Mid-America Apartment Communities Inc (MAA) 2017 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the MAA Fourth Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded today, February 1, 2018.

I'd like now to turn the conference over to Tim Argo, Senior Vice President, Finance for MAA.

Thank you, Savannah, and good morning, everyone. This is Tim Argo, SVP of Finance for MAA. With me are Eric Bolton, our CEO; Al Campbell, our CFO; Tom Grimes, our COO; and Rob DelPriore, our General Counsel. 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 forward-looking statements section in yesterday's earnings 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, everyone. Thanks for joining our call this morning. Overall same-store and FFO performances for the fourth quarter were in line with our expectations. Leasing fundamentals and results reflect higher levels of new supply, primarily impacting the higher-end price point properties. Offsetting some of the supply pressure at our higher-price locations has been the steady results captured from our more moderate-priced properties located mostly in suburban submarkets and a number of our secondary markets.

MAA's diversified and balanced portfolio strategy is performing as we would expect at this point in the cycle. As we consider 2018, we believe the year will unfold initially with leasing performance much in line with what we've seen over the last couple of quarters as new supply continues to come online. However, we continue to believe that based on moderating trends for the permitting of new construction that we are nearing the trough for this cycle. And with continued good job growth, we expect to capture improving pricing trends as we enter the peak leasing season. Tom will highlight more details in his comments, and while it is, of course, very early in the year, performance in January is in line with what we expected.

January results continued with strong occupancy. In fact, daily occupancy in January across the same-store portfolio was 40 basis points ahead of the same point last year. Importantly, this strong occupancy provides the support needed for positive pricing traction, and we're encouraged that effective pricing in January across the same-store portfolio was slightly ahead of the growth rate in January of last year.

Our long-established strategy built around a goal of optimizing results over the full cycle continues to deliver solid downside protection to MAA's earnings stream. And with the strengthening of the balance sheet that we've accomplished over the past few years, we're confident not only in the solid support for our various coverage ratios, but importantly, we're also well positioned for any compelling investment opportunities that might emerge over the coming year. We continue to feel that our focus on the strong job growth Sunbelt region offers the best opportunity for capturing the superior full cycle results that we're after. The continued strengthening of the economy and the growing appeal of the more affordable region and markets where we focus shareholder capital continue to support our strategy for long-term value creation.

Our development pipeline also continues to deliver new earnings growth at attractive yields. And while both our development portfolio and lease-up properties represent a drag on earnings in 2018, with almost 2,500 units, this pipeline will become increasingly productive in 2019. We have a number of other development opportunities that we're currently underwriting on both existing land sites we own as well as additional new opportunities, and would expect to see a couple of new projects or so get underway late this year or early 2019.

As described in our earnings release, during the fourth quarter, we closed on a new acquisition in Nashville, in the very appealing West End submarket near downtown. The transaction is typical of the acquisitions we've made over the past few years, namely a property that had previously been under contract, actually in this case, a couple of different times, with a seller that was highly motivated and with a very short close window.

We were successful in performing for the seller and closed on the acquisition the last week of 2017. We have several other opportunities under review, but pricing and competition does still remain very robust. Final steps and activities surrounding the full integration of the MAA and Post operating platforms are underway, and we expect to be fully consolidated on the same operating systems and platform later this year. We're making significant progress on the redevelopment opportunities within the legacy Post portfolio, and our team plans to accelerate activity on this opportunity in 2018.

We continue to feel very good about each of the variables we've previously discussed that drive the long-term value proposition associated with the Post merger.

Before turning the call over to Tom, I want to thank all of our associates for their hard work and effort surrounding the integration that has been completed to date in merging MAA and Post. You've accomplished a lot and great progress has been made. The MAA platform continues to build strength. The long-term value proposition offered by our strategy, the strengthening of our platform and the commitment our team has in generating value for those served by MAA is compelling. We look forward to executing on the growing opportunities in front of us during 2018.

That's all I have in the way of prepared comments. I'll turn it over to Tom.

Thank you, Eric, and good morning, everyone. Our operating performance came in as expected. Revenues for the fourth quarter were 1.8% over the prior year, with 96.2% average daily occupancy and 1.7% effective rent growth. Expenses increased just 1.3% over the prior year, and NOI increased by 2.2%.

Looking at revenues. Revenue drivers by portfolio in the fourth quarter as compared to the prior year, the legacy MAA portfolio generated revenue growth of 2.6% with 96.3% average daily occupancy, an effective rent growth of 2.4%. Legacy Post portfolio had slightly negative revenue growth with 95.8% average daily occupancy and flat effective rent growth. The slight improvement in overall year-over-year revenue growth rate from the third quarter to the fourth quarter was a result of the steadily improving occupancy in the legacy Post portfolio.

Expenses continue to be a bright spot for both portfolios. While it takes time for the improvements in revenue management practices and pricing to show up in our revenues, our programs to more aggressively manage operating expenses have shown more immediate results. Including real estate taxes, which were up 5.7%, overall expenses for the same-store portfolio were up just 1.3% for the quarter. That was driven by improvements in personnel, repair and maintenance as well as property and casualty insurance. We still have room to run with our expense management programs on the Post portfolio and expect continued progress in 2018.

Our operating disciplines are now fully in place, and at the current run rate, the savings will continue. January results show the benefit of our consolidated platform. Overall same-store average daily occupancy in January was 96.3%, which is 40 basis points higher than the prior year. This is driven by 50 basis points year-over-year improvement in the legacy Post portfolio. Overall same-store January blended lease-over-lease rates are up 1%, which is 10 basis points better than the blended rents in January of last year.

Within the legacy Post portfolio, blended rents in January were up 0.4% and continue to lag the performance of the legacy MAA portfolio, where blended rents were up 1.3%. Encouragingly, however, blended rents within the legacy portfolio in January were up 130 basis points from the blended rents in January of the prior year. While we are facing higher supply pressures in the Post submarkets, the improvements in our operating practices at the legacy Post locations are allowing us to gain ground on year-over-year pricing trends.

Looking forward, our renewal trends are solid across the same-store portfolio. January lease renewals are up 5.4%, with February and March renewal transactions thus far capturing 5.3% growth.

Supply will continue to pressure our new leases. While the jobs to completions ratio improves from 6:1 in 2017 to 7:1 in 2018, the benefit is likely to be felt in the back half of the year. Deliveries for 2018 are front-loaded, with our markets seeing 52,000 deliveries in the first quarter, declining each quarter to about half that amount in the fourth quarter.

It is important to remember that in 2017, deliveries were lowest in the fourth quarter -- in the first quarter and peaked in the fourth quarter. Said another way, the fourth quarter of 2017 and the first quarter of 2018 marked a high point of deliveries in our markets. Job growth is expected to remain robust in our markets at over 2% versus the national average. Permitting is also improving in our markets, down 4% versus the same time last year.

