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Post Properties (NYSE:PPS)

Q4 2013 Earnings Call

February 04, 2014 10:00 am ET

Executives

David P. Stockert - Chief Executive Officer, President, and Director

Sheila James Teabo - Head of Property Management and Executive Vice President

Analysts

David Toti - Cantor Fitzgerald & Co., Research Division

Nicholas Yulico - UBS Investment Bank, Research Division

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Nicholas Joseph - Citigroup Inc, Research Division

Michael Bilerman - Citigroup Inc, Research Division

Ryan H. Bennett - Zelman & Associates, LLC

Jane Wong - BofA Merrill Lynch, Research Division

David Bragg - Green Street Advisors, Inc., Research Division

Karin A. Ford - KeyBanc Capital Markets Inc., Research Division

Operator

Good day, everyone, and welcome to the Post Properties Fourth Quarter 2013 Earnings Conference Call. As a reminder, today's call is being recorded. [Operator Instructions] At this time, I'll turn the call over to Mr. Dave Stockert for opening remarks and introductions. Please go ahead, sir.

David P. Stockert

Thank you, and good morning. This is Dave Stockert. With me are Chris Papa, our CFO; and Jamie Teabo, Head of Property Management. Welcome to the Post Properties Fourth Quarter Earnings Call.

Statements made on this call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. A number of factors could cause actual results to differ materially from those anticipated, including those discussed in the Risk Factors section of our 2012 annual report on Form 10-K. Forward-looking statements are made based on current expectations, assumptions and beliefs as well as information available to us at this time. Post Properties undertakes no obligation to update any information discussed on this conference call.

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

I'll now begin the business of this call.

For the year 2013, we grew core funds from operations, excluding condos, by double digits, and group core AFFO by 8%. Over the past 3 years, 2011, '12 and '13, we have grown core AFFO, again excluding condos, cumulatively by more than 80%. The goal of driving a higher run rate of core cash flow or AFFO is one we have been very focused on. We accomplished this substantial growth in cash flow while also materially improving the balance sheet, reducing aggregate overhead as a percentage of revenues and maintaining or enhancing the company's overall asset quality through development-selective acquisitions and dispositions. In 2014, we expect to grow core AFFO at the midpoint of our guidance by about 9%.

I'll now turn to same-store guidance. Our revenue growth assumptions include increases on new leases averaging 3% in 2014 and increases on renewals averaging 4.4%. These are modestly lower than the 3.5% new lease growth and 5% renewal growth we achieved in 2013 and reflect our view that supply will be incrementally more of an impact in 2014. Our assumption is for flat average occupancy year-over-year. So far, for the months of January, February and March, renewal increases are averaging right at 5%. New leases in the month of January were up 0.8%. Now there may be some confusion as to how new lease growth of roughly 3% and renewal growth of roughly 4.4% for 2014 can lead to year-over-year revenue growth of less than 3%. The answer lies in the sequential movement of the rent roll. You can see on Page 8 of the supplement that average rents for the portfolio, which is essentially the proxy for the rent roll, are up 2.7% year-over-year in the fourth quarter. In order to maintain that same 2.7% year-over-year delta throughout the coming year, we will need to drive a comparable level of sequential growth in the rent roll in 2014 to what we produced in 2013. We do that through higher new and renewal lease rates. And as I mentioned earlier, we think we will be fairly comparable to the new and renewal lease rates we achieved in 2013.

At the same-store expenses, there are 3 areas where we will see essentially all of the increase we are forecasting. We expect to incur another roughly 8% increase in real estate taxes on a mix of assessed values and rates. Property taxes account for roughly 40% of total operating expenses. So right off of that, total expenses are up more than 3% on taxes alone, 40% times 8% is 3.2%. We will continue to vigorously contest assessments where it's appropriate and still have 19 properties under appeal from last year and 4 properties under appeal from 2012. Now I'm quite certain that we will add a number of new appeals in 2014 as well. The rate of increase in real estate taxes is moderating, although not as fast as anyone would like. We will inevitably get to the end of this revaluation cycle, and while it's cold comfort, we are that much closer. The NAV of each of our assets should not in theory be affected by these reassessments since buyers customarily underwrite a tax revaluation to fair market value.

