Mid-America Apartment Communities Inc (MAA) 2013 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for participating in the MAA fourth-quarter 2013 earnings conference call. At this time we would like to turn the conference over to Leslie Wolfgang, corporate Secretary. Ms. Wolfgang, you may begin.

Thank you Justin, good morning everyone. This is Leslie Wolfgang, corporate Secretary for MAA. With me this morning are Eric Bolton, our CEO; Al Campbell, our CFO; Tom Grimes, our COO; and Tim Argo, as VP of finance.

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.

I will now turn the call over to Eric.

Thanks, Leslie, and good morning. We appreciate everyone joining our call this morning.

Core FFO for the fourth quarter of $1.20 per share was $0.06 per share better than we expected, with higher NOI performance and lower G&A cost driving the favorable results. Same-store physical occupancy at year end was a solid 95% and put us in a good position heading into 2014.

During the fourth quarter, same-store rent per unit increased 3.2% as compared to the prior year. Resident turnover remains low, with the same-store portfolio posting a 5% decline compared to the prior year.

Move outs associated with buying a home were consistent with the prior year driving 21% of total move outs. And move outs associated with renting a house continue to be a non factor and remain low, driving only 6% of our total move outs. As outlined in our 2014 guidance, we expect leasing conditions across the portfolio to remain healthy this year with same-store revenues increasing 3.5% to 4.5%, occupancy holding steady, and rent growth driving revenues.

Looking at the latest forecast of new supply deliveries and job growth, we expect leasing fundamentals across our markets in 2014 will remain steady as the ratio of new jobs, new supply is forecasted to be in the 8 to 1 range across our same-store portfolio. We expect to see our best performances in Atlanta, Dallas, Houston, Phoenix and Nashville.

The ratio for our secondary market segment of the portfolio continues to also suggest steady leasing conditions with the ratio of new jobs to new supply improving slightly in 2014 to a ratio of 10 to 1. Our portfolio strategy has historically focused on an objective of achieving a balanced, or what we refer to as a full-cycle performance profile, with the goal of lessening some of the cyclicality in performance that is generally driven by new supply pressures. We believe that our newly emerged portfolio with Colonial has enabled us to retain, and in fact strengthen, this objective.

Our redevelopment program completed just over 2500 units in 2013 and we generated, on average, an incremental 11% increase in rents. We are expanding the program this year as a result of our merger and expect to complete redevelopment on approximately 4000 units in 2014.

Our expanded program this year will remain consistent with the parameters that we have been executing on for the past several years with a focus on unit interior rehab and above market rent increases in the 10% range. Leasing momentum continues to go well at our four lease-up properties and we expect to have the entire pipeline stabilized by midyear.

In addition, construction continues to be on budget at our five new development properties, with our projects in Orlando and Charleston scheduled to complete construction this quarter. We expect to achieve stabilization on this new development pipeline starting late this year and into early 2015.

While we are currently looking at a number of other new development projects we expect future funding commitments associated with new development to moderate for MAA over the next year or two. We instead prefer to be focused on sourcing opportunistic acquisition opportunities of new development at this point in the cycle.

We continue to actively work on recycling capital for the remaining commercial properties and land assets acquired in our merger with Colonial. We completed the sale of the retail center Colonial Town Park in the fourth quarter, and are currently negotiating sell contracts on four of the remaining five operating commercial properties.

In addition, we remain committed to a program of the steadily recycling capital from a number of older, multifamily properties closing on the sale of $131 million of apartment properties in 2013. We expect to increase our disposition program this year and are looking to sell approximately $150 million of apartment assets.

In addition, as mentioned, we are also focused on continuing to recycle the non-core commercial and land assets from the former Colonial balance sheet. And as a result expect the sell a little over $300 million of assets this year.

And while the acquisition market remains very competitive, I am hopeful that one of the outcomes from the increase in new development activities in a number of markets is more opportunities to opportunistically add new properties to a portfolio later this year and into 2015. We have targeted $250 million in new acquisitions this year with approximately $60 million of this associated with our planned buyout of our partners interest in our joint ventured Mid-America Fund II.

Merger integration activities continue to go well and we're making great progress on establishing a fully consolidated operating and reporting platform. Thus far, our team has completed the conversion and consolidation of all payroll, human resource systems, general ledger and accounts payable.