Dallas and Austin are facing the most pressure. In 2018, we expect 23,000 deliveries for Dallas, and in Austin, we expect 7,000 deliveries. We're encouraged that job growth has remained strong in both markets. Dallas job growth was at 2.3% in 2017 and expected to stay at that strong level. Austin job growth was 1.6% in 2017, in this year -- in 2017, and expected to grow to 2.1% in 2018.

While elevated supply levels moderated rent growth, we're seeing good results -- good rent growth in many markets. Fort Worth, Raleigh, Phoenix and Richmond stood out for the group. Renter demand remains steady and move-outs by our current residents continue to remain low. Move-outs for overall same-store portfolio were down 6% for the quarter. Move-outs to home buying and move-outs to home renting were down 10% and 9%, respectively. On a 12 -- on a rolling 12-month basis, turnover dropped to 50.1%.

As you know, the majority of the legacy Post locations are in inner loop areas that are seeing the most supply. While this new supply puts pressure on the newer product, it creates opportunity on the older product in these excellent locations. There are 13,000 legacy Post units that have compelling redevelopment opportunities. We can make these great locations more competitive by updating the product. We have room to raise the rents and still be well below the rates of the new product coming online. Momentum is building on the redevelopment program across the legacy Post portfolio. Through 2017, we have completed 1,700 units. On average, we're spending $8,600 and getting a rent increase that's 12% more than a comparable non-redeveloped unit. For the total portfolio during 2017, we completed over 8,300 interior unit upgrades.

On the legacy MAA portfolio, we continue to have a robust redevelopment pipeline of 10,000 to 15,000 units. On a combined basis with the legacy Post portfolio, our total redevelopment pipeline now stands in the neighborhood of 25,000 units.

As you can tell from the release, our active lease-up communities are performing well. Leasing has gone better-than-expected at Charlotte in Midtown and Nashville, and it stabilized in the fourth quarter ahead of our original schedule. We are actively leasing Post Afton Oaks in Houston, which will stabilize on schedule this quarter. Our remaining pipeline of lease-up properties, the Denton II, Post South Lamar II, Post Midtown, Post River North and Acklen West End, are all on track to stabilize on schedule.

2017 was a year of significant change for our organization. We started 2017 with 2 completely different operating platforms and teams. We are pleased the bulk of the integration work of the Post portfolio is now behind us. We are starting 2018 with a much more aligned and cohesive operating platform and team. We are looking forward to continuing to capture value-creation opportunities on both the revenue and expense sides of the equation, as we finalize full integration activities in 2018.

Al?

Thank you, Tom, and good morning, everyone. I'll now provide some additional commentary on the company's fourth quarter and full year earnings performance, balance sheet activity and then finally on initial guidance for 2018.

Net income available for common shareholders was $1.08 per diluted common share for the quarter. FFO for the quarter was $1.50 per share. Fourth quarter performance includes $0.03 per share as a noncash income from the valuation of the embedded derivative related to preferred shares issued in the Post merger. And excluding the impact of this embedded derivative, earnings results for the fourth quarter were essentially in line with our expectations.

Net income available for common shareholders was $2.86 per share for the full year of 2017. FFO for the full year was $5.94 per share, which includes $0.07 per share of noncash income related to the preferred share valuation, offset by $0.17 per share of merger and integration costs during the year. AFFO for the full year was $5.30 per share, which supported a healthy 66% dividend payout ratio, well below the sector average.

During the fourth quarter, we acquired 1 community for $72 million and sold 2 communities for $97 million in gross proceeds, completing our capital recycling plans for the full year. Total book gains of $68 million were recognized related to these dispositions during the fourth quarter.

For the full year, we acquired 2 communities for a combined total investment of $134 million and sold 5 communities for combined gross proceeds of $186 million, which produced an average 15% leveraged IRR for the disposition portfolio. These sales also produced $127 million of recorded book gains and $132 million of combined tax gains for the year, which were deferred with 1031(b) transactions or covered with other tax planning methods, eliminating any special dividend requirement for the year.

During the fourth quarter, we completed 2 development communities on plan. Both were expansions of current communities, located in Austin and Kansas City, which are now included in our lease-up portfolio. During the quarter, we also funded $28 million of additional development costs, bringing total development funding for the year to $170 million. Our development pipeline at year-end now contains 3 communities with a total estimated cost of $214 million, of which only $46 million remains to be funded at year-end. We expect NOI yields to average 6.3% on these development communities, once completed and stabilized.

Our lease-up portfolio now contains 5 communities totaling 1,538 units, including the community acquired in lease-up during the fourth quarter with average occupancy for the group of 62.5% at quarter end. We expect to stabilize one of the communities in the first quarter of 2018, 3 during the second half of the year and the final community early next year.

Our balance sheet remains in great shape at year-end. During the fourth quarter, we paid off $130 million of secured debt as well as $18 million of maturing unsecured notes with our line of credit. And at quarter-end, our leverage as defined by our bond covenants was only 33.2%, while our net debt was just over 5x recurring EBITDA. At quarter-end, 83% of our debt was fixed or hedged against rising interest rates, with well-laddered maturities averaging 4.7 years. We also had almost $600 million of combined cash and borrowing capacity under our unsecured credit facility.

Finally, we are providing initial earnings guidance for 2018 with the release, detailed in our supplemental information package. We're providing guidance for net income per diluted common share, which is reconciled to FFO and AFFO in the supplement. We're also providing guidance on other key business metrics expected to drive performance for 2018, a number of which were outlined in our recent Investor Day presentation provided at NAREIT.

Net income per diluted common share is projected to be $1.78 to $2.08 for the full year 2018, and FFO is projected to be $5.85 to $6.15 per share or $6 per share at the midpoint, which includes $0.08 per share of final merger and integration costs related to the Post merger. AFFO is projected to be $5.24 to $5.54 per share or $5.39 at the midpoint. The primary driver of 2018 performance is same-store NOI growth, which is projected to be 2% to 2.5% for the full year, based on 1.75% to 2.25% revenue growth and 1.5% to 2.5% operating expense growth. Our revenue projections include continued strong occupancy levels through 2018, ranging 95.75% to 96.25%, combined with projected average blended rental pricing on new leases and renewals in the 2.25% to 2.75% range for the full year.

We expect revenue performance to begin the year near the bottom of our range and improve over the course of the year as we expect supply pressure to moderate. We generally expect modest growth in operating expenses for 2018, with real estate taxes continuing to produce the only area of expected pressure. And though below the prior year level of growth, real estate taxes are expected to increase 3.5% to 4.5% range for the year. We project acquisition volume to range between $300 million and $350 million for the full year, including several lease-up deals. And given the significant recycling of assets over the last several years, we aren't currently planning for any dispositions in 2018.