The second area of same-store expense growth is personnel, which will contribute a bit more than 1% to the overall growth rate. As you will see again on Page 8 of the supplement, same-store personnel expenses declined by 4.7% in 2013. This was not planned. It occurred largely because our on-site staffs struggled to achieve income bonuses in 2013 as revenue growth for a number of properties was not as strong as we had budgeted. Looking further back, over the past 7 years, same-store personnel costs have essentially been flat on a compound basis, as efficiencies on site have offset modest increases to compensation and benefits. We know that the #1 driver of customer satisfaction is the quality of a resident's interaction with our on-site staffs, and we want our on-site associates to be able to have the opportunity to meet their revenue and NOI goals and serve our residents and we have budgeted accordingly for 2014.

The last area of increase, which also adds about 1% to the overall operating expenses, is repairs and maintenance, and specifically expensed exterior painting. Our accounting policy is to expense rather than to capitalize these costs. In a year like this, it would be tempting to cut these expenditures. However, regular painting is too important to the long-term asset preservation. And cutting these expenses this year would also simply move the expense increase to 2015, and there is no point in that.

The increase for paint is roughly $1 million. More than offsetting that increase will be a reduction in capital expenditures on the same-store pool of well north of $5 million. This reduction is due to our not having to repeat a couple of large and unusual projects we completed in 2013, namely replacing the fire sprinkler system for an asset in Northern Virginia and rehabbing the brick and terra-cotta exterior of a 100-year-old historic renovation in Houston. As a result of substantially lower planned CapEx, the AFFO generated from the same-store pool is expected to grow by more than 5% even as NOI growth is up only a nominal amount. We are paying attention to the very substantial amount of spending that goes on below the NOI line in CapEx.

Augmenting the results of the same-store pool will be the more significant contribution from the communities in lease-up. The current development pipeline is entirely funded by cash on hand and operating cash flow, so the pipeline should be a source of incremental growth for the next few years. We currently have 5 other existing land parcels all on the balance sheet that are in planning for possible development starts. I believe we will start a couple of them later this year, but we intend to manage the risk of the development pipeline at this point in the cycle.

Beyond working on the development projects that make sense, this year will be one of net asset sales. We are targeting to sell $200 million to $250 million of existing assets, with the proceeds reinvested primarily in a mix of debt reduction, special dividends and share buybacks. We are currently in the market with the first of these planned sales.

We believe we can achieve attractive pricing that reinforces the value of the company and believe harvesting some value makes sense in the current environment. As you will note in the press release, we have given guidance excluding the impact of asset sales since their timing and short-term use of net proceeds is difficult to accurately predict at this time. We do, however, believe that we can reinvest the proceeds of asset sales in ways that will substantially preserve the longer-term earnings and cash flow potential of the company, return capital to shareholders and maintain a very strong balance sheet that embeds substantial future flexibility and opportunity. As we complete asset sales, we will disclose sufficient detailed information for you to assess our rationale or expected use of proceeds and the resulting impact on the short-term earnings and longer-term value of the company.

Finally, in 2013, we launched a comprehensive update of our technology platforms, including our website, social media, core operating systems and related business processes. Much of that groundwork was late in 2013. The remaining work will be completed in the coming year. This work will lead to a better customer experience and the realization of operating efficiencies over time as we improve the workflow in many parts of our business.

To conclude, I want to make the following points. The company is coming off 3 very solid years of growth in cash flow or AFFO, aggregating more than 80%. We have been efficient at driving the bottom line. We believe we can grow AFFO by another roughly 9% this year. Revenue growth is moving to a rate likely to be more sustainable over the course of this economic cycle and that better tracks changes in the income levels of residents and prospects.

Rough as it's been, we are one step closer to the end of this tax revaluation cycle. The balance sheet is in excellent shape. We are retaining substantial cash flow. The development pipeline is fully funded. And there are levers we believe we can pull with asset sales and the redeployment of those proceeds. This year is going to provide plenty of motivation to keep a sharp eye on honing the business. I have great confidence that our team and our associates will meet that opportunity.

That concludes our remarks. Operator, please open the phone lines to Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] First, we'll go to David Toti with Cantor Fitzgerald.

David Toti - Cantor Fitzgerald & Co., Research Division

I just have a -- I want to touch on a couple of topics, Dave, that you mentioned relative to strategies going forward. And it sounds to me, if you're net harvesting assets that you view as mature and some of the proceeds are going into development, but obviously you mentioned special dividend and share repurchases, is a subtext to that strategy shrinking the company or changing the profile of the portfolio?

David P. Stockert

I would say the answer to that is no. I mean it's not an objective to shrink the company. It's just simply a recognition of deployment in a cycle where we are today. It's pretty tough to -- when we look at acquisition pricings, to make sense of that. Now the corollary is disposition pricing is strong. And the way we create the most value is through development, so we want to make sure that we can fund that activity for growth. But it's always been our custom for 40 years to periodically harvest older assets, and that's what we'll do.