We are now underway with the conversion to a common property management system and expect to have this important process completed by early summer. As we capture full consolidation of our operating and pricing systems we remain confident in the opportunities to be captured from higher efficiency and scale.

I want to also express my thanks and appreciation to all of our folks who have a working so hard to ensure we were in a position to operate and execute as a combined platform in 2014. We still have more integration work to do and I believe some great opportunity to capture later this year and into 2015, but we are off to a terrific start and I appreciate the hard work and success thus far.

That is all I have him way of prepared comments and I will turn the call over to Al.

Thank you. And good morning everyone. I'll provide some additional commentary on the Company's fourth-quarter earnings performance, the balance sheet activity for the quarter, and then finally on our initial earnings guidance for 2014.

As we outlined in the release, given the October 1 close of the Colonial merger fourth-quarter results reflect a full quarter of combined activity, with year-to-date results representing three quarters of MAA stand-alone activity a one quarter of combined operation. Core FFO for the fourth quarter, which excludes non routine items, primarily the merger and integration costs was $95 million or $1.20 per share, which was $0.06 per share above the midpoint of previous guidance provided. And about one third or $0.02 per share of this favorable performance was produced by the combined same store portfolio, primarily favorable operating expenses, and the remaining two thirds or $0.04 per share was produced by favorable G&A and interest expense combined, mainly related to merger activities.

The combined same store portfolio NOI grew 3.5% for the quarter based on 3.2% growth in revenues which was produced by 3.2% growth in effective rent. The operating expenses grew 2.8% for the quarter despite pressure from a 7% growth in real estate taxes which are about one-quarter of our total operating expenses. The legacy MAA and Colonial portfolios performed essentially inline during the fourth quarter, with the Colonial portfolio operating expenses benefiting in Q4 from the initial savings on combining the insurance programs, which produce about a 60 basis point expense growth improvement for the quarter.

As mentioned in the release, we acquired one recently developed community located in Fredericksburg, Virginia during the quarter for $45.2 million. And sold one older community located in LaGrange, Georgia for $10.4 million. These transactions bring our year-to-date acquisition volume to $129.2 million, including the remaining interest of joint venture communities acquired. And our disposition volume to $131.3 million total for the year.

Following the end of the quarter we acquire the remaining two-thirds interest in two communities from the Mid-America multi family Fund II, our remaining legacy- MAA joint venture for $38.8 million and we assumed loans totaling $31.7 million.

Also following the end of the quarter we closed on the sale of a community located in Columbus, Georgia for gross proceeds of $10.6 million. This sale completed our disposition plans originally projected to all close in 2013.

Construction and lease up on our developed pipeline continued to progress well. We funded an additional $25 million toward our multifamily development pipeline during the fourth quarter. We now have five communities totaling 1461 units under construction with a $68.5 million remaining to complete them.

We also have four communities remaining in lease up at the end of the year with average occupancy of about 82%. Two of the committees are expected to stabilize during the first quarter and the remaining two are expected to stabilize during the second quarter. Following the merger with Colonial our balance sheet remains strong and flexible.

During the fourth quarter we completed our inaugural bond offering issuing $350 million in 10-year unsecured notes. And we successfully exchanged $392 million or 87% of the outstanding Colonial public bonds for MAA notes, leaving $742 million of total MAA public bonds outstanding at year end. This exchange eliminates redundant and cost reporting requirements and increased volume of bonds outstanding through MMAs operating partnership is expected to enhance investor liquidity.

At year end 62% of our assets at costs are unencumbered, 48% of our debt is unsecured, and 97% of our debt is fixed or hedged against rising interest rates, with maturities laddered well over the next few years. Our leverage was 42.4% based on gross assets and our coverage ratios also remain very strong, with total interest coverage of 3.4 times and fixed charge coverage of 3.6 times for the quarter based on recurring EBITDA And at year end we had $586 million of cash and credit available under our line of credit.

Finally we are providing initial guidance for 2014 with the release. There will be some continued noise related to the merger and importing earnings for 2014 so we're giving guidance on the core FFO basis, with [stud exclude] merger related and other non routine items really with the goal of providing more clarity and comparability to prior periods. We also added a fair amount of detail in our supplemental schedules with the press release to help model the Company performance.