We expect to end 2018 with our leverage around 34% on a net debt to gross assets basis, well within our long-term range. Also another important consideration for 2018 is our projected average effective interest rate range of 3.8% to 4%, which is about 45 to 50 basis points above the prior year at midpoint, which represents about $0.18 per share impact to our earnings. Nearly half of this projected increase is the impact of the rising short-term interest rates on our variable rate debt, based on 3 interest rate increases by the Fed over the course of 2017, and our projection of 3 more during 2018.

Declining interest capitalization as we complete the construction of our development pipeline produces another portion of the increase, about a quarter, with the declining mark-to-market adjustment related to the debt acquired from the Colonial and the Post mergers producing the remaining portion of the increase for 2018.

Our guidance also assumes we incur final integration costs of $8 million to $10 million as we complete our systems integrations related to the recent Post merger, and that our total gross overhead costs, which is G&A and property management expenses combined, will range between $89.5 million to $92.5 million, fully reflecting our planned $20 million of overhead synergies as compared to the combined standalone company costs projected for 2018. And though we expect continued volatility related to the valuation of the preferred shares acquired with the Post merger, our projections do not include any valuation adjustments, as these adjustments are both noncash and really impractical to accurately predict.

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

(Operator Instructions) And we can take our first question from Nick Joseph of Citi.

Eric, 2017 was disappointing with the same-store revenue guidance cuts an ultimate miss. So when you went through the guidance and budget process this year, did anything change? And what were the lessons learned from 2017?

Well, Nick, what I would tell you is that, as we started last year, in 2017, we knew that supply levels were going to be picking up and they did pick up, as Tom alluded to, peaking in the fourth quarter of '17. I think the thing that surprised us a little bit was that we thought that it would peak, frankly, a little bit earlier in the year, and the delays that took place worked against us a little bit. And then, as the delays occurred and more of this lease-up activity was pushed into the fourth quarter, the -- which, as you know, a very slow period of time for leasing, the concession activity proved to be much more aggressive as a consequence of that. And so market conditions were more negatively impacted, particularly on the pricing angle as a consequence of some of those delays and the seasonality factor that I alluded to.

And so I think as we think about 2018, we're encouraged, as Tom pointed out, that there is pretty clear evidence that the supply trends are going to moderate based on the fact that Q1 of this year we're in right now is by far the highest, and by the time we get to the end of the year, it's half. So the question becomes, are you going to have more delays? We think there could be more delays, but we're still optimistic that -- in terms of delays in delivery -- but we're still optimistic that as we get to the summer season, which is really, as you know, the peak time for rent growth, that we are going to see more moderate pricing or more moderate pressure from new supply than we did last year. And so I think that, though -- and this is all predicated, of course, on the assumption that job growth continues to hold up, and we think that that's an assumption that's a pretty safe bet on the markets and -- that we're in and this region of the country. So I give that perspective just in terms of sort of market fundamentals, the supply dynamics and the differences between '17 and '18.

But the other thing that I think is important to appreciate is, big difference between '17 and '18, is that this time last year, literally, we had just closed the Post transaction. And we were facing a year of -- essentially operating on 2 completely different systems and platforms. I think it's -- particularly as it relates to the Post portfolio, it's important to appreciate the fact that we were dealing also with a tremendous amount of on-site personnel transitions that were taking place. There was -- over the course of the first 3 months last year, we essentially saw a transition of well over half the managers on-site in the legacy Post portfolio. So that activity, if you will, it's hard to put a number on it, but it certainly played into some of the challenges for '17. The good news is, as we start in 2018, we're in a very solid position. Our teams are set. We've got -- while we've got a little bit more systems integration work left to complete, we are much more aligned in terms of approach and practices than we've ever been. So I think as we start this year, we're feeling much, much more secure in terms of where we are, in terms of market fundamentals, certainly in a much more comfortable position from an execution perspective. And that's a long answer to your question, Nick, but that's how we kind of look at it.

No, I appreciate it. But just given the elevated supply and, I guess, the risk of further delays, I mean, what gives you the confidence to increase the rent growth assumptions from what you laid out in November? It feels like, if anything, after last year, you'd rather be a little conservative to start off the year.

Well, a couple of things. One is the fact that we're starting in such a strong occupancy position, actually slightly higher than last year. Our exposure, which is a combination of our vacancy plus our 60-day move-out notices that we have, is lower. And so that, obviously, solid occupancy is important to getting the pricing traction, and we're in better position now than we were this time last year. Having said that, the other thing that we're comforted by is we have the revenue management platform, if you will, fully implemented under sort of the practices and approach that we take across the legacy Post portfolio. And so with that system in place, the stability and staffing I mentioned, that -- and the strong occupancy, that puts us in a position.

Now having said all that, Nick, let me -- just being honest about it, as we get into the busy season, we'll see how things play out. There's certainly no guarantee that -- I can't -- I mean, we're assuming that the job growth and demand side will be there. There is really no reason to believe it won't be. We -- I certainly think there's probably likely to be -- some delays take place. But we think that -- in terms of new delivery, and some of it may bleed over into the summer. But having said that, having a little bit more leasing or supply issues in the summer, when leasing activity is elevated, is a much better time to have it than in the winter, as I talked about is what we saw in the fourth quarter and a little bit in this first quarter. So there is a lot of influences here, a lot of factors, but we think that -- we feel good that the overall expectation that rent growth improves over the course of this year, particularly as we get into the busy season into the back half of this year, is a reasonable assumption to make.

And we can go next to Drew Babin with Robert W. Baird and Company.

Question on same-property NOI margins. Looking at '17 over '16, it looks like the blended portfolio margins increased about 20 basis points. And if you kind of midpoint the guidance for '18, it looks like maybe in the best case, it's another 20 basis points or so. Are margins approximately where you envision them being at this point with the Post merger? And, I guess, if you include property management expenses in the calculation, would the margins look quite a bit better than what I just described?

Let me start with that, Drew. This is Al. I think, no. I think they're not where they -- we think they'll be ultimately. I think we expect and we have outlined in our forecast for 2018 some continued capture of expense performance, 2% at the midpoint of our guidance there, with taxes still going up 4% at the midpoint. So there's certainly some continued benefit from that, but we think there's more to go. Maybe a little bit more expenses, but really more on revenue through the redevelopment pipeline, as we talked about, it'll take a couple of years. We've got -- as Tom talked about, we got 13,000 units of inventory there. So it'll take 2 or 3 years to really work through that, so that'll be a meaningful impact. And so, I think, there are other things in revenue that we'll see more as markets improve, and we'll be able to put more of that on the table, so the same thing. So that's not -- so we don't expect that we're at where we're going to be ultimately with those margins. They will improve really more as we move into '19.

