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Mid-America Apartment Communities (NYSE:MAA)

Q4 2013 Earnings Call

February 06, 2014 10:00 am ET

Executives

Leslie Bratten Cantrell Wolfgang - Senior Vice President and Corporate Secretary

H. Eric Bolton - Chairman, Chief Executive Officer, President, and Director

Albert M. Campbell - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Thomas L. Grimes - Chief Operating Officer and Executive Vice President

Analysts

David Toti - Cantor Fitzgerald & Co., Research Division

Ryan H. Bennett - Zelman & Associates, LLC

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

Gregory A. Van Winkle - Morgan Stanley, Research Division

Joshua Patinkin

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Omotayo T. Okusanya - Jefferies LLC, Research Division

Thomas J. Lesnick - Robert W. Baird & Co. Incorporated, Research Division

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

Buck Horne - Raymond James & Associates, Inc., Research Division

Operator

Good morning, ladies and gentlemen, and 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.

Leslie Bratten Cantrell Wolfgang

Thank you, Justin, and 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, SVP 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'll now turn the call over to Eric.

H. Eric Bolton

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 result. 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, the 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-out 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 nonfactor 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 to new supply is forecasted to be in the 8:1 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 Markets 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 10:1.

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 merged portfolio with Colonial has enabled us to retain, and in fact, strengthen this objective. Our redevelopment program completed just over 2,500 units in 2013, and we generated, on average, an incremental 11% increase in rents. We're expanding the program this year as a result of our merger, and expect to complete redevelopment on approximately 4,000 units in 2014.

Our expanded program this year will remain consistent with the parameters that we've 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 4 lease-up properties, and we expect to have the entire pipeline stabilized by year -- midyear. In addition, construction continues to be on budget at our 5 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're 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 2. 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 from 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 sale contracts on 4 of the remaining 5 operating commercial properties. In addition, we remain committed to a program of 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 to sell a little over $300 million of assets this year.

And while the acquisition market remains very competitive, I'm hopeful that one of the outcomes from the increase in new development activity in a number of markets is more opportunities to opportunistically add new properties to the portfolio later this year and into 2015. We've 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 venture 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're 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.

Now I want to also express my thanks and appreciation to all our folks who have been 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're off to a terrific start. And I appreciate the hard work and success thus far.

That's all I have in the way of prepared comments. And I'm going to turn the call over to Al.

Albert M. Campbell

Okay. Thank you, Eric, 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 3 quarters of MAA stand-alone activity and 1 quarter of combined operation.

Core FFO for the fourth quarter, which excludes nonroutine 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 1/3, or $0.02 per share, of this favorable performance was produced by the combined same-store portfolio, primarily favorable operating expenses, and the remaining 2/3, 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. And operating expenses grew 2.8% for the quarter, despite pressure from a 7% growth in real estate taxes, which are about 1/4 of our total operating expenses.

The legacy MAA and Colonial portfolios performed essentially in line during the fourth quarter, with the Colonial portfolio operating expenses benefiting in Q4 from the initial savings on combining the insurance programs, which produced about a 60 basis points 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 acquired the remaining 2/3 interest in 2 communities from the Mid-America Multifamily 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 development pipeline continued to progress well. We funded an additional $25 million toward our multifamily development pipeline during the fourth quarter. We now have 5 communities, totaling 1,461 units under construction, with $68.5 million remaining to complete them. We also have 4 communities remaining in lease-up at the end of the year, with average occupancy of about 82%. And 2 of the communities are expected to stabilize during the first quarter, and the remaining 2 are expected to stabilize during the second quarter.

Following the merger with Colonial, our balance sheet remains strong and flexible. And 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 in cost-reporting requirements, and the increased volume of bonds outstanding through MAA's operating partnership is expected to enhance investor liquidity.

At year-end, 62% of our assets at costs are encumbered, 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 3.4x and fixed charge coverage of 3.6x 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 a core FFO basis, which does exclude merger-related and other nonroutine 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. And as we expected, core FFO for 2014 is impacted by the initial dilution from the non-productive development pipeline and 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 of stated synergies that we've been discussing. And 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 to range between $1.12 to $1.24 in the first quarter and between $1.18 and $1.30 for the remaining 3 quarters of 2014. The primary driver of 2014 performance is expected to be continued, steady NOI growth from our same-store portfolio. Our estimate includes full-year, same-store NOI from the combined portfolio of 4% to 5%, based on a 3.5% to 4.5% growth in revenues and a 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 on 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 premerger by Colonial. We expect to incur an additional $9 million to $10 million of combined merger and integration cost during 2014, and these transaction and 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, defined as net debt to gross assets, to end the year between 42% and 45%.