David Toti - Cantor Fitzgerald & Co., Research Division

And then in terms of the surplus capital potentially after the development funding is taken care of, how do you weigh those different options internally, buybacks, special...

David P. Stockert

We'll weigh it, David, as we go, obviously. We'll just have to see what the conditions look like. I would suspect there's some component of special dividends that we would have to deal with. We are developing strategies to mitigate that to the extent possible. I would suspect that we will want to -- because we're reducing the asset base, we will reduce the leverage because it's very important in our minds that we -- that the balance sheet is viewed as something that has embedded future flexibility and opportunity in it. And we wouldn't want to change the leverage. And then we'll obviously assess the stock price and against other alternatives and look at that as well. But we will do all that as we complete sales.

David Toti - Cantor Fitzgerald & Co., Research Division

And then my last question. You mentioned obviously a greater supply impact. Can you give us some specifics on where you expect that to really materialize during the course of this year?

Sheila James Teabo

Yes. We're still seeing supply pressure in Uptown Dallas and North Dallas, and with more properties coming online in 2014. Charlotte is seeing, in the south end and uptown area, new supply that's just coming online in the last few months, with more coming later in 2014. And then we continue to see trickles-in of new supply in the DC market, and we'll continue to see that and as '14 progresses. And then lastly, Austin; we've seen some new developments already come online. There are plenty more coming. So although we still like Austin, I think it's going to be a good market for us in 2014, the growth will not be as strong as we've seen in the last few years.

Operator

And next we'll go to Nick Yulico with UBS.

Nicholas Yulico - UBS Investment Bank, Research Division

On the same-store revenue guidance, I was hoping to get some more info on what you expect for the -- some of your bigger markets, DC, Dallas, Tampa and Atlanta, this year.

Sheila James Teabo

Sure. We still expect to see Houston and Atlanta as our top performers. Those 2 did well in '13 and we expect them -- although, their performance to be tempered year-over-year, we do expect those to be in the top. We actually are expecting all of our markets, with the exception of New York, to decline year-over-year -- or the revenue growth from '13 to '14...

David P. Stockert

The rate of growth.

Sheila James Teabo

The rate of growth, correct. The only one we obviously see negative is DC, which we have seen negative for the last few quarters. So we are expecting them to be negative in 2014 as well. We're looking at about a negative 1% in that market. And we're looking for Atlanta to be sort of in the low to mid 4s and Houston to be in the high 4s. Dallas, which is another big market for us, is sort of hovering right in the mid 3s. Austin is just below that, as well as Tampa, and then rounding out would be New York and Orlando. And just sort of a note on Orlando, it's 2 assets, 1 of -- is competing with our third-phase lease-up, so that's tempering the performance of that 1 individual asset in that market.

Nicholas Yulico - UBS Investment Bank, Research Division

Okay. And then I mean if you look at your expense guidance, there's -- obviously, there's some piece of that, that's repairs and maintenance, which is sort of an optional expense this year. But maybe as you look out going forward, I mean what's a reasonable same-store expense number that you guys think you could eventually get to if you think that property taxes are not going to be as big of an issue in 2015? And is it still -- because you're still then -- I mean if you're at 3% on expenses, your revenue growth, it seems like, could still be below that so you're going to get negative operating leverage. I mean, how are you guys thinking about that at this point?

David P. Stockert

Well, I think we've done a -- if you look at the last several years, I mean the -- 100% of what's driven the expense increase in the last couple of years has been taxes and insurance. And Jamie and her team have done a great job otherwise mitigating that. As we've said before on other conference calls, I think that, that mitigation gets harder as we go, but we'll scrub it down and do what we can. The big driver of the overall expenses is if tax increases, do slow down, which they will, we're getting -- obviously, the revaluations are getting a lot closer to full value, and a lot of jurisdictions have that intention, but eventually, just like the rate of same-store revenue growth, when you climb a big hill on the one side, you come down the other side. Eventually, that rate of increase in property taxes will start to moderate. And being 40% of the tax -- of the expense load, that's huge for us.

Nicholas Yulico - UBS Investment Bank, Research Division

And going to the asset sales that could occur, you mentioned costs, I believe, reducing -- using some of that to reduce leverage. Are you seeing -- or is that common more, though, towards keeping sort of your leverage ratio intact so that, if you sold 250 million of assets, you would use, say, an equal part to reduce debt and the other part could be to buy back shares?