Okay, that's helpful. And then lastly on the external growth environment. It seems like the market remains very tight for new opportunities. I guess it'd be helpful if you talk about the stabilized deal expectations on your 4Q acquisition. And then I guess, a broader question, I guess, kind of what's the trade-off between the benefits of potentially an A- credit rating and the interest savings that might result from that vis-à-vis upticking your leverage a little bit, should some acquisition opportunities that makes sense come down the pipe. What have the internal conversations around that been like?

Well, I'll talk a little bit about the environment -- transaction environment and the deal in the fourth quarter, and Al can talk about the balance sheet. I'll tell you, Drew, I mean, we are seeing more transaction activity at this point than we did this time last year. We've got quite a few deals under review at this point. We have our guidance of $300 million to $350 million. I mean, I can tell you -- I mean, it's certainly no guarantee it'll close. It's in due diligence. But we have contracts on deals that probably get us to about 1/3 of that way already. So we are seeing more activity. And I'm optimistic that this year is going to yield a little bit more better buying opportunities than what we've seen.

In answer to your other question, generally, I can tell you that between the disposition proceeds we generated last year, we carried into this year, between the free cash flow that we're generating. As you know, in our assumptions we're not assuming any equity issue this year. We haven't been to the equity markets in quite some time, and so see no expectation to do that. So if we execute the plan that we have laid out, our leverage will move up just a tad as a consequence of that. If the acquisition environment is even better than we expect and the volume is higher than we have forecast, and we're successful in that regard, then we'll have to have that conversation about the metrics on the balance sheet. Our coverage ratios are very, very strong, payout ratio is better than the sector average. So we've got a fair amount of room to execute some external growth without worrying about any additional capital and without worrying about any sort of pressures on our current ratings. We like the flexibility we have right now, and I think that, that pretty well defines -- we think we're in a good spot right now. And any notion that we need to work to take our rating up another notch is not something we're actively thinking about right now.

And we can go next to Rich Anderson with Mizuho Securities.

So if I could just carry on with that conversation real quickly. So the acquisition pipeline then becomes a bit more accretive, I would assume, since you're going to find it -- fund it with debt and free cash flow instead of dispositions going forward, so that's good. Can you quantify how accretive $300 million of acquisitions might be for a full year? Or is that...

Well, I tell you, it gets a little bit difficult only in the sense that we don't know at this point how leased up, if you will, those particular assets will be. I mean, on a fully stabilized basis, it becomes pretty accretive. But where we're finding our best plays right now are some of the deals that are not quite stabilized. So it gets a little bit more difficult to...

Understood. And then Tom, you mentioned, I think you said 52,000 units of deliveries in the first quarter in your markets. Is that right?

That's correct.

So if you were to sort of aggregate the whole year -- I know it's trending down. But is it about -- is it over 100,000 units of deliveries if you were to look at the entirety of the year?

Yes, it's 154,000 deliveries, down about 4% from 2017.

Okay, 154,000. And if you were to kind of look at the national picture, I don't know if 350,000 units or something like that is about right in your mind. But so you're accounting for, in your markets, about 1/3 of the supply in the United States. Is that kind of in the ballpark, out of 25 or 30 markets that you guys traffic in?

That sounds reasonable, Rich. I'm not looking at the overall number, but that sounds appropriate.

Okay. And I guess, the question -- excuse me for the siren in the background. The question is, what has been the history -- maybe this is a bigger, broader question for Eric -- what has been the history of the Sunbelt world in terms of the total national supply picture? Is 1/3 kind of been the number for a long time? Has it been higher or lower than that? And where do you see it going?

I think historically, it's been -- the Southeast Sunbelt markets, if you look at percentages and along the lines we're talking about, I would tell you, long term, historically, it's been higher. I think that we've sort of been in a different paradigm in the last 2 or 3 years, and with some of the more overbuilt markets being some of the markets that 5, 6, 7 years ago, we used to think were high barrier. And so, I think the dynamic and the paradigm has changed a good bit, and as a consequence of that, I think I would argue that a lot of these -- there are no more high barrier markets, in a way. I think supply can happen anywhere. And I think that from our perspective, we've always dealt with supply worry, supply risk. And thus ultimately, I believe, the best way to capture the performance that we're looking for over a long period of time is just be deployed in front of demand. And we pay more attention to the demand side of the equation. We give the supply side of the equation its due respect through active diversification and balance in various submarkets and price points. But at least that's how we think about it.

And we can go next to Austin Wurschmidt with KeyBanc Capital Markets.

I was just curious if you could talk a little bit about specific markets that you're most optimistic about and would expect to be towards the higher end of guidance or above that range? And then any markets that you're concerned on that could be negative this year from a revenue growth perspective?

Sure, Austin. The 3 that jump out on the positive side are Jacksonville, Florida; Orlando and Phoenix. All 3 of those have some level of supply, but great job growth and jobs to completions ratios are in line and doing pretty well. So those are -- those we would expect sort of to lead. On the concerning side, I would tell you, Austin and Dallas are the ones that we have the most concern about. Austin actually sees supply go down a little bit next year, but it's still a relatively high rate at 3% inventory. And in Dallas, it goes up slightly on supply. And those are the 2 that we're probably most engaged on.

Do you expect Austin or Dallas to produce negative revenue growth in 2018?

I think that is positive possible, but it'd be closer to flat where it's been now.

No, that's helpful. And then I'm just curious how you're expecting the trend in new and renewal lease rates throughout the year. You've maintained a fairly wide spread between new and renewal lease rate growth. So what's kind of the expectation moving forward?

Austin, I can tell you what's kind of built in the forecast, and Tom maybe can add some color to that. But what we would expect in general, it's in our pricing guidance, is -- and our revenue guidance, is for renewals to continue essentially as they did in 2017. They were in the 5% to 6% range in the year, and that will continue strong performance there. And then new pricing would be the area that we would see the improvement that would take our pricing to 2.25% to 2.75%, 2.5% at the midpoint. And I would say probably a larger percent of that would come from the Post side of the portfolio, as there is opportunity for improvement in that this year as we move into the year and we see supply wane as we're talking about our expectations on the back half of the year. But Tom may have some more color on that.

Yes, I'd just echo Al's comments. I mean, we would -- we've seen renewal rates stay steady in the 5%, 5.5% range. Expect that to continue where you'll -- the gap, if you will, is absolutely widest this time of the year. It will close as we go into the busier summer season and demand picks up. And then we should also, as that back-end supply wanes, that also gives us an opportunity on new leases as well.

Fair enough. But you wouldn't expect new leases to close a significant gap based on the 2.25% to 2.75% that you've kind of assumed for blended lease rate pricing. Is that fair?

That is fair.

That's fair.

Okay. And then lastly, just getting one question on the funding side. Are you assuming acquisitions are funded on the line or any capital -- anything on the debt side that you're assuming from an issuance perspective?