And that's all that we have in the way of prepared comments. So, Justin, I'll turn the call over to you for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from David Toti from Cantor Fitzgerald.

David Toti - Cantor Fitzgerald & Co., Research Division

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

H. Eric Bolton

Well, we have roughly a little over $150 million of commercial assets. These are operating assets that we picked up from the Colonial merger. And the values, I mean we're -- 4 of the 5 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 sort of where we are in the process. But I can tell you that the pricing we have on all these are well within what we expected in our original underwriting and we feel good about the values and the pricing we're looking at now. What's important to keep in mind is that on these commercial assets, these are all assets that are going to be -- being office and retail, going to be selling at a much higher cap rate than what we're planning to reinvest in multifamily. So they are particularly dilutive as we cycle that capital, at least near term, but we certainly believe important to get back to our focus solely on apartment real estate. The other -- the balance of the plans for the year is roughly about $150 million-or-so of multifamily assets. We sold, as we mentioned, about $130 million last year. We think it's important to continue this steady process of cycling out of some of the older assets. And again, there's some dilution associated with that. It represents, really, about 11 or so properties that we've teed up for next year. And so 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. But that hopefully gives you a little perspective, David.

David Toti - Cantor Fitzgerald & Co., Research Division

Yes. And then -- and relative to the multifamily, can we expect some of the -- some of those assets to be in sort of the non-core markets, like South Florida, Vegas and so forth?

H. Eric Bolton

Yes. But frankly, what we're really -- it's not Vegas, I mean, is not targeted, neither is South Florida. I mean, frankly, what we're really targeting are the older and lower-margin investments that we have. And as it so happens, a lot of the older assets that we have are in some of the more tertiary markets in the portfolio. And so what you're 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'll be a few in some of the bigger markets like a Charlotte and a Dallas, but it's really driven more by a belief that we can reinvest the capital into higher yielding -- or higher margin, and higher -- longer term sort of value-creation investments and -- but I also want to quickly add though, as I've said in the past, we very much remain committed to this belief in allocating capital between large and secondary markets. So as we are more active in recycling within the Secondary Segment of the portfolio, it's really moving capital out of some of the more tertiary markets into other secondary markets. So it'll be moving out of Valdosta, out of Columbus, Georgia, markets like that into Charleston, Savannah, Greenville, Kansas City, some that we offer -- we believe offer a little bit more dynamic job growth.

David Toti - Cantor Fitzgerald & Co., Research Division

Okay. And if I could just tack one more small question on, Al. Is there a subtext to some of this churn to lower overall leverage for the firm? Are you comfortable with current levels?

Albert M. Campbell

I would say, David, 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. But we're in the 42% to 45% range right now. We'll probably stay at the low end of that and over the next couple of years, continue to go down. But for right now, we're comfortable.

H. Eric Bolton

And let me also just quickly add on that point, though, that I think it's 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. And so I think you have to reconcile your leverage and your balance sheet strategy to what you're trying to do overall as a company.

Operator

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

Ryan H. Bennett - Zelman & Associates, LLC

Just curious, just based on your performance in the fourth quarter with occupancy loss in both the Mid-America and Colonial portfolio and then based on your comments that occupancy is staying roughly flat over the next year, I'm just curious, what are you expecting in terms of your rent growth trajectory for both your Large and your Secondary Markets in 2014?

Albert M. Campbell

I'll give you the overall blend. This is Al, Ryan. And I can tell you what we're expecting for the year. In terms of performance for the year, we're expecting pricing and -- occupancy to be 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 price performance, I think, a little less for the typical portfolio than we had this year. Now remember, in the guidance, we do have impact also from opportunities from the Colonial, from synergies and so for that portfolio, there's a little more than just a normal performance expected in revenues this year that does impact that top line.

Thomas L. Grimes

And Ryan, 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. And the -- so to say, it's important to draw distinction between the shift in the MAA portfolio and the shift in the Colonial portfolio. On the occupancy side, you've got to look past the actual ending physical occupancy and look at the average daily for 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 a drop of a few basis points, which is perfectly seasonal. On the COP side, you really have to go back and look at the -- and 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. So they came into the fourth quarter with sub-7% 60-day exposure. And so their tradeoff was a little bit less. We expect occupancy to grow from this point forward, we're at 95.2% for January and in good shape on exposure.

