end of 2017.

Beyond that, there are really three other big areas of opportunity. First and foremost is the development pipeline that Post has. Again, we are taking that development pipeline on at frankly, its most dilutive point, and we will see as these properties come online and the earnings contribution starts to grow, that will start to really show up really towards the end of next year and really into 2018 as these construction projects finish. That is going to be a meaningful area of opportunity.

Thirdly is what Tom was talking about a moment ago, the redevelopment. That's a two or three-year process. We see tremendous opportunity there. These are terrific locations that we think are just absolutely ripe for our redevelopment program, and we think that that potentially is going to be much more significant frankly than what we had contemplated going into this.

And then finally, the fourth area is, we just referred to it generally as NOI lift. It is a combination of a bunch of things. It ranges all the way from how we execute with LRO, yield management practices, as I was saying earlier, how we turn apartments, capturing the full benefit surrounding the scale that we have, and frankly, those benefits regarding scale and efficiencies, there is going to be some benefit accrued to the existing legacy MAA portfolio as a consequence of this combination as well. That particular opportunity is still being mapped out in detail, but we think that over the next 12 to 18 months that it likewise is a very significant opportunity.

When you pull it all together, when you look at sort of the -- there's a lot of different ways to think about the value proposition here. But certainly when you look at the pricing paid versus the upside that we think is going to be realized over the next couple of years or so. Much in the same way we saw with Colonial, we think this one here with Post is going to be, frankly, more upside than what we saw with Colonial.

That is very helpful. One more for the road. In regards to some of your secondary markets, there was also some weak same-store NOI growth there, Savannah, San Antonio, Greenville, and Birmingham. How should we be -- I'm sorry. Birmingham and Little Rock, Arkansas. How should we be kind of thinking about those markets since we don't really talk much about but some of their numbers are also pretty weak?

I will tell you, it's a little bit different stories on some on those first couple that you mentioned. They had very strong year-over-year occupancy growth this time last year, and it tapered out a little bit. Savannah, we feel good about long term. Their job growth is north of 2%. They're managing through some deliveries in the Pooler submarket but frankly, that is a -- become an aviation aerospace hub almost. Sort of smaller version of Charleston. On Little Rock and Birmingham, I think they continue to improve, a limited supply there, and job growth in recovery mode. But, they do not have quite the strength in job growth that places like Savannah and Charleston and Greenville do.

Got you. Thank you.

Gaurav Mehta, Cantor Fitzgerald.

Good morning. Following up on your comments on redevelopment opportunities within the Post portfolio. I was wondering if you could comment on your thoughts on using the Post brand. And on the merger call, you said that you are still evaluating how you are going to do the integration with the [firm] brand. Is there any update on that?

That is something we are going to be very careful with and very thoughtful about. We think that the Post brand has value. We think it is particularly important in the Atlanta market. We are going to -- you will see no change initially whatsoever. All of the Post property names will continue just as they are, and we have no near-term plans to modify anything along these lines.

Over the course of the coming year, we will be looking at opportunities to get a little bit alignment, some degree of alignment between the Post brand and the MAA brand, and see if we can come up with something that makes sense. But above all, we are absolutely committed to doing all we can to protect the I think very high rating that the Post brand maintains in a number of markets, Dallas included, but particularly Atlanta I think it's very important, as well as frankly a lot of the other markets they are in. More to come on that, but we understand the value of the brand and are very interested and want to be certain that we don't lose that.

Okay. And I think you highlighted Atlanta and Dallas as the couple of markets where you maybe were allocated post merger and you plan to recycle capital. Are there any markets post merger that you feel are underallocated and where you plan to put that capital?

Frankly, just about any other market that we are in at the moment has capacity, if you will, so we are going to continue to -- all the existing markets that we are in, continue to look for opportunities. I think we will continue to, as we have talked about with our recycling effort, we will continue to look at older assets. We still have a few but not much left in that regard, but we have a couple of one-off opportunities here and there that we will probably look at next year. In terms of, I think overall, the markets that we are in and certainly we like them and we would be happy to recycle capital in any of those markets.

Okay. Thank you.

Neil Malkin with RBC Capital Markets.

Hello, guys. Good morning.

Morning, Neil.