Yes, that's a great question, Austin. We definitely -- we have a $1 billion credit facility, $600 million open right now. We definitely, in the short term, plan to fund activity on the line. And as the year progresses, we'll have -- we have planned bond activity to take that line down. We'd like to keep it below half borrowed at any given time. So that tells you that we'll plan a bond deal probably early to mid part of the year. And then as we move to the end of the year, we'll look at what's on our line and make a decision at that time as well. So we do have some planned bond activity in the year to knock that line down. And I would tell you, if we went to the market today, you're probably somewhere -- we would probably focus on 10-year and for modeling perspective, I'd put in probably 4%, something that -- maybe just south of that.

And we can go next to Conor Wagner with Green Street Advisors.

Tom, could you give us a little color on what you're seeing in Houston and D.C.? And then you guys' assumptions for those markets this year?

Sure. To start with Houston, that was a market that, inner loop, we were seeing pretty consistently 2 months free, suburban 1 month free, let's call it late second quarter, early third, and it's tightened up significantly. Occupancy has continued to stay strong. Suburban, we are not offering concessions. Inner loop, we have all of our assets stabilized there now so we don't have anything in lease-up. We are noticing that some of the lease-ups might equal -- might offer a month free in specific places and depending on sort of our exposure and floor plan and proximity to that, we might match it. But across the board, it's pretty reasonable. And so moving on to D.C. I think, job growth is, I would say, an acceptable range. I think what we're mostly optimistic about in D.C. is sort of execution opportunity. We've got a good team up there with a lot of redevelopment opportunity, continued low-hanging fruit, just as they learn the expense programs. They are doing a really fine job on that. And I think we're encouraged by D.C. The fundamentals aren't there for it to perform like Orlando or Jacksonville or Phoenix, but it may perform a little better than expected.

And we can go next to Nick Yulico with UBS.

This is Trent Trujillo, on for Nick. So you touched on Dallas early in the call. I was just curious, both looking at Atlanta and Dallas, they're 2 of your largest markets and both are expected to see heightened supply in 2018. So if you could possibly provide a framework on how you're looking at these 2 markets in terms of fundamentals and operational expectations and trends throughout the year that would be appreciated.

Yes, sure, [Nick]. As far as deliveries on Dallas, it will peak, like everything else, on deliveries in the first quarter, but the supply falls off at a less dramatic rate, let's say, than the overall portfolio. We're seeing some encouraging signs in January there, whereas most of Dallas was at 4 to 8 weeks (technical difficulty) areas are going to be something that we wrestle with most of the year. Moving on to Atlanta, most of that supply is focused sort of in that Peachtree Road corridor running from North Avenue and Peachtree, sort of Midtown area up through Brookwood to Buckhead and Brookhaven. But there currently, short-term, Atlanta concessions are doing a little bit better, and we've seen half a month to a month there. That spread in Atlanta follows more the company spread in terms of how deliveries are being brought to the market. And then the suburban Atlanta stuff, pretty solid.

Okay. That's very helpful. Just one quick additional question. On expenses, it looks like real estate tax growth by itself pretty much gets to the low end of the range. So how are you thinking about the other components of OpEx?

Pretty much all the other components are in modest growth. We haven't -- we (inaudible) aren't expecting significant pressure in any of the other areas, personnel, marketing, other areas, a modest growth. So taxes is the really only area, the midpoint of the entire guidance combined is 2%, it's the only area that, 4% at the midpoint, puts a little pressure. Remember, that's 1/3 or a little over 1/3 of your total expense.

In Austin, our R&M cost, which I would -- or our total maintenance expense cost, which I would consider maintenance personnel plus all expenses related to maintenance. On the Post portfolio, we've improved it by 10% to 15%. They are still running about 20% higher than MAA for the year. And we'll have continued improvement there as they continue to refine their practices. They are doing a good job. We like where the run rate is right now, and that alone is going to provide some relief to the tax number.

Trent, obviously there are some negative numbers on those other line items to...

Yes, said another way.

Make the math work, exactly.

And we can go next to John Kim with BMO Capital Markets.

Your average effective rent per unit of $1,170 per month increased year-over-year, but it declined sequentially. I realize some of this is due to seasonality, but I was wondering if that sequential decline came as a surprise to you.

No. I mean, John, just real quick, I mean, you know the math as well I do. You come in with a certain ARU and then you reprice with concessions in the fourth quarter. It pulls it down. I don't think that's that odd a phenomenon for us.

So just to clarify, the same-store revenue guidance that you have for this year of 2%, that will translate pretty much directly to 2% average rent growth? I'm just wondering if there's any other property income or other items that may change this.

We would expect property income to grow roughly in line with that revenue. So we expect it to not have a material impact up or down. So that pricing should be -- the pricing that we're carrying in plus the pricing we're getting for 2018 blended should be the primary drivers of revenue.

Yes, our effective rent growth is expected to be right around that 2% number.

Okay. And concessions, do you think they've peaked or they will peak in the first quarter in line with the supply delivery peak?

That is what we would expect.

Okay. And then a question on your secondary market performance. It's been stronger than your primary markets in the last couple quarters. It sounds like you're not necessarily focused on acquiring in these markets, but I just wanted to clarify this, to get your thoughts on that.

I would tell you, John, that we are focused on those markets for additional growth. We continue to like a number of those smaller markets. There are some that we wouldn't expand in, but there's quite a few of them that we would. And what we have found is, frankly, the environment, the competitive environment for deploying capital, has been every bit as aggressive in markets like Charleston and Savannah and Greenville, South Carolina, as it has been in some of the larger markets like Atlanta and Dallas. But no, we absolutely are committed to continuing to maintain the broad portfolio profile that we have today.

And is that where you are seeing some of the time-sensitive sellers?

No, it depends. No, it can happen anywhere. The 2 properties that we acquired last year happened to both be in Nashville, and both had that sensitivity associated with it. But we can run into that kind of a scenario, frankly, anywhere.

And we can go next to Dennis McGill with Zelman & Associates.

First question is continuing on that, the latest acquisition in Nashville. The supplemental has that built in 2015. So I just wanted you to clarify sort of the timing of that. I don't know if that's maybe the start. But just maybe the life cycle of that? And then any additional color you have on how that came about, whether that was brought to you or you are seeking these out more on your terms.

Well, I think that it probably commenced construction at that '15 time frame, not -- because frankly, it's not stabilized yet. What happened with that particular deal, it was part of the 4 city sort of scenario that's unfolding. And we heard about the deal early last year. It came to market. We toured it. We didn't really -- we underwrote it and didn't really get involved in the process. It went under contract at roughly 10% more than we had underwrote the deal. Then it went under -- fell out of contract, went under contract with -- and this happened in July, went under contract again sometime in September, October time frame with another potential buyer at a price point that was still 5% higher than what we felt was a good price. And so it then subsequently fell out. And they called us in late November, early December, highly motivated to get it done and get it done by year-end, and that's what we did.