Ryan H. Bennett - Zelman & Associates, LLC

Got it. I appreciate the color there. Al, just back to your point on the Colonial assets and the rent 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?

Albert M. Campbell

I think you can expect 2 things Ryan: one is, as Tom mentioned, in the second and third quarter, you have a very favorable comparison because when we started talking about the merger last June, there was a slip in occupancy in their portfolio in the second quarter. They worked hard in the third quarter to get it back, got it back, but there will be 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 and some of these other things that we're doing begin to play through the portfolio. So more in the second, third and fourth quarter, you'll see that.

Ryan H. Bennett - Zelman & Associates, LLC

Got it. All right. And just to follow-up quickly, just on the redevelopment. In terms of your level of spend that you're expecting this year and how much of that will be, maybe, at the Colonial assets versus MAA?

Thomas L. Grimes

Yes, we'll do -- Ryan, we'll do about 4,000 units and that is about doubling our current pipeline. And 2,000 of those units will be in the Colonial side. They did not have a similar program.

Albert M. Campbell

And for -- just to give you context about same cost level, which will put you in the 18 -- in the around $18 million, or $15 million to $20 million let's say, we'll spend for the full year, Ryan.

Operator

And we'll go next to Karin Ford with KeyBanc Capital.

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

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

Albert M. Campbell

Karin, we really don't specifically breakdown between Large and Secondary on that, we do it property level build it up. I don't think that's something that we've typically want to really put out on our guidance. I'll say to you, we do expect the Large Markets in our projections to, as we 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 it, I mean it's -- the gap is pretty large at this point. We do see some progress in 2014. But not the full gap close.

H. Eric Bolton

We do think, as Al says, I mean, we do think the Secondary Market component of the portfolio will be a stronger performance for us in '14 than it was in '13. 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's going to be the case this year. On the other sort of part of your question regarding sort of the difference in '14 between the sort of legacy MAA and the legacy Colonial portfolio, we do think that the Colonial portfolio will outperform a little bit in '14 relative to MAA, only because of kind of the points that Al was mentioning earlier, we think that there is some opportunity on sort of the yield management side, particularly in Q2 and Q3, to do some things to address some of the things that took place last year in '13, not have those things repeat in '14, and we think on a net basis, that's going to ultimately drive a higher level of revenue result out of Colonial portfolio than it is out of MAA. But on a blended basis, you got the number there.

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

That's helpful. Next question, on guidance. What is included in the core guidance, with respect to the mark-to-market adjustment?

Albert M. Campbell

The market-to-market (sic) [mark-to-market] adjustment was, in total, about $90 million, that we put in our balance sheet with the merger. And I think, what we have in our fourth quarter, is it $24 million, Tim? I think there is expected to be $24 million to $25 million for 2014. But I'll 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, and analysts put out for '14 before we had this guidance out. It really was all over the place, and we were trying, we're trying very hard to give a lot of details in this call and in the supplements to help really focus and put everybody on the same page if we can. I'll say that to say, we are focusing on core FFO, which will exclude the merger cost and will exclude that fair market value adjustment. Now that is a favorable non-cash favorable adjustment that hits FFO -- NAREIT FFO, but we looked at it, since it's noncash, we thought the right thing to do for investors was to pull that out and just show core FFO without that. So we -- I will tell you, that's a number, it's going to be $24 million, $25 million this year, but we're going to exclude that in our core FFO.

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

No. That's helpful. Can you just 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're buying on the acquisition side. Without giving specific cap rates, can you just talk about what you think the spread will be on cap rates between dispositions and acquisitions this year?

Albert M. Campbell

On the commercial, you're talking 250 basis points, Karin. It's pretty -- because the Commercial they're -- they're higher, typically higher yielding, higher cap rate assets, so you're talking 250 basis points.

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

And on the multifamily that you're selling versus buying?

H. Eric Bolton

Probably about 100.

Albert M. Campbell

A little over 100.

H. Eric Bolton

Yes.