David P. Stockert

I think it's -- again, it's a mix. But yes, we do care about the balance sheet, what it looks like, leverage, coverage, and then we'll have to determine the extent of special dividends. Obviously, that tends to be the leakage. Otherwise, you can -- I -- we think we can reinvest proceeds in ways that preserve the earnings potential of the company because I think the cash flow yield on the assets that we sell is potentially lower than either the cost of the debt we would retire or the cash flow distributions or the cash flow yield on the stock we might repurchase. Obviously, to the extent we have a special dividend, that's returning tax -- efficiently capital to shareholders, but that's -- that does leak capital outcome.

Nicholas Yulico - UBS Investment Bank, Research Division

I guess just the last question on the asset sales is, I mean why not, explicitly at this point, say that you guys are going out and going to sell a big portfolio of assets because the stock is trading cheaper versus where the assets are trading, and your buyback stock with that? Instead, you're kind of saying that you could do that, when you only bought 25 million of stock back last year. I mean wouldn't that be...

David P. Stockert

Well, I think what we're saying is that we intend to sell $200 million to $250 million. We aren't selling it to fund development. We got that covered. And so that's going to create incremental capital, so we will need to do something. So the particular mix is going to depend on the relative attractiveness of the options that we have with that capital, but that is what we're saying.

Nicholas Yulico - UBS Investment Bank, Research Division

Okay. So I mean, presumably, if you had this cash on your balance sheet today, it would be higher and its best use will be to buy back stock.

David P. Stockert

Again, might be. It might be. We're going to look at NAV. That's a number and that's not an insignificant number, but the cash flow yield on the shares of stock also matters because I think cash flow, at the end of the day, matters a lot. And so we're going to look for opportunities to reinvest on a way that -- in a way that's cash flow -- I mean I'd love to do it cash flow accretive.

Operator

And next we'll go to Jeff Gaston with Keybanc Capital Markets.

Moving on, we'll go to Alexander Goldfarb with Sandler O'Neill.

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Just following up on mix, I just want to clarify. The $200 million to $250 million of dispositions, Dave, you're saying that, that is to -- that's not to fund development, that's ostensibly to fund stock buybacks.

David P. Stockert

Well, I mean it's -- well, it's to fund a mix, all right? The development pipeline as -- at present, okay, is fully funded. If you look at what we have left to spend on it, what we have cash on the balance sheet at year end and what we're going to generate just to retain cash flow, we can pay for that. Depending on the number of assets we have in the pipeline, we do generate a fair amount of retained cash flow. And so there's some ability to finance development because, development spend, they don't happen in these quick chunks. It happens over time, obviously. So some of the sale proceeds might be earmarked for development, but it would be more likely to -- the way you'd see that show up is you'd see us, again, reduce the debt balance of the company so that the company has the ability -- retains the ability to continue to expand the pipeline as it makes sense over time. So there's a mix of that. There'll be a mix of special dividends and there'll be a mix of share buybacks...

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Okay. But if we...

David P. Stockert

Depending on what all looks attractive.

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Right. But if we look at the company, and you guys are no different than other small REITs, it's that one of the issues is just the size, as far as getting size and scale to make the -- to bring the multiple down. I mean one thing that you guys had spoken about a few years ago was not wanting to shrink the company because you wanted to grow the platform to improve the multiple. And I guess what's a little bit frustrating is, a few years ago, you guys were delivering strong results. And then the tax pressures started, which we all got our arms around, but this year, there are a bunch of things -- the painting, surely was known beforehand. So I'm just wondering, are there other things that work? I mean we understand that revenue, that apartment rent trends can be decelerating, but are there other things that work where maybe there have been changes either internally with the way you guys look at expenses or the budgeting process? But are there things that are going on that maybe you're giving rise to why some of these expense items are surprising the street?

David P. Stockert

Well, let's start with painting, Alex. You're getting wound up on $1 million of painting. You'll recall that we did a big massive exterior renovation program about 5 years ago, all right, where we went after a lot of assets all at once. The cycle is now starting to come back around, where we need to paint properties. We're not painting the whole portfolio. We're painting, like, 6 -- doing like, 6 jobs, okay? We're going to have to start layering that in. And we need to build in that run rate and we need to start now, okay? But there is $1 million of painting. We're going to reduce the CapEx on the core portfolio -- the same-store portfolio by well more than $5 million. I mean you guys just ignore everything that happens below the NOI line like it doesn't matter. We look at the whole thing, what we spend on expensed R&M and what we spend on CapEx, as one big bucket. And our accounting policies dictate where it lands, but it's all cash, all right? It's all cash. So in my mind, yes, painting is going up. CapEx is coming down. Net-net, it's coming down. Cash flow is going to increase. Now the other thing is taxes. We talked a lot about that. This is not, can't be surprise since we've talked about this since, I can't remember, November of -- whenever. But we started talking about this because we could see this train coming. I wish it was slowing down more than it is, but it's not, but it will. That's that. And then the personnel thing, I've explained it. We were down nearly 5%. Was anyone else down nearly 5% on personnel last year? We're just simply having a REIT. So there's nothing -- the point is there's nothing different about the way we're budgeting. There's nothing structurally different about the way we're thinking about the company.