Okay. That's helpful. Second question, just as it relates to overall supply. I think you talked to sort of the delivery pipeline slowing at the end of this year and what we've seen in a lot of the projections of the national numbers is that the delay in supply being pushed out is also being complemented by more supply being found. So it's not a zero-sum game as far as timing goes. How do you get your arms around just the piece of supply that's, call it, shadow or whatever you would like to call it, that just isn't in those numbers that tends to get found over time? How do you get confident that that's fully captured in the numbers?

Well, I mean, we, in thinking about putting our forecast together, I mean, first of all, we actually see supply delivery peaking in the first quarter this year. It's actually slightly higher the first quarter of this year than it was the fourth quarter of last year. Some of that is the slippage that we've talked about previously. But I think, as we think about looking at supply pressure, I mean, we kind of go at it both from a top-down and a bottom-up approach. And we look at a lot of the same forecast for supply that everyone else looks at and market studies and other things that we have access to, to build up our expectations at a portfolio level. But then, of course, we -- in putting together our property budgets, I mean, we know what's happening in the neighborhoods. Every property manager, I can promise you, knows what new property is likely to come online in 2018. And we have that dialed in to our expectations at some level. And so there's no, if you will, at a high level, I think it's always possible to have a project or 2 or more, not make -- not get into the data, but at the property manager level, I can promise you, they know what is under construction within any kind of proximity to their property.

That's helpful. And then just lastly, on the Post transaction, you got a full year now under your belt. How would that year compare to the underwriting that was done during due diligence at the time of the pricing and any positives or negatives that you'd call out relative to the initial expectations?

Well, I would tell you that the supply pressure and the performance in '17 out of the legacy Post portfolio was weaker than we would've expected. No question about it. But obviously, we did not execute this merger with a goal towards maximizing opportunity or value in 2017. It's a much longer horizon associated with it. Having said that, if you go back and look at some of our prior presentations, you'll see the merger value proposition itemized out in pretty definitive detail. And you'll notice that in most cases, almost every case, those various line items that derive -- that we think is going to drive value out of this transaction are expected to become increasingly evident in 2018 and 2019 and some of even beyond 2019. So the only things that I can point to that we know that we've captured some immediate value on is on the financing side and on the balance sheet side. We got immediately upgraded by the agencies when we announced the deal.

The other thing I would tell you that has been faster than we expected, as Tom alluded to, some of the operating expense efficiencies that we've captured. Some of those things happened faster in 2017 than we expected. So we got better performance on that side of the equation. And as Tom alluded to, we've got more to go. The redevelopment opportunity out of the merger, frankly -- the redevelopment opportunity within the Post assets was actually bigger than we thought it was going to be. And if you look at sort of the outlook on the value proposition associated with redevelopment that we published at the time of the merger announcement versus where we were by the end of the year, you'll see that opportunity has grown. So net-net, over the next 3 or 4 years, I mean, the value proposition from this merger is very much intact and, frankly, a little bit bigger than we thought it was going to be. It's just a little slower coming online than perhaps we would have thought, as a consequence of some of the supply pressure that has come online this year, peaking we think early this year and -- but we still feel very, very good about the transaction.

So thinking about it from a cash flow standpoint, year 1 would have been slightly below or below where you underwrote, but the overall cash flow stream would have been higher or would stand higher today?

Correct.

And we can go next to Rob Stevenson with Janney.

Al, just you can answer the same-store expense question, I guess, a couple of different ways, but another way to look at it is, at the 2% midpoint, how much higher would that be without the expense savings out of Post that you're recognizing in there?

Rob, it's hard to -- I haven't got that math in front of me, but I would -- somewhere in the range of 50 to 75 basis points kind of range. And just let me give a little more color on some of the performance. I probably didn't do a good job on the first question, but yes, there are some items that we are getting some -- continuing to get some negatives. I mean, you look at 2% performance with continued 4% on real estate taxes, which is over 1/3 of your portfolio, that's still strong performance off of a 1.8% year in 2017. And so we're definitely continuing to get some synergies from R&M and some other areas and maybe -- and one area is insurance, I should bring up. We have -- our renewal is July 1, and we had a very good renewal in 2017, had a reduction in expenses. And we expect that -- we project in this year's renewal in '18 to have an increase, but the net effect for the year is still a reduction. So all those things together bring us to that 2%. And I think probably, without some of the things we've talked about, 50 basis points, maybe 75 basis points higher.

Okay. And does that -- then that includes the changes that you guys have made at Post on the personnel side, that savings?

Yes.

Okay. So I mean, another way to think about it, I guess, is, are you guys seeing upward pressure within the core Mid-America portfolio on wages at the property level, but sort of saving it by reducing headcount at the Post properties, is that accurate?

No, no. I mean, frankly, both portfolios have been in pretty good shape on that line item, and our folks have been thoughtful about how they spend their dollars on-site. And the Post portfolios made it better. It's not covering up a weakness in the Mid-America side.

Okay. So you're not really seeing any material increase in wages at the property level like some of your -- some of your peers are talking about 5% increases in wages at the property level, which obviously is another big component of the same-store expense load.

Our forecast includes and our -- we have plans in place 2.5%, 3% range for that.

Okay, perfect. And then, Eric, how is the board thinking about -- I mean, REITs have had a tough, whatever you want to call it, 3, 6, 9, 12 months here. The stock is, after sort of peaking up around 110, is now, another bad day tomorrow could push you guys under 90. How do you -- how is the board sort of thinking about share repurchases and possibly selling additional assets? You don't have any dispositions in your guidance as of yet, but if the stock continues to get weak or weaker, is that a plausible alternative for you guys? Or would -- is that still not enough of a discount to utilize capital for that?

No, we're -- very much think about it, Rob, and obviously at some level of discount to value, that becomes a compelling use of capital. Compelling in the sense that it's more compelling than any other alternative that might be presenting itself, whether that be acquiring other properties or starting new development. So we're very aware of the math, certainly understand the concept. We've bought shares back in our history. We have an active program up right now, fully authorized. And so it's something that we will continue to monitor, but it just becomes what's the best use of proceeds. And, of course, with us now at a point of generating close to around $100 million of free cash flow, it becomes something that we certainly think about.

And we can go next to Tayo Okusanya with Jefferies.

Just 2 questions from me. The first one is focused on Post properties. Again, you guys closed the merger in December last year, so we're well over a year into this. I do understand and see the merger-related expenses dropping in 2018 versus '17, but still curious about the $8 million-or-so you expect to spend in '18. Exactly what does that comprise of?