Core FFO for 2014 is projected to be $4.80 to $5 per share which is $4.90 at the midpoint, based on projected average shares of about $79.1 million. As we expected, core FFO for 2014 is impacted by the initial dilution from the nonproductive development pipeline in land parcels acquired from Colonial from the Colonial merger, along with the continued recycling of commercial multifamily assets as Eric mentioned.

As previously discussed in our investor presentations, we believe there's a combined $0.30 to $0.45 per share of additional earnings to capture over the next few years beyond the $25 million estated synergies that we have been discussing. We continue to bring the Colonial assets to the same productive level our balance sheet will capture these over the next couple of years. Core FFO per share is expected range between $1.12 to $1.24 in the first quarter, and between $1.18 and $1.30 for the remainder three quarters of 2014.

The primary driver for 2014 performance is expected to be continued steady NOI growth from our same store portfolio. Our estimate includes four-year same store NOI from the combined portfolio, a 4% to 5% based on a 3.5% to 4.5% growth in revenues, and 3% to 4% growth in operating expenses.

We generally expect continued strong pricing performance and stable occupancy levels through the year. We expect real estate taxes to be a continued area of pressure and operating expenses, projected to increase 6% to 7% for 2014.

We expect to be net sellers in 2014 with acquisition volume projected to range $200 million to $300 million for the year, and disposition volume in total commercial and multifamily to range $250 million to $300 million for the year. We also plan to fund an additional $65 million to $70 million toward completion of the current development pipeline.

Total overhead consisting of property management and G&A cost combined, is expected to range between $55 million and $57 million for the full year, with the full $25 million of projected synergies--stated synergies captured by year end on a run rate basis. Total combined transaction costs related to the merger are expected to be $55 million to $60 million in total, including $32.5 million incurred by MAA in 2013 and $18.5 million incurred pre merger by Colonial.

We expect to incur an additional $9 million to $10 million of combined merger and integration cost during 2014. And these transaction integration costs are all in line with our original underwriting and expectations.

Other key assumptions include plans to access the public bond market around midyear, to refinance the $450 million in maturing debt, and given the current level of projected asset dispositions our current expectations don't include the need for any new equity during the year. We expect total leverage to find net debt-to-gross assets to end the year between 42% and 45%.

That is all we have in the way of prepared comments, so Justin, I will turn the call over to you for questions.

(Operator Instructions )

David Tudi, Cantor Fitzgerald.

A couple questions, Eric, can you go into a bit more detail, if possible, on the scope and timing of the asset sales and specifically what kind of valuations we could expect to see on some of those?

We have roughly a little over $150 million of commercial assets, these are operating assets that we picked up from the Colonial merger. The values -- four of the five are under contract, we're in the market with the fifth one currently, but I probably shouldn't get into pricing specifically at this point, given where we are in the process. But I can tell you that the pricing we have on all of these are well within what we expected in our original underwriting and we feel good about the values and the price and we are looking at.

What is important to keep in mind is that, on these commercial assets -- these are all assets that are, being office and retail, going to be selling at a much higher cap rate than what we are planning to reinvest in multifamily, so they are particularly dilutive as we cycle that Cap at least near term. We certainly believe it important to get back to our focus solely on apartment real estate.

The balance of the plans for the year is roughly about $150 million or so in multifamily assets. We sold, as we mentioned, about $130 million last year. We think it is important to continue this steady process of cycling out of some of the older assets.

And again there is some dilution associated with that. It represents really about 11 or so properties that we have teed up for next year. That really is -- the spread on that is about 100 to 120 basis points is the assumption in terms of the dilution associated with the recycling on the multifamily. That hopefully gives you a little perspective David.

Relative to the multifamily, can we expect some of those assets to be in the non core markets like South Florida, Vegas and so forth?

Frankly, not Vegas, neither is South Florida. Frankly, what we are targeting are the older and lower margin investments that we have.

As it so happens, a lot of the older assets that we have are in some of the more tertiary markets in the portfolio. So what you are going to likely see, what you will see over the next couple of years, is continued cycling out of some of the more tertiary markets. There will be a few in some of the bigger markets, like Charlotte and Dallas, but it is really driven more by a belief that we can reinvest the capital into higher yielding, higher margin and higher longer-term value creation investments.