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

No, I mean I just mentioned because...

David P. Stockert

This is cyclical business...

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Right. It's just -- okay, so let me ask the question this way. As we look out towards '15, and I know that's a year away, obviously, property taxes should continue to moderate. The presumption is the painting, that's a multiyear process, that should be sort of a similar rate, so then it's really -- and if personnel is up 5%, that's not going to sway the numbers materially. So should we think about it that way, that the painting sort of expenses to a new run rate and that property profits come down? So that the -- so that basically, in '15, the expense outlook should look better this year, gets stepped up by basically 2 items, the personnel being the 10% swing and then having to introduce the painting because you're at the 6-year mark. Is that fair?

David P. Stockert

Yes, that's fair. That's fair. I mean we're not -- I'm not saying that we're going to, like, keep loading incrementally the paint budget, but we need to get a new run rate where we're spending $1 million a year because that's just what it's going to take, okay? So -- and the other point I would make is that our customers care about -- the main thing they care about is the people they interact with. That's how they experience service. They could care less what our property taxes are. Unfortunately, in the apartment business, we have gross leases so we don't get to pass that through, so -- but they're very unsympathetic about how our property taxes are. And frankly, on repairs and maintenance, they take for granted that we're going to take care of their community. And so going back to personnel, we're not doing anything generous. We're just restoring the opportunities that these -- that are our long-suffering associates missed last year so that they feel that they're being treated right, and we'll go out and treat our customers right. And that will have the biggest impact on how our customers perceive service of Post Properties.

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

And Dave, no question. I mean, obviously, you need happy people so that you have happy residents, so -- but your comments typically help us understand how we should think about expenses going forward.

Operator

And next we'll go to Nick Joseph with Citi.

Nicholas Joseph - Citigroup Inc, Research Division

It was reported recently that you marketed an asset in Houston. In what other markets are you targeting the dispositions for in 2014? Could you see yourself exiting New York?

David P. Stockert

We're looking at a number of things. I'd prefer not to talk about them specifically until we get there, for a number of reasons, but we're certainly looking at that.

Nicholas Joseph - Citigroup Inc, Research Division

All right. And then for the development starts targeted for the second half of '14, can you talk about the markets that you're looking to start there and kind of what additional yields are -- conflict to right now?

David P. Stockert

Yes. If you look at the developments thing, Page 14, we're working on the deals -- a couple of deals in Atlanta: Millennium, Centennial Park. Those are going to take a little while longer. South Lamar is pretty much ready. It's in Austin. So we're waiting. And Galleria is the most likely first start that's in Houston, in the Galleria submarket. And then we've got the Wade, the second phase at Wade that we've designed as a garden-style -- trying keep the cost per unit down, but we're still in lease-up on the first phase. And we've got to see something happening in Raleigh to give us confidence. So what we're trying to do is move all these projects along, get them ready to the point where they can be started and then evaluate whether or not it's going to make sense to do it, or to wait. I think we'll build all of them at some point, but we're trying to figure out when are deliveries coming in, when should we put these units into the market. And as it relates to yield, I think we're -- there's no more 7s and we're looking for 6s.

Michael Bilerman - Citigroup Inc, Research Division

Dave, it's Michael Bilerman. Can you just provide a little bit more details sort of on the asset sales? And what I'm looking for is -- so the $200 million to $250 million, what is the basis in those assets?

David P. Stockert

You mean like tax basis, or...

Michael Bilerman - Citigroup Inc, Research Division

Yes. Just as long as we think about -- I know your -- one of the things was special dividends, right? And so -- that these have. I'm just trying to put together, as we think about these sales, what's the likely use, and understanding if it's pegged at a $100 million basis or a $200 million basis, obviously affects some of that.

David P. Stockert

Yes, I mean I'm not trying to be cagey about it. So the issue is going to be whether we can employ some strategies to mitigate that. The basis is -- the basis, these things are going to have gains that are 40%, something like that, but maybe more. But I don't want you to conclude that that necessarily translates directly into a special dividend because there are some things we can do, we hope, in terms of...