Tayo, this is Al. That is the final portions of integrating our systems and putting our 2 systems platform together. I think we talked about a bit on our Investor Day that our people and our platforms and our policies and practices have been fully aligned and in great shape, really through 2017, as we got to the middle part of 2017. What we did with our systems, we had 2 platforms we're operating. We allowed them to stay apart during the busy season of 2017, really to go ahead and jump on some of the synergies and get our people and our processes together. So that cost is -- it's virtually all related to the finalizing the systems platform. It will be rolling. We got all the planning, all the designing, all the testing and all that stuff is done, and we're rolling that new system, combined platform out through the middle half of this year. And so the majority of that cost will fall, the $8 million to $10 million, in the first 2 quarters, maybe a little bit trailing in the back part of the year, but that's what that is virtually all related to and how you'll see it fall for the year.

Okay. And if that's been pretty even throughout the year? Or is it kind of a first half weighted and then it kind of tails off?

Very first half weighted and tailing off in the third and fourth quarters.

Okay, that's helpful. Then the second question I had was around expenses. Your G&A combined with your property management expense are roughly about $86 million in 2017. But in 2018, it is projected to increase to $91 million. And that also includes all the expected synergies from the Post transaction. So I'm kind of wondering, you've got the synergies but yet that number is still going up year-over-year?

Yes. I think, a big part of that is as the capitalized cost overhead for our development. That's why we kind of, in our supplemental data in the guidance, we laid out a gross and a net, Tayo, to help with that. So bottom line, when you're looking at the -- your P&L and you put those 2, G&A and overhead, together for 2017 and compare that to our guidance of the net number in 2018, it's about 6%, 6.5% growth, $2.5 million-or-so of development overhead is -- or less has been capitalized in 2018, because we finished the large part of that portfolio. So if you take that out, it's about a 4% growth, which is in line or below the sector average of overhead growth for many years. But the main point I want to make is if you really -- the reason we put gross and net is because really the number that we are focused on is gross, which is the cash flow for this company that produces the value. And so we laid out a plan with the merger to capture $20 million in savings. The 2 companies, stand-alone, their overhead numbers projected for 2018 to save $20 million off that number. And so that gross line that we've established in our guidance there does that -- fully does that. And so that's the target we've been focused on. We feel good about that number we've laid out for 2018.

So let me just make sure I get this. So the gross number, which is -- yes, the gross number -- the midpoint of the gross number is about $91 million? Total overhead gross of capitalized development overhead is about $91 million, but again, in 2017, that number was $86 million.

No, no, no. What you're going to see hit the earnings statement is that net number. So the midpoint of what you should expect on your modeling on G&A and overhead combined for 2018 is the midpoint of that net number, just below that, the 87 3/4 to 90 3/4, Tayo.

Got you. Okay, okay. And that's the 4% year-over-year increase you were talking about versus '17, and both years, '17 and '18, are inclusive of $20 million of synergy?

'18 is inclusive of $20 million. '17 is -- yes, most of it was in '17, but '18 is fully inclusive of it.

That's still something I'm not following, but I'll take this off-line.

Let's -- why don't we take this off-line after the call, Tayo. We will get with you and work through the math.

And we can go next to Michael Lewis with SunTrust.

I wanted to circle all the way back to the very first question you answered about the same-store revenue guidance. So you did 1.8% in 4Q, 2.1% for the year, and your range is 1.75% to 2.25%. It looks optically a little bit optimistic, and I realize what you said about supply, but I would imagine, even first quarter supply, you will be competing with those units well into the summer, even if they don't get pushed back. So I'm just curious how you stressed your model and kind of got comfortable with especially the low end of that guidance range that I think a lot of people may look at and say, "Yikes, these guys might have to cut this later in the year."

Well, go ahead -- I mean, I think that ultimately what we have done is look at the -- with the expectation that a lot of the pressure that we saw on '17's results was a function of slippage of units into the weak fourth quarter leasing season, and therefore, the concession activity that took place of impacting effective pricing was ultimately a lot weaker as a consequence of that. As we think about '18, you're right in that you'll see some of this lease-up going on now taking place in Q2, Q3. But the good news is that the pipeline is quickly falling away based on everything that we've been able to see. And with us starting at a higher occupancy position this year versus where we were at this time last year, that gives us -- and as I said earlier, us now in a position of having the sort of revenue management platform sort of fully dialed in verses not dialed in on the Post portfolio at all this time last year, we just start in a much stronger position. And so it's a combination of we think the market fundamentals are going to work more in our favor as the year plays out versus last year where the market fundamentals were getting worse as we got leading into the weaker part of the year. And we have kind of just the opposite scenario from -- in terms of market fundamentals this year. And then secondly, as I say, the platform is just in a better position -- much better position as we start the year. Occupancy is in a stronger position, including the legacy Post portfolio occupancy. So when you just put all those factors together, it leads us to sort of where we are. But as I say, and I said earlier, this is all predicated on an assumption that the demand-side equation holds up. There's no reason to believe that, that is unlikely to occur. So we're optimistic that these markets are going to continue to yield a level of demand that we're anticipating, and as a consequence, we think we will get to where we've outlined.

And I'll ask my second question about the legacy Post portfolio, obviously, the negative revenue. I'm wondering, is there a thing -- what's left still that you could do there besides just getting helped out by supply easing and the cycle helping you? Is there anything kind of, I don't know what the word is, transitory reason or something that's easily fixed, like being on the new platform or the changes you've had to make in personnel? And along those lines too, do you think there's a significant amount of units there that might need CapEx to be competitive beyond just the units you see opportunities to renovate?

Yes. So -- and I'll take a quick run at that. The quick easy pops on the Post portfolio in terms of performance opportunity, right now we're running at 50 basis points ahead on occupancy, and we'll have that opportunity -- over the last year, we'll have that opportunity for early part of the year. The redevelopment opportunity, which I would say is more offensive in nature to make the units more competitive, but that is -- we'll probably double that volume this year versus last. And that's an enormous opportunity that is offensive in nature. The properties themselves are in great shape. And then thirdly, there are sort of some curb-appeal opportunities there, both on the landscape and the physical buildings. They aren't increasing the dollars that we're spending, but we're getting more bang for buck on the dollars that we're spending. And then in addition to the revenue management platform that Eric touched on earlier, we're starting the year with a team that's really familiar with the properties, knows their ins and outs, understands the submarkets, and this time last year, we were still learning that. And everybody is sort of on the same page. Those things give me good hope -- I'm optimistic about what the Post portfolio can do in '18 despite the fact of the market conditions.

And we can go next to Carol Kemple with Hilliard Lyons.

On acquisitions for the year, it sounds like you all have a good pipeline right now. For modeling purposes, do you think it's better to spread it out evenly? Or do you think it will be more front-end or back-end loaded?

Probably spread it fairly evenly over the year. We have a couple of opportunities that we think are pretty strong in the first half of the year, but I think I would spread a portion over the back half as well, so fairly evenly.

And we can go next to Buck Horne with Raymond James.