I also want to quickly add though, as I have said in the past, we are very much remain committed to this believe in allocating capital between large and secondary market, so as we are more active in recycling within the secondary segment of the portfolio, it is really moving capital out of some of the more tertiary markets into other secondary markets. So it will be moving out of Val Dasta, out of Columbus, Georgia, markets like that, into Charleston, Savannah, Greenville, Kansas City, some that we believe offer a little bit more dynamic job growth.

If I could tack one more small question on Al, is there a sub text to some of this churn to lower overall leverage for the firm or are you comfortable with current levels?

I would say, David, that we're pretty comfortable right now with current leverage, but over time we would expect to bring that in a little bit as we continue to work through this process over the next couple of years. We are in the 42% to 45% range right now, we will probably stay at the low end of that, and over the next couple years continue to go down. But right now we're comfortable.

Let me also just quickly add on that point. I think it is important when you start to think about leverage levels and you look across the sector at various leverage levels, I think the balance sheet leverage and where the balance sheet and how the balance sheet is being managed needs to reconcile to how the Company -- what the Company's overall strategy is. If we were a big developer and we had a big development pipeline with a plan to continue a big future funding commitment to our strategy, I can tell you that I would be pushing to get our leverage much lower than it is right now.

But, as you know that is not what we do. I think you have to reconcile your leverage in your balance sheet strategy to what you are trying to do overall as a company.

Ryan Bennett, Zaman and Associates.

Based on your performance in the fourth quarter with occupancy loss in both the Mid-America and Colonial portfolio, and based on your comments that occupancy is staying roughly flat over the next year, where are you expecting in terms of your rank growth trajectory for both your large and secondary markets in 2014?

I will give you overall blend, this is Al, Ryan, and I can tell you what we are expecting for the year. In terms of performance for the year, we're expecting pricing and occupancy stable pricing to be about what it is, slightly moderated. First quarter carrying the fourth-quarter trends in, and then second and third quarter beginning to have a little higher velocity because those are the high-traffic months.

But for the year the overall pricing performance being a little less for the typical portfolio that we have this year. Remember in the guidance we do have impact also from opportunities from the Colonial, some synergies, and so for that portfolio there's a little more than just the normal performance expected in revenues this year that does impact our top line.

On the occupancy front, we don't look at that as an odd trade-off. On occupancy trending down a little bit from third quarter to fourth is normal seasonality, and we wouldn't expect it to stay flat at this point. We would expect it to grow over time across the board.

It is important to draw distinction between the shift in the MAA portfolio and the shift in the Colonial portfolio. On the occupancy side you have got to look past the actual ending physical occupancy and look at the average daily, or the effective occupancy. For MAA it was 94.7 in the fourth quarter or in the third quarter, and moved down to 94.2 just to drop a few basis points, which is perfectly seasonal.

On the COP side you really have to go back and look at the -- look at their goal for the third quarter, which was to bring occupancy up from the mid 94 that it was at the beginning of the third quarter. They did that beautifully, but gave up a little bit of rent on that and probably overshot the mark.

They came into the fourth quarter with sub 7% 60 day exposure, so there trade-off was a little bit less. We expect occupancy to grow from this point forward. We are at 95.2 for January and in good shape on exposure.

I appreciate the color there. Al, back to your point on the Colonial assets and the rant growth, is that something that we can expect in the back half of the year as you talked about those assets coming online with your revenue management system?

I think you can expect two things, Ryan. One is, as Tom mentioned, the second and third quarter you have a very favorable comparison because when we start talking about the merger last June, there was a slip in the occupancy in their portfolio in second quarter. They worked hard in the third quarter to get it back, got it back, but there will some favorable year over year in the second, some in the third quarter.

And then in the third and fourth quarter you will begin to see the impact of some of these synergies as some redevelopment program, some these other things that we are beginning to do begin to play through the portfolio. More in the second and third and fourth quarter you will see that.

Just to follow up quickly on the redevelopment in terms of your level of spend that you are expecting this year and how much of that will be at the Colonial assets versus MAA?

We will do about 4000 units and that is about doubling our current pipeline and 2000 those units will be in the Colonial side. They did not have a similar program.

Just to give you context about same cost level, which will put you around $18 million, or $15 million to $20 million we will spend for the full year, Ryan.