Michael Bilerman - Citigroup Inc, Research Division

Right. So either 1031 the asset, or some other tax...

David P. Stockert

So in that sense, I mean we can't 1031. I mean if we're not -- unless we're -- if we want to go buy something, which that's not what we're saying, that would be a 1031. No, we got to figure out other problems, but there are ways to manage the -- there are different ways to do it. Anyway, we'll talk about it more.

Michael Bilerman - Citigroup Inc, Research Division

Right. Is there any debt on these assets at all?

David P. Stockert

There potentially is. Yes, some of them that we're looking at. And we have to factor that in, yes.

Michael Bilerman - Citigroup Inc, Research Division

Right. So -- and just $50 million of debt, $100 million of debt? How much debt is on these assets?

David P. Stockert

Well, are you looking for, like, what we might pay down?

Michael Bilerman - Citigroup Inc, Research Division

Yes, I'm just thinking -- I'm just -- are they all encumbered, or they have secured debt on them? Because it -- obviously, that's -- we can figure out use of proceeds if there's debt on the asset pretty easily.

David P. Stockert

Yes, but yes. I mean yes, although we could -- one to do, we could probably move the loans to a different asset, so I'm not sure it's that straightforward. I can tell you that, when you look at our balance sheet, if you look at our debt schedule, I think it's highly likely that we will simply pay off the $120 million loan that's on Addison Circle, even though that's not one of the assets that we're looking to necessarily sell. But there is a loan that comes due early in January -- early in the first -- very first part of 2015. So I think you can look at that as a piece of what we would do.

Michael Bilerman - Citigroup Inc, Research Division

Okay. And then just -- and maybe just moving to the balance sheet for a second. And I do appreciate your thoughts in terms of trying to keep a strong balance sheet, but I wanted to sort of put it into context a little bit. If you look at the balance sheet today, a 3 6 6 charge, one of the highest in the apartment sector, actually one of the highest in REIT; debt to some form of market value of assets, well in the low 30s, if not high 20s, debt to total assets, it's only going to get better as your development assets deliver in terms of the income in 2014 as you reduce the non-income-producing assets. So you -- the balance sheet, at least from I think the way the market looks at it, is already from a position of strength that, doesn't get better, if anything, it probably could be levered. And so I'm just trying to understand sort of your perspective: When you look at the balance sheet in terms of ratios, are you towards the low end of where you want to be? Are you smack in the midpoint? Or do you think you're maybe too highly leveraged, in your view? I'm just -- I want to get a sense of where your positioning is relative to the metrics today.

David P. Stockert

I don't think we're too highly levered, nor do I think we're particularly too low levered. I think that it's important that you -- having a well-capitalized balance sheet is like having a gun with a bullet in the chamber. And once you change that, you've fired the bullet, and you don't get another chance. And so we'll assess it, but it doesn't -- it wouldn't bother me at all to have lower leverage than where we are, not particularly because philosophically I think we are running at a much lower rate. It's just that depending on the -- as we sell these assets, we're just going to look at the different things we can do, with the view towards the earnings potential of the company, because we do want to preserve the opportunity to grow over time. We're not saying that we're embarking on a new strategy of shrinking the company. We're doing a modest amount of shrinking of the company at present because it kind of makes sense to do so in the current environment. Well, I'm a big believer that, when we're sitting here a year from now, we're going to be talking about 2015 and we're going to be talking about an entirely different potential, an entirely different landscape and must be ready for it. And if -- anything could happen. So it's more embedding opportunity at the main line.

Michael Bilerman - Citigroup Inc, Research Division

Right. Just on the property taxes. You talked about that you're effectively -- that more of the portfolio will be approaching fair value in terms of all these assessments. Baking in what you've done for 2014, what percentage of a portfolio has been revalued effectively to fair market with these assessments, 55%, 80%? I'm just trying to understand how much -- where we are in that cycle of property taxes. And I recognize you're going to battle back as hard as you can to appeal them, but assuming that everything goes through this year that's in budget, what percentage are we done in it?

David P. Stockert

Yes, let me answer it this way. If you look at the assessed values versus what kind of RNAVs, those assessments were up about 20% against that number. Some are closer to assessed -- to full value than others. It depends on the jurisdiction. But I don't want to get into it line by line because, at this point, I don't know who is listening. So it's a process, but it's not unique to us. I mean I do think that we are unfortunately leading the charge because we have a lot of high-quality assets. There are some comps out there that I think make it fairly easy to comp. But I think this is an issue, and we've been talking about it for a number of years. And like I said, we will battle as we can and as it makes sense and be anxious for the day that we are essentially through it. Now growth; as our revenue growth slows down, that helps. That helps because that's a data point that you can take to an assessor. If revenue growth in DC is -- goes negative, which it is, that's a good data point, right? That's one sure way. So that's the -- I guess, the silver lining of something like weakness in DC.