I'll try to be brief. Just going to the renewal rate increases you guys are pushing through, I just wanted to get a feel for your confidence level and that you can maintain your very low resident turnover ratios, but still pushing through those 5% renewal increases this year. And maybe related to that, do you feel like your recurring CapEx budget for this year may need to go up to maintain those renewals?

No, I don't think so, Buck. The -- where we feel like there's an opportunity to improve the product and get an incrementally higher rate, we're renovating those units and that opportunity. And there is generally very little transaction involved with renewal and CapEx spending. Generally, they're making the decision based on their lifestyle at the time and the service and the value that we've created with them. And our teams are near-obsessive in terms of how they work to serve our residents and capture that. And so our sense is that this 5.5% -- 5% to 5.5% will hold steady. Early into the first quarter, we're seeing that hold just fine. And it held up through, frankly, the tougher fourth quarter as well.

Right. And just a couple of quick market updates that, maybe just to cover all the bases, but just thinking -- how do you think the year plays in terms of supply pressure in Charlotte and Tampa in particular?

In Charlotte, it is mostly focused on the -- in the sort of uptown, downtown area, South End, if you will. And that is about 3,500 units that will come in, in the first quarter, and it drops to 782 by the fourth quarter. So pretty significant fall-off in sort of a linear fashion there. And then in Tampa, Tampa is actually -- we're seeing jobs to completions in Tampa, and you know this well, is jumping from 5.4 to 9 there. So with Tampa, it doesn't have a huge supply. A lot of that is channel side. But that's a market that has the potential to have a stronger upside back half of the year than the company norm.

And we can go next to Nick Joseph with Citi.

It's Michael Bilerman here with Nick. Eric, I sort of want to just come back and sort of evaluate where the last 13, 14 months have been and clearly what was consistent missed expectations? And I dial back to August of 2016 when you announced the Post merger, and one of the big things that you were talking about back then was different than Colonial. And I think I remember I asked this question about what gives you the confidence of not having any sort of the same recurring issues that happened when you did that merger. And you made a big deal about being on the same type of systems, that you've done it before, that you are well tested. And now what we're hearing is a lot of excuses about why 2017 was more challenging, right? You cut your same-store guidance twice last year, and you still fell below what was the most recent cut that you gave with 3 quarter -- third quarter results. You sort of blame a little bit of Post. You're blaming supply that was delayed, but I assume if the supply is delayed, it would have helped you earlier in the year when you cut twice. I'm just trying to put all this together and hear a little bit more of effectively an apology of the performance.

Well, Michael, I mean, I would tell you that we put together the outlook for '17 based on the information and the insights that we had on expected supply dynamics. And I think that, what if -- I mean, going back to the Colonial scenario, I mean, that was a completely different set of circumstances and so forth, and we can get into more detail on that. But I think as far as '17 is concerned, we wound up seeing the leasing conditions deteriorate more so in the back half of the year, in particular, than we expected. And we started getting increasing visibility on that by April/May time frame, as projects that were supposed to be leasing weren't. And we knew that as a consequence of that, that the leasing would be taking -- the lease-up activity would be increasingly taking place in the weaker part of the year. And so when you get in that kind of scenario, what you're faced with is, okay, well, how aggressive are the developers likely to get in terms of the concession practices and so forth. And we don't have as good of visibility on that because we don't know what sort of financing arrangement any given developer has, and we don't have any perspective on exactly or insight as to what kind of pressure they are going to have to get leased up sooner rather than later. And so as a consequence of that, we just saw concession practices in particularly some of the submarkets like Uptown in Dallas get a lot more aggressive as a consequence of those delivery delays happening and creating more pressure in the back half of the year in the slower leasing season. So it is what it is. I wish we had -- could have had greater visibility on that. But when we started with guidance in January of '17, but it turned out the way it did. The only other thing that I would add to this that, I think, probably did surprise us a little bit and fueled some of the weakness in '17 is when we looked at the Post situation late 2016 and early 2017, we looked at their occupancy, we looked at some of their revenue management practices, we saw big opportunity. And we continue to feel very good about that opportunity. To be candid with you, what I was surprised by was how weak some of the on-site leadership was. And as a consequence of that, we did not underwrite. And what happened is we wound up with having to replace over half the Post property managers. And as you may know, when you go through that kind of transition, everything just kind of slows. Everything just -- is a little harder to get done than you would've thought, and so if there is any variable that I will point to that really was a surprise, it's that. One other thing that I'll also add, though, it's important to remember, is that the original FFO guidance that we gave for 2017 was $5.82. The report that we just gave is $5.94. Take out $0.07 for this mark-to-market on the preferred, $5.87, we beat our original FFO guidance for 2017.

Right. But you -- yes, okay, getting to a number, it's how you get to a number rather than the number itself, right? So if we think about even '18, holding more cash on the line of credit, which doesn't cost you much, levering up a little bit, potentially doing some accretive acquisitions, the quality of that accretion is not as strong as the quality of operations, right? And if you think about your operations, you started for '17 at 3.25% same-store NOI. That dropped to 3% in the first quarter. It was held flat in the second quarter results in the summer, where arguably you should have had a better perspective of some of the supply. And then it was dropped 75 basis points to 2.25% in the third quarter, and you came out at NAREIT in mid-November without any sort of update to '17, and '17 just fell to 2.11%, 15 basis points below where you thought it was in late October. And so that's a pretty meaningful divergence when all of your apartment peers have generally met or beat their original expectations.

Well, what I can tell you is our markets -- a lot of our markets saw the supply pressure later than some of the other markets. And this time last year, 2 years ago, we're talking about a lot of supply pressure in other markets. So the market dynamics got worse in our markets and for our portfolio, particularly with Alexan in Dallas, and it had the effect it did.

Let me add too on the fourth quarter performance. From our perspective, Michael, we didn't miss our fourth quarter performance in revenue. We hit the expectations we had. We got there a different way. We built occupancy a little bit because concessions were coming on and we thought that it was the right thing to do to allow those concessions to build strength for our platform to get better pricing performance in 2018. And so that's what we did, and that's what we built in our forecast with increased pricing 2.25%, 2.75% compared to what we talked about at NAREIT. But from our perspective, we didn't miss the fourth quarter from what we talked about, what we had outlined in our guidance and talked about in November.

Right, your revenue guidance was -- you had brought it down to 2% to -- 2.5% to 2.25% in the midpoint, and you came in at 2.11% -- 2.10%, so that would fall...

We have a range, I mean, from our expectation, we never said that our performance was exactly on midpoint. We have a range, and we -- and our expectations that drove the guidance and drove the earnings was in line with what we talked about.

And it appears we have no further questions at this time. I'll go ahead and turn it back over to you, Tim.

Thank you, Savannah. We have no further comments. Appreciate everybody joining the call. We'll talk to you soon.

And this does conclude today's call. Thank you, everyone, for your participation. You may disconnect at any time and have a great day.