Karin Ford, KeyBanc capital.

Just a couple more questions on guidance, on the same-store revenue growth guidance that you have. Can you just break it down what you are expecting between the small versus the large markets, and what you're expecting Colonial versus the Mid-America portfolio to do in 2014?

Karin we really don't specifically break down between large and secondary on that. We do it property level, build it up, I don't think that is something we typically want to really put out on our guidance.

I will say that we do expect the large markets in our projections to, as we've talked about, have stable performance but moderate a little bit. And our secondary markets to tighten up a little bit, close that range a bit, not to close them if the gap is pretty larger this point we do see some progress in 2014, but not the full GAP close.

We do think, as Al says, we do think the secondary market component of the portfolio will be a stronger performance for us in 2014 then it was in 2013. Certainly the GAP will begin to moderate a little bit. We look for this component of the portfolio to be a real stabilizing influence in our performance and we certainly think that is going to be the case this year.

On the other part of your question regarding the difference in 2014 between the legacy-MAA and the legacy-Colonial portfolio, we do think that the Colonial portfolio will outperform a little bit in 2014 relative to MAA, only because of the points that Al was mentioning earlier, we think there is some opportunity on the yield management side, and particularly in Q2 and Q3, to do some things to address some of the things that took place last year in 2013. Not have those things repeat in 2014. And we think on the net basis that is going to ultimately drive a higher level of revenue results out of Colonial portfolio than it is out of MAA, but on a blended basis, you have got the number there.

Next question on guidance, what is included in the core guidance with respect to the mark-to-market adjustment?

The mark-to-market adjustment was in total about $90 million that we put on our balance sheet with the merger. I think what we have in our fourth quarter -- is it $24 million, Tim? I think that it is -- expected to be $24 million to $25 million for 2014. But I will tell you, Karin, we are wanting to, as we looked at 2014 -- this is the first time we're putting out guidance for the year, obviously, and as we looked at the projections an analyst put out for 2014 before we had this guidance out, it really was all over the place. And we are trying very hard to give a lot of details in this call and in the supplements to really help focus and put everybody on the same page, if we can.

I say that to say, we are focusing on core FFO, which will exclude the merger cost and will exclude that fair market value adjustments. That is a favorable non-cash, favorable adjustment that hits FFO, NAREIT FFO, but we looked at since it is non cash, we thought the right thing to do for investors was to pull that out and to show core FFO without that. I will tell you that is the number. It's going to be $24 million, $25 million but we are going to exclude that in our core FFO.

No, that's helpful. Thanks for that clarification. Can you talk about -- I know you mentioned earlier that the cap rates on the dispositions, including especially the commercial sales is going to be higher than what you are buying on the acquisition side. Without giving specific cap rates, can you talk about what you think the spread will be on cap rates between dispositions and acquisitions this year?

On the commercial you are talking 250 basis points, the commercial are typically higher yielding, higher cap rate assets, you are talking 250 basis points.

And on the multifamily that you are selling versus buying?

Probably about 100.

A little over 100.

That's helpful. Last question, you mentioned in your remarks that you prefer acquisitions over developments today. Can you talk about why, what you're seeing in the environment and what causes you to feel that way?

I think it really is a realization that there is a lot of development in a number of these markets that is coming online. Particularly in the markets, a lot of these sunbelt markets -- a lot of this development is taking place by developers who are not really in the business of owning this product long term. We have demonstrated a history, frankly, we have had the opportunity to compare yields that we are getting on some of the development that we have in some cases pre purchased or development that we have bought in a more opportunistic way, and contrasted that against the yields that we are getting on the development that Colonial was doing. I can tell you that the spreads, the yields, are right on top of each other.

From my perspective, particularly at this part of the cycle where there is more supply coming into the market, we feel on a risk adjusted basis that we can bring brand new product onto the balance sheet at yields and value that is equivalent to what the yields would be if we were building it ourselves. And of course we're not taking on the risk to do that.

We just continue to believe that one of the ways that you manage the balance sheet and manage long-term earnings in this reach of the country is to be very -- in my mind you really limit how much you want to do in development, in particular this part of the cycle. You want to be more on the buying side as opposed to developing side.

Haendel St. Juste, Morgan Stanley.