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

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

H. Eric Bolton

Well, I think it really is just a realization that there's a lot of development in a number of these markets. It's 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. And we've demonstrated a history. I mean, frankly, just -- we've had the opportunity to compare yields that we're getting on some of the development that we have in some cases prepurchased, or development that we have bought in a more opportunistic way and contrasted that against the yields that we're getting on the development that Colonial was doing. And I can tell you that the spreads, the yields are right on top of each other. And so from my perspective, particularly at this part of the cycle, where there's more supply coming into the market, we just feel, on a risk-adjusted basis, that we can bring brand-new product on to 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 are not taking on the risk to do that. And so we just continue to believe that one of the ways that you sort of manage the balance sheet and manage long-term earnings in this region 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 the development side.

Operator

And we'll go next to Haendel St. Juste with Morgan Stanley.

Gregory A. Van Winkle - Morgan Stanley, Research Division

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's impacting your guidance for same-store NOI growth? Assuming there's 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?

Albert M. Campbell

I can, Greg. This is Al. And as we talked about, we expect some synergies, both in the revenue line and in the expense line. Probably a little more expense in 2014, call it, 60-40 split. We have somewhere in the $5 million to $6 million range, I think, that we expect to capture in the year related to that. And if you do the math and back into it, you're talking somewhere in the 75 to 100 basis points impact on the combined portfolio NOI performance, for the quarter -- I mean, for the year.

Gregory A. Van Winkle - Morgan Stanley, Research Division

Okay. Great. That's very helpful. And then just one more, if I could. Could you give us a little color on what you're seeing in financing availability for the assets in the secondary and tertiary markets? We've been hearing that the financing environment is kind of drying up a little bit at the lower-quality end, which it sounds like it's mostly what you're selling. I just wanted to get your take on that.

H. Eric Bolton

Well, 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, they were -- everything worked, I mean they got the financing. There was no real pushback or re-trade on anything. So certainly, having been out to the National Multifamily Housing Council's Annual Meeting a couple of weeks ago, I mean, the appetite for our product is, I can tell you, huge. And there's a lot of people interested and I think that there's no indication that we've seen that financing is a problem.

Operator

And we'll go next to Josh Patinkin from -- with BMO Capital.

Joshua Patinkin

So it looks like exposure to Large Markets increased with Colonial's portfolio, and with job growth to new supply stronger in small markets, I'm curious, 2-part question, what are the dynamics that contribute to that? And second, why not pursue more development in smaller markets right now?

H. Eric Bolton

Well, the dynamics contributing to -- I mean, Colonial had about sort of a 70-30 split in terms of how we define Large versus Secondary and we were at about 60-40 and -- on a blended basis, we're about 65-35. I mean, we -- honestly, that's kind of right where we wanted to be. Obviously, we didn't do this transaction with the idea that we're trying to maximize performance in 2014 or '15. I mean, it's a much longer horizon we're taking to this thing, and so we think that as we get into an up part of the cycle, what we've historically always found, as we've certainly seen over the last 2 to 3 years, is the large market component of the portfolio tends to outperform. And obviously, if you go back to 2008, 2009 timeframe, early 2010, our Secondary Market segment was actually outperforming. And so back to the point I was making earlier about -- our effort is to really try to achieve a optimum sort of full-cycle performance profile to the portfolio. And I mean, what drives the fundamentals in both Large and Secondary Markets is the same thing, it's just, obviously, it's job growth and demand and supply. And so these large markets are -- is where most of the supply is happening right now, and that's 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, I mean, it doesn't take a whole lot of supply, obviously, to create an imbalance in some of these Secondary Markets. And so 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, I mean, what little bit of development we have done in the past in terms of -- in sort of MAA's history, it has been in the Secondary Market. We did Charleston, we've done Little Rock, we just finished one in Nashville. So you're unlikely to see us going far. What little bit of development that we do, you're not going to see us do it in Dallas, in Atlanta, in places like that. I mean, there's plenty of that going on there. So, our point is, we do focus on the secondary whenever we do -- and we're at the part of the cycle where, development, in my mind does make sense.

Joshua Patinkin

I see. So just a handful of projects in the Secondary Markets can absorb a lot of the new job growth coming online?

H. Eric Bolton

Yes, exactly.

Joshua Patinkin

Okay. And so some of the opportunistic acquisitions you talked about, would that -- you foresee taking place more in the Secondary Markets to tilt the portfolio balance back?