First, some anecdotal evidence relative to single-family homes and trends, it seems like the first-time homebuyers, that data is at a pretty high levels or it's accelerating [down]. So I am wondering if, particularly in your secondary markets, you are seeing any pressure on moveouts due to home purchase and any type of that activity going on just given the price point of your assets?

We are not and actually in our secondary markets group, there is a lower -- the home buying moveouts -- home buying is lower in secondary markets than in the large markets group. So nothing there.

Okay. Great. Another one, you have been sending out or receiving pretty good renewal increases relative to new leases -- new lease rate increases. I'm wondering at the current time, is there a gain or loss [to lease] in your portfolio and how do you look at the balance or the marriage between the two to not get too ahead of the market?

Yes. The way we really look at it is that we monitor the gap the absolute dollar value of the renewal and the absolute dollar value of the new lease and what you find is it has some seasonal attributes to it. It is -- it will be as little as $2 or $3 in the summer months when leasing is full bore, and then as it begins to wind down, it will open up to about $25 at this point, but right now the way that it works is just in general at some point if those become divergent and stay that way, it inhibits new lease price growth, but the dollar value between the two has remained narrow for the last couple of years and thus we are continuing to be aggressive on renewals.

Okay. Great. I guess another way, if you were to reset all of your leases to market, would you roll up or roll down?

We would roll up. There's about a 3% or 4% loss to lease in our portfolio right now.

Great. Thank you.

I should have said that right out of the chute.

Thank you. Our last question from Buck Horne with Raymond James.

Hello, guys. Good morning. My first question actually was on the renewal numbers as well. That 6.6% seems pretty strong. Maybe a little color on it. How did it trend throughout the quarter, if there was any significant change from month to month and maybe what you're going out with on renewal offers for November and December?

What we are doing, that has stayed pretty steady as it goes, to be honest with you, Buck. Renewals have been a bright spot for us for some time. August was 6.5%, September was 5.9%, October 6.2%. The fourth quarter will be a hair lower than that, upper 5%s just because we try not to force -- we try to force as little turnover as possible in the slower months, but frankly our lease expiration management was in very good shape, which has allowed us to continue to ask for what we are worth. We have great customer service on-site and markets are reasonable. We continue to work successfully with the renewals.

Sounds good. And then my last question is on costs a little bit, maybe Al, if you could help us. Understand some of the movements, maybe start with the real estate taxes and so explain a little bit of the comp issue this quarter, and it looks like the guidance is forecasting for the fourth quarter to be a little bit easier for you on real estate tax pressure. And maybe just also if you foresee any other items coming up over the coming year, particularly maybe personnel costs. Are you seeing any pressure on personnel to retain on-site teams or anything like that?

I guess that's a good question. Real estate taxes, I think it's important to focus on exactly what you did there. That the full year, the guidance we put out is 5.5%, 6.5%, don't expect that to change. Taxes, you get a lot of volatility sometimes in quarterly comparisons because there's a couple of things that happen. You get timing of getting your information during the year can change from year to year and the timing of you getting appeals successful or not successful can change year to year.

So I think the story for the third quarter is that last year in third quarter, we got a lot of information and some favorable appeals that were very favorable and really helped us in our expense. So we were facing a tough comp this year in the third quarter, but our trajectory for the whole year is much more stable this year. very bit of information we've gotten seems to support our initial expectations and so we feel good about the 5.5% to 6.5% in pressure coming from the same places we talked about in Texas, in Georgia, as they aggressively chase values in some of those areas and have a lot of transactions to support it. That is really what is going on there.

Another is no, we really don't expect at this point a lot in the pressure going into fourth quarter. In terms of what we put out and what is in our guidance continued expense in personnel, continued expense in other areas in line with what our expectations were, so it's nothing. The only unusual item to think of right now, we mentioned a little bit, a little bit of storm cost cleanup in the fourth quarter from Hurricane Matthew, certainly very fortunate that we will have a little bit of costs in the fourth quarter to clean that up but other than that, nothing unusual.

[We found this] to be expected.

All right, guys. Thank you very much. Congratulations.

Thanks, Buck.

And we have no further questions at this time.

Okay. Thanks. Nothing else from management at this point and we will see a lot of you at NAREIT in a couple of weeks. Thank you.

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