This is actually Greg Van Winkle standing in for Haendel. First, just want to get a little more clarity on the Colonial merger synergies and how that is impacting your guidance for same-store NOI growth. Assuming there is some property level synergies baked into that 4% to 5% guidance you put out, could you quantify the impact of the synergies on that same store NOI guidance for us?

I can Greg, this is Al, and as we talked about, we expect the synergies both in the revenue line and the expense line. Probably a little more expense in 2014, call it a 60/40 split.

We have somewhere in the $5 million to $6 million range that we expect to capture in the year related to that, and if you do the math and back into that you are talking somewhere in the 75 basis points to 100 basis points impact on the combined portfolio NOI performance. For the quarter, I mean for the year.

One more if I could. Could you give us a little color on what you're seeing in financing availability for B assets and the secondary and tertiary markets? We have been hearing that the financing environment is drying up a little bit at the lower quality end, which sounds it's mostly what you are selling. Just want to get your take on that.

We haven't really seen any evidence of that as mentioned. We just closed on the sale of a property in Columbus, Georgia. We were pretty active in the market up until third and fourth quarter of last year and all the deals that we had under contract, our sellers often, private capital sources, everything worked, they got the financing, there was no real pushback or retrade on anything.

Certainly having been out to the national multi housing council's annual meeting a couple weeks ago, the appetite for our products is, I can tell you, huge. There's a lot of people interested and I think there is no indication that we have seen that financing is a problem.

Josh Patinkin, BMO Capital Markets.

It looks like exposure to large markets increased with Colonial's portfolio and with job growth to new supply stronger in small markets. I am curious, two part question, what are the dynamics that contribute to that? And the second, why not pursue more development in smaller markets right now?

The dynamics contributing to -- Colonial had about a 70/30 split in terms of how we define large versus secondary and we were about 60/40. On a blended basis we're about 65/35. Honestly that is kind of right where we wanted to be.

Obviously we didn't do this transaction with the idea that we are trying to maximize performance in 2014 or 2015. That is a much longer horizon that we are taking to this thing.

We think that as we get into an up part of the cycle, what we have historically always found as we've certainly seen over the last two to three years, this is a large market component of the portfolio tends to outperform. Obviously if you go back to 2008, 2009 timeframe, early 2010, our secondary market segment was actually outperforming.

Back to the point I was making earlier about, our effort is to really try to achieve an optimum full-cycle performance profile to the portfolio. What drives the fundamentals in both large and secondary markets is the same thing, it is obviously job growth and demand and supply. These large markets is where most the supply is happening right now, and that is why you're going to see more moderation take place in large markets versus the secondary, which tend to be a lot more stable.

Having said that, it doesn't take a whole lot of supply, obviously, to create an imbalance in some of these secondary markets. Rather than ramp up development in these secondary markets, we just continue to sit back and wait and let the projects that do take place there offer an opportunity for us.

Having said that, what little bit of development we have done in the past, in terms of MAA's history, it has been in the secondary markets. We did Charleston, we have done Little Rock, we just finished one in Nashville. You are unlikely to see us going forward.

What little development we do you're not going to see us do it in Dallas and Atlanta and places like that. There's plenty of that going on there. Our point is, we do focus on the secondary whenever we do, when we're the part of the cycle where development in my mind does make sense.

I see, so just a handful of projects in the secondary markets can absorb a lot of the new job growth coming online?

Yes, exactly.

Some of the opportunistic acquisitions you talked about, would you foresee taking place in the secondary markets to help the portfolio balance back?

No, we like where the balance is, so we are not in any effort to shift anything around from large to secondary. We're looking for opportunity in both large and secondary.

I think that frankly where you are likely to see some of the better buying opportunities over the next couple of years, is in some of the larger markets, simply because that is where a lot of the supply is coming on line. I think some of these markets that tend to get perhaps a little bit over built from time to time, there may be some very good opportunities emerge in markets like Raleigh, in Austin, some of the markets that are arguably weakening a little bit more. And undoubtedly when some of these projects were started and penciled out a year or two years ago, my guess is some of them are not going to lease up quite as fast as some of the developers had hoped, and out of that emerges opportunity.

Michael Salinsky, RBC Capital Markets.

Tom, just to go back to a question here. As you walk through the same-store revenue guidance, can you give us some components how much of the midpoint of 4% is occupancy versus rate growth?