H. Eric Bolton

No. I mean, we like where the balance is. So, we're not any effort to sort of shift anything around from large to secondary. But we're looking for opportunity in both large and secondary. I think that, frankly, where you're 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's where a lot of the supply is coming online. And I think some of these markets that tend to get perhaps a little bit overbuilt 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 back and penciled out a year or 2 years ago, my guess is some of them are not going to lease-up quite as fast as some of the developers have hoped. And out of that emerges opportunity.

Operator

And we'll take our next question from Michael Salinsky from RBC Capital Markets.

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Tom, just to go back to a question here. As you walk through the same-store revenue guidance, can you give us the components -- how much at the midpoint of 4% is occupancy versus rate growth? And then just a question -- the other question I think that's been asked several different ways, of the $0.30 to $0.45 you talked about, how much of that do you expect to realize in 2014, versus how much of that's kind of more '15, '16?

Thomas L. Grimes

And I'll let Al walk us through the split on forecast. And then I'll follow up with the development synergies. And I'll just go ahead with those. I mean we've got, in '14, we will see $1.3 million worth of property and casualty savings. Redevelopment will generate about $1 million. On the RNM [ph] 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 carpet cleanings. We expect to do half of those in-house. That will save us about $900,000. We also get about $400,000 on scale for RNM [ph] expenses. We feel like revenue management opportunity is about $500,000. I mean -- and that just gives you a general taste of where the opportunities lie.

Albert M. Campbell

I'll give you the split on that Mike, in terms of revenue. If you look at the normal performance for the portfolio outside the synergies we talked about from Colonial, we would see pricing performance be in the 3.5% range, with occupancy increasing kind of an 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 synergy that we talked about from the Colonial portfolio that give you the full performance. So I hope that gives you what you need.

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

No, that's helpful. Second question, just in terms of development. Eric, it sounded like you're 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?

H. Eric Bolton

No, I mean, we're looking at a couple of things, Mike. We haven't really talked to the board about it, but in both cases, frankly, what we're looking at are Phase 2 opportunities where we already own the land. We've got an opportunity up in Virginia, we've got opportunity in Orlando that we're taking a hard look at right now. And so, it will be limited. But in both cases, if we do anything this year, it probably -- something along those lines.

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Okay. Third question. You bought out 2 joint venture properties in the first quarter, you have 2 more, I think, remaining with your JV partner in one of the funds. Is there a plan to kind of bring that in -- those in-house as well?

H. Eric Bolton

We're 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.

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Okay. Then finally, of the $125 million to $175 million of commercial and land sales, can you break that out between what you expect to be commercial and what you expect to kind of be land. The reason I'm asking is, obviously, the land isn't contributing any earnings, the commercial is. So as we look to '14 -- I mean, as we look to '15 and '16, kind of trying to get the earnings impact there.

Albert M. Campbell

That explains some of the 2014 noise we talked about, Mike. The vast majority of that in 2014 is going to be the commercial properties. We're working hard to sell and it's the right thing to do, to go ahead and simplify the business. But the Brookwood asset, the [indiscernible] asset and the Kraft's [ph] farm asset, we're looking to sell those during the year and that makes up the majority, based on our value of the...

H. Eric Bolton

Of the $310 million, I mean, roughly, less than or right at about 10% of it is land value. And so the vast majority of this is earning assets if you will.

Albert M. Campbell

So you'll see that land value be more impactful in 2015, as we move to sell that. And it's dead wood now. It will begin to add earnings then.

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Okay. So with Brookwood and a couple of the ones, I think you mentioned [indiscernible], some of those have development land and entitlements. You will sell the whole thing? These will all come off the book?

H. Eric Bolton

Yes. Yes.

Operator

And we'll go next to Tayo Okusanya with Jefferies.

Omotayo T. Okusanya - Jefferies LLC, Research Division

Just out of curiosity, when you kind of take look at your markets, any markets out there where you're starting to get a little bit concerned about new supply?

Thomas L. Grimes

Yes, Tayo, it's Tom. I think the 2 that we're watching or the 2 that we were watching last quarter is Austin and Raleigh. Both have relatively large chunks of supply coming on. Raleigh it was sort of, if you just looked 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 their tail off being short-lived. But we're concerned about those 2.

Omotayo T. Okusanya - Jefferies LLC, Research Division

That's helpful. And then, Al, I just wanted to confirm my understanding of some of the synergies. Because I know we've been back and forth on this, the $25 million that's kind of been put out there on an annualized basis, you're expecting about $6 million of that to show up in 2014?