Michael Bilerman - Citigroup Inc, Research Division

Right. And then I guess, just last question for me. I think you've been very open with the street in terms of being a smaller-cap company and in terms of buying back stock and reducing liquidity and the effects that, that may have. And I just wonder, it definitely sounds like you're frustrated about where the stock is. You've been buying some of it back, not a ton but some. You're putting more assets on the market so that it can reflect -- I think you said, reinforces the company's value, I think, is what's your term that you used in your prepared comments, if I wrote it down correctly. I guess, at what point do you start to evaluate? The company has had approaches over its lifetime. Do you ever put that into perspective of saying, "You know what, there's just too big of a disconnect between what we view value is of the company. And doing these small things doesn't seem to be narrowing that gap?" Do have to go down the road of strategic alternatives? Does that even come up in conversations?

David P. Stockert

I think the gap -- and you and I have had this conversation, Michael. And the gap you're referring to is an NAV gap. NAV is a data point. It's an important one. It's one we look at carefully. And another data point is, as I said before, cash flow cash flow yield on the stock, cash flow multiple. And what we've really been trying to do as a way of closing the gap is -- I think, is to drive up as much as possible the run rate of cash flow because I think we've suffered. And even today, if you look at an AFFO yield, it's still fairly low relative to any kind of price that you would equate with NAV. And that's something we have to continue to work on. So it's striking a balance. But no, I think we've made huge, huge strides. 80% cumulative growth in 3 years is pretty good. If you had said, 3 years ago, that's what we were going to do, I would've said you're crazy. But that's what we've done and that's what we're going to continue to focus on. And I'm not pessimistic. And if the right situation came along, the board would consider this, as we've talked about.

Operator

And next we'll go to Ryan Bennett with Zelman & Associates.

Ryan H. Bennett - Zelman & Associates, LLC

Just a quick follow-up just on the dispositions lastly. Are you weighing potentially doing joint ventures with those assets as a means, like, to mitigate the tax consequences of the asset sales to raise capital?

David P. Stockert

Well, that's -- yes, I mean that doesn't really mitigate the tax consequences, generally, unless you'd -- what was that?

Ryan H. Bennett - Zelman & Associates, LLC

Even if it's at a minority stake?

David P. Stockert

Well, you still can't do it [indiscernible]. Yes, you -- we would reduce the amount of capital that we pull out of the asset. And what that would really do is mitigate maybe the impact to the either size of the company or overhead of the company. And that may be something we'll do at some point, but right now, I think what the -- what we would like to do if we're going to go ahead and do this, and we are, is go ahead and get the best possible price for these assets. And selling them, generally, is what produces that because the buyer wants control. And these are going to be -- have to be core buyers and they're going to want control, and that's fine.

Ryan H. Bennett - Zelman & Associates, LLC

Got it, understood. And then I guess just going back to your revenue guidance, David. Appreciate your comments in terms of the fourth quarter complement revenue growth being in 2.7% kind of leading into next year. I'm curious, just based on your 4-year revenue guidance and where you kind of see supply deliveries over the next couple of quarters, does the midpoint or high end of your guidance imply some sort of a bottoming-out of revenue growth and possible positive inflection towards the back half of the year here?

David P. Stockert

I don't know that it's -- that, that's really got baked in for this year. I do hope that -- this rate of sequential growth, right, is driven by the new lease rates and in renewal rates that you're getting. And I'm hopeful that, at some point, the new lease rates and the renewal rates sort of are repeatable year after year. What's been happening to our same-store revenue is that, in 2 years ago, in 2011 and then in 2012, we were getting 6% and 7% growth on new lease rates and renewals, right? And so that was driving a really steep trajectory of sequential growth in the rent roll, and then that started to moderate. And the problem is when you -- the rent roll is constantly moving forward on a same-store basis. If your same store pool is pure, it moves forward on a sequential basis and kind of falls back on itself every maybe 4 quarters, and that's how you kind of determine it year-over-year. If the rate of growth in that sequential trajectory starts to slow down, it really impacts your year-over-year growth. And that's where we are right now. Eventually, we hope to be able to get to where we can preserve an equal trajectory of the sequential growth year-over-year and then we can stabilize that revenue growth at a level in this range, or maybe better but more likely in this range.