Then the other question I think has been asked several different ways, the other $0.30 to $0.45 that you have talked about, how much do expect to realize in 2014 versus how much of that is more 2015, 2016?

I will let Al walk us through the split on forecast, and then I will follow up with the development synergies, and I will go ahead with those. We have got -- in 2014, we will see $1.3 million worth of property and casualty savings. Redevelopment will generate about $1 million.

On the R&M side, we see opportunity, they were -- tended to be more structure and managed to a specific benchmark. We tend to give ranges on things like efficiency and they may be at the benchmark but what may be better for that property is well better than benchmark. And along those lines, they did not do any in-house corporate cleans, we expect to do half of those in house, that will save us about $900,000.

We also get $400,000 on scale for R&M expenses. We feel like revenue management opportunity is about $500,000, and that just gives you general taste of where the opportunities lie.

I will give you the split on that Mike, in terms of revenue. If you look at the normal performance for the portfolio outside of the synergies that we talked about from Colonial, we would see pricing performance be in the 3.5% range, with occupancy increasing on the average 30 basis points.

So the normal portfolio activity, call it 3.8% total revenue growth for the year. On top of that you have the synergies that we talked about from the Colonial portfolio that give you the full performance. So hopefully that gives you what you need.

Second question in terms of development,. Eric, it sounds like you are looking at a couple, should we expect additional commencements in 2014, or has that all been tabled at this point to really focus on acquisition?

Were looking at a couple of things, Mike, but we haven't really talked to the board about it but in most -- in both cases, frankly, what we're looking are phase II opportunities where we already own the land. We have got an opportunity up in Virginia, we have got an opportunity in Orlando that we are taking a hard look at right now. It will be limited but in both cases, if we do anything this year it probably will be something along those lines.

Third question, you bought out two joint venture properties in the first quarter. You have two more remaining with your JV partner in one of the funds. Is there a plan to bring those in house as well?

We are going to bring in house one of those and we're going to take to market to sell the other one. But we expect that fund to wind down this year.

Finally, the $125 million to $175 million of commercial in landfills, can you break that up between what you expect to be commercial and what you expect to be land? The reason I'm asking is obviously the land isn't contributing any earnings, the commercial is. So as you look to 2014 -- as you look to 2015 and 2016 kind of trying to get the earnings impact there.

That explains of the 2014 noise we talked about, Mike, and the vast majority of that in 2014 is going to be the commercial properties. We are working hard to sell and it is the right thing to go ahead and simplify the business. But the Brookwood asset, the Nordilac asset, and the Crafts Farm asset, we're looking to sell those during the year and that makes up the majority based on our value of the $310 million, roughly, right at about 10% of it is land value. The vast majority of it is earning assets if you will.

You will see the land value be more impacted in 2015 as a move to sell that and it is that would -- now you begin to add earnings in.

With the Brookwood and a couple of the ones, I think you mentioned Nordilac, some of those have development land and entitlements that you will sell the whole thing?

Yes.

Tayo Okusanya, Jefferies.

I am liking this merger with David Tudi. (laughter) Just out of curiosity, when you take a look at your markets, any market out there were you're starting to get a little bit concerned about new supply?

Yes, Tayo, it is Tom. I think the two that we're watching, or the two that we were watching last quarter is Austin and Raleigh. Both have relatively large chunks of supply coming on.

Raleigh, if you just look at the numbers you would think it was past it because a bunch of it came online in 2013 but most of that supply was back ended so we're just beginning to feel that. That said, both have awfully resilient jobs machines in them, and I can see there [tell off] being short lived but we are concerned about those two.

Al, I just wanted to confirm my understanding of some of the synergies because I know we go back and forth on this, but the $25 million, that has been put out there on an annualized basis, you are expecting about $6 million of that to show up in 2014?

No, let me clarify this, Tayo. That is a good point.

The $25 million is the overhead or G&A synergies that were stated when we talked about the merger. We will capture virtually all of that in 2014. Or the vast majority with a certain amount trickling into 2015 but most of it in 2014.

We will be continuing, our run rate by the end of this year will be reflective of that.