Albert M. Campbell

No, no, no. That's, that's -- let me clarify this, Tayo, that's a very good point. The $25 million is the overhead or G&A synergies that were stated in the -- when we talked about the merger. We'll capture virtually all of that in 2014. [indiscernible] Or the vast majority with the -- a certain amount trickling into '15, but most of it in '14.

Thomas L. Grimes

We'll be continuing -- I mean, our run rate by the end of this year will be reflective of that.

Albert M. Campbell

The full amount, that's exactly right. The other is, we have been talking about -- now, if you put the 2 companies together, and you take the FFO that they both had premerger, add them together, and take into account the benefit of that $25 million, you add them together, and take out 25, divide by the combined shares, you're still about $0.20 to $0.25 per share dilutive. What we've 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 opportunities for an additional $0.30 to $0.45 per share on top of that stated synergy, okay? We're going to capture, call it $6 million of that in 2014. It's a lot of work to get that done, we're capturing in 2015 it'll be a lot more meaningful and some in '16. But that's what we're talking about.

Operator

And we'll take our next question from Tom Lesnick with Robert W. Baird.

Thomas J. Lesnick - Robert W. Baird & Co. Incorporated, Research Division

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 declines in both occupancy and rate but has little new supply. How are you guys thinking about those assets? Do you think you got them at the trough? And what are your expectations for growth in Vegas relative to your other markets in 2014?

Thomas L. Grimes

Well, it's 2 properties in Vegas, both on the north side of it. And frankly, the market's doing pretty well, and we've got one property firing on all cylinders, and one property, honestly, that we've got a few things that have been adjusted and we're optimistic about how it will do. So just operationally, in Vegas, we feel pretty good about it.

Operator

[Operator Instructions] We'll go next to Dave Bragg with Green Street Advisors.

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

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

H. Eric Bolton

Well, at this point, Dave, we don't have any plans for any additional JV programs. We really feel like that 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 sort of compel us to look to JV. I don't think about it so much as an effort to really establish a new funding source. And so, we think that with the assets that we've got and sort of where 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 worth pursuing, and a JV could be useful in terms of diversifying risk or structuring the financing in some way that would create some value for our shareholders, we would certainly look to put a JV in place. But we've done several of them over the years with a lot of very sophisticated partners. But at this point, we have no need to, or plans to do any additional JV work.

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

And 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.

Albert M. Campbell

I can give that to you, Dave, and sequentially, it was -- the revenues were down 0.4%, which is sort of seasonal. The expenses were down 7%, which was 2 things: In the fourth quarter, you do expect some seasonal sequential decline from operating 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, that they were making to prepare for the transaction. So that was part of that. So the NOI was 4.4% growth. 4% down on revenues and -- 0.4% down on revenues, 7% down on operating expenses.

Operator

And we'll go next to Buck Horne with Raymond James.

Buck Horne - Raymond James & Associates, Inc., Research Division

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?

Thomas L. Grimes

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.

Buck Horne - Raymond James & Associates, Inc., Research Division

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

Thomas L. Grimes

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

Buck Horne - Raymond James & Associates, Inc., Research Division

Okay. Good. And, I guess for Eric, I'm just wondering, what are the real constraints to supply entering some of the secondary markets? Is it really just the lenders aren't willing to lend in those markets right now? Or what's the constraint and when do -- when does development start -- get started in the secondary markets?

H. Eric Bolton

Well, I think what we need to see is more robust recovery in the economy and more job growth. I think that if we got to a point where the job growth began to accelerate and bled more into some of the secondary markets and the demand picked up, my guess is that the numbers start to work in a more compelling way to ramp up development in some of the secondary markets. I think that, right now, I don't know whether it's 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.

Buck Horne - Raymond James & Associates, Inc., Research Division

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

Thomas L. Grimes

Yes, that's -- I mean, that's obviously a good point too. And you're right, yes, it is. I mean, of course, we're not out actively trying to price out jobs and -- but based on everything that we see and folks that we talk to and developers that we talk to, certainly, rising construction costs are there. And I think that is acting as a bit of holding down some of the supply pressure as well.

Operator

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

H. Eric Bolton

We appreciate everyone joining us. And we will see you, I'm sure, over the next couple of months. Thanks.

Operator

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

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