Operator

And next we'll go to Jana Galan with Bank of America Merrill Lynch.

Jane Wong - BofA Merrill Lynch, Research Division

This is Jane Wong for Jana. Just 2 quick questions. First, you mentioned that disposition pricing is strong and that you expect core buyers for the assets you're selling. Just curious what kind of disposition cap rate expectations you have for these assets. And the second question is, do you see supply peaking in most of your markets this year, or any markets could potentially have more deliveries teed up in 2015?

David P. Stockert

I mean, if you look at permit activity in some of these markets, like Houston, for example, it would appear that there's not likely to be more product coming into market. In other markets, like Raleigh, you're seeing permit activities suggest that there's a moderation. DC is one that's a little bit of perplexing market because, notwithstanding the pain, well, the permit activity is still pretty robust. So it's really market to market, and I would be reluctant to call a peak. You're depending on tamping down animal spirits, and we'll see how that goes.

Operator

Okay, moving on, we'll go to David Bragg with Green Street Advisors.

David Bragg - Green Street Advisors, Inc., Research Division

My questions have been asked.

Operator

Okay, then we'll go to Philip Wilhelm [ph] with UBS Sucana [ph].

Unknown Analyst

David, a question for you. You partially answered this, but I would like to get a little bit more elaboration. Ultimately, would you say that your business strategy is to increase NAV and cash flows perhaps even at the expense of FFO and AFFO optics?

David P. Stockert

Well, I mean I kind of look at AFFO as a cash flow proxy. So yes, we're pretty focused on that one, but we're not necessarily trying to drive FFO, if you will. It's more NAV and AFFO, or cash.

Unknown Analyst

Right. It -- as a shareholder, it seems to be a very sound strategy, to be focusing on NAV rather than worrying about, we'll call it, the optics of whether FFO changes. And given a modest increase, it's a bit 1 line item and for -- another, especially given the discount onto NAV. So you mentioned the disconnect between NAV and market value of the stock. Do you have an estimate as to what you believe NAV to be?

David P. Stockert

I do. We don't...

Unknown Analyst

But you're not going to tell me. Okay, fair enough.

David P. Stockert

I'm not going to tell you. No, because I don't want to -- we're not going to put a price on the company. We do, Philip, as you know, in the supplement try to give you a page to help you determine what that might be. And what we're trying to do on that NAV page is trying to give you kind of a pro forma run rate -- on Page 17, give you a pro forma run rate how you would build up an income statement P&L that you could then apply cap rates to. And on Page 18, we give you the mix of that NOI by market. So if you want to put different cap rates on different markets, you can do that and do those calculations.

Operator

And now we'll take our last question from Karin Ford with Keybanc Capital Markets.

Karin A. Ford - KeyBanc Capital Markets Inc., Research Division

Just a question for Jamie on operations. I just wanted to get your thoughts on the 50 basis point sequential occupancy decline. I know there's normally a seasonal decline from 3Q to 4Q, but it seems like a lot of your peers saw occupancy pick up. Were you surprised by that, or was that what you're expecting? And what's occupancy doing in January?

Sheila James Teabo

Sure. Actually, we typically do see the occupancy fall quarter 3 to quarter 4, so it wasn't a surprise really where we ended up in quarter 4. We did talk about really sort of bolstering the occupancy up in quarter 3, so we actually headed into quarter 4 with a pretty good clip and then saw it tail off as we hit December. And right now, we're running in the 95.2% range, which is a little bit better where we were this time last year. So we feel like we've got good traction on the leasing floor. We're leasing at levels we would expect to this time of year. And our exposure levels, the turnover came down a little bit. Our exposure levels are in a good spot for this time of year. So not surprised where we ended and not surprised where we are today.

Karin A. Ford - KeyBanc Capital Markets Inc., Research Division

And was there any trend in the move-out to home purchase step this quarter?

Sheila James Teabo

No, it's remarkably boring. We talked all, sort of, last year about it hovering at 15%. It ended the year at 15%. January is at 15%, so we've seen no movement. Again, Austin would be at the -- higher than that and has been trailing higher than that the last few quarters. And same for move-out surprises, it's been hovering at 11% and it hasn't budged.

Operator

And there are no further questions in the queue at this time, so I'd like to turn it back over to our speakers for any additional or closing remarks.

David P. Stockert

Just thank you, all, for joining us today. And we look forward to seeing you later this year. Thank you.

Operator

And that does conclude today's conference. We thank everyone again for their participation.

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