The full amount. That is exactly right. The other is, we have been talking about -- now if you put the two companies together and you take the FFO that they both have pre merger, add them together and take into account the benefit of the $25 million. You add them together and take out 25 divided by the combined shares you are still about $0.20 to $0.25 per share diluted.

What we have talked about is that we have opportunities whether it be the non-core land, the development pipeline leasing up, the redevelopment program that gives us an opportunity for additional $0.30 to $0.45 share on top of that stated synergy. We are going to capture about $6 million of that in 2014. It is a lot of work to do that than we're capturing in 2015 it'll be a lot more meaningful and some in 2016, but that was what we are talking about.

Tom Lesnick, Robert W Baird.

I'm standing in for Paula this morning. Following up on Ryan Bennett's questions on occupancy rate and revenue management. Vegas saw year-over-year decline of both occupancy and rate but has little new supply.

How are you guys thinking about those asset? Do you think you got them at the trough and what are your expectations for growth in Vegas relative to your other markets and 2014?

It is two properties in Vegas, both on the North side of it. Frankly the market is doing pretty well. We have got one property firing on all cylinders and one property that we have got a few things that have been adjusted and we are optimistic about how it will do. Just operationally in Vegas we feel pretty good about it.

( Operator Instructions )

Dave Bragg, Green Street Advisors.

Recognizing your stated plans for the Fund II assets, Eric, can you share your general thoughts going forward on potential JV activity?

At this point we don't have any plans for any additional JV programs. We feel like having JVs involved with us from time to time is usually we were trying to address a specific need or offload some risk, various things of that nature that compel us to look to JV.

I don't think about it so much as an effort to really establish a new funding source. We think that with the assets that we have got and what we have the balance sheet, candidly just don't see a particular need for any sort of JV structure to come into play, based on everything that we know today.

Having said that, obviously, if an opportunity were to emerge of some sort that we felt worse pursuing and a JV could be useful, in terms of diversifying risk or structuring the financing in some way that would create value for our shareholders, we would certainly look to put a JV in place. We have done several of them over the years with a lot of very sophisticated partners, but at this point we have no need or plans to do any additional JV work.

Just a disclosure item for you, Al, can you provide the sequential same-store figures for revenue expense and NOI growth for the combined portfolio? I don't think I saw that in the supplement.

I can give that to you, Dave, and sequentially it was the revenues were down 0.4% which is seasonal. The expenses were down 7% which were two things. In the fourth quarter we do expect some seasonal sequential decline from operational expenses going down, but we also had the impact of Colonial had a third quarter, they had a lot of noise related to merger adjustments, and things like that, they were making to prepare for the transaction, so that was part of that. So NOI was 4.4% growth. 4% down on revenues -- 0.4% down on revenues, 7% down on operating expenses.

Buck Horne, Raymond James.

Forgive me if I missed it. Did you guys give how pricing is looking in January both either new leasing and renewal pricing so far?

We did not. On a year over year, the leases signed in January were up 4% for the combined portfolio, and renewals were up 6.5%, again renewals achieved.

Is that an acceleration from what you saw in the fourth quarter?

Renewals were up a little bit, but, no, the fourth quarter on year-over-year leases was also right at 4.1%.

Eric, I am just wondering what are the real constraints to supply entering some of the secondary markets? Is a really just the lenders aren't willing to lend in those markets right now or what is the constraint and when do -- when does development start to get started in the secondary markets?

I think what we need to see is more robust recovery in the economy and more job growth. I think if we got to a point where the job growth began to accelerate and bled more into the secondary markets and the demand picked up, my guess is that the number start to work in a more compelling way to ramp up development in some of the secondary markets.

I think right now I don't know whether it is necessarily a lack of access to financing capital, but I think at least reasonably disciplined equity capital is going to be a little bit cautious about ramping up supply in the secondary markets until we see more job growth.

Are construction costs rising? Are you seeing outside of inflation and competition for labor, right now, in some of these markets?

Yes, there is always a good point too. You are right, it is. Of course we are not out actively trying to price out jobs, but based on everything that we see and folks that we talk to and developers that we talked to, certainly rising construction costs are there and I think that is acting as a bit of holding down some supply pressure as well.

At this time I'm showing no further questions. I will now turn the call back over to management for any closing comments.

We appreciate everyone joining us and we will see you I am sure, over the next couple of months. Thank you.

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