Post Properties' (PPS) CEO Dave Stockert on Q4 2015 Results - Earnings Call Transcript

| About: Post Properties (PPS)

Post Properties, Inc. (NYSE:PPS)

Q4 2015 Earnings Conference Call

February 5, 2016 10:00 AM ET

Executives

Dave Stockert – President and Chief Executive Officer

Chris Papa – Executive Vice President and Chief Financial Officer

Jamie Teabo – Head-Property Management

Analysts

Nick Joseph – Citi

Gaurav Mehta – Cantor Fitzgerald

Nick Yulico – UBS

Austin Wurschmidt – KeyBanc Capital Markets

Jordan Sadler – KeyBanc Capital Markets

Rob Stevenson – Janney Montgomery Scott

Dan Oppenheim – Zelman & Associates

Alexander Goldfarb – Sandler O'Neill

Drew Babin – Robert W. Baird

William Kuo – Cowen and Company

Dave Bragg – Green Street Advisors

Buck Horne – Raymond James

Vincent Chao – Deutsche Bank

Operator

Good day, everyone and welcome to the Post Properties’ Fourth Quarter 2015 Earnings Conference Call. This conference is being recorded. Today’s question-and-answer session will be conducted electronically. [Operator Instructions]

And now, at this time, I would like to turn the conference over to Dave Stockert, President and CEO for opening remarks and introductions. Please go ahead.

Dave Stockert

Thanks, April. 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 2014 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 will now begin the business of this call. 2015 wrapped up another year for our company. We grew per share Core FFO before debt extinguishment costs by more than 10% per share Core AFFO by 9%. Net asset value was up and leverage was down. We posted yesterday on our website and updated five-year look at our business. In that presentation you’ll see the success we’ve had growing earnings and cash flow, creating value through developments, strengthening the balance sheet and controlling overhead costs.

The business is far stronger today. And we appreciate the commitment and dedication of our associates in achieving these results. Same store results in 2015 were a bit better than in the prior year and at the midpoint of our guidance, we believe 2016 same store results will continue to improve modestly. January is off to a good start in that regard. Assuming the continued moderate growth of the U.S. economy, housing supply and demand appear generally well balanced in support of our business.

At year-end our leverage and coverage ratios are considerably stronger than at any time in the past 15 years. We are positioned well to navigate conditions going forward. And to execute balanced capital investments to take into account our longer-term portfolio objectives and shorter term considerations of the trading price in NAV. Recent market volatility is an opportunity to continue executing our $100 million share repurchase plan. And we currently intend to be able to complete that plan although our midpoint guidance does not depend on it.

Today, we announced the development of our newest Atlanta community to be located on Centennial Olympic Park. This asset will meet a growing demand for in-town apartments walkable to the downtown employment center and to transit. And keeping with our approach to underwriting development, we have assumed rents prevalent in the market today even though rents in Atlanta continue to increase. This project is our only planned development start for 2016.

Later this year, we’ll deliver two projects out of construction in Raleigh and Houston, reducing our active construction pipeline by nearly $140 million. And we expect to stabilize our Buckhead high-rise later this year at yield north of 7% and a value creation margin of more than 40%.

I’ll now turn the call over to Jamie to talk more about operating results.

Jamie Teabo

Thanks, Dave. Year-over-year same-store revenue growth in the fourth quarter topped 3% for the first time on year on strong, average economic occupancy of 96.6%. All eight of our same-store markets showed positive revenue gain year-over-year in the quarter. We entered 2016 in good shape with year-over-year revenue growth in January again a little over 3%.

Renewals so far in the first quarter are averaging 5.2% growth and new leases are up modestly at 0.4%. With the work we have done to position the occupancy and forward 60-day availability, we feel we can drive as good or slightly better same-store revenue growth in 2016 as we did in 2015.

We continue to see favorable conditions in Atlanta, Orlando, Tampa and Dallas and expect DC and Austin to perform a bit better in 2016 than they did in 2015. Houston, where we have only one asset in the same-store pool and Charlotte, where there is a fair amount of supply in the in town submarket, will be the places where we will work hardest for growth.

Turnover in the portfolio remains low and the ratio of rent to income remained a healthy 17.1% for leases signed in the fourth quarter. Move outs to buy homes were right at 19%, up about 2% from the prior year but still well below historical averages. So nothing we are seeing suggests a meaningful shift in renter dynamics. Operating expense growth came in lower than we had budgeted for 2015. The growth rate and property taxes also slowed again in 2015 to 5.8%, down from 8% in 2014.

Looking to our property tax estimates for 2016, we are forecasting a baseline increase in rates and values averaging 4.4%. The difference between that baseline and the 5.8% we include in our guidance is the result of two factors. First, the refund of prior-year taxes we recorded in 2015. We do not budget any prior-year refunds for 2016 even though we have roughly a third of the portfolio out on appeal. And second, we estimate we will see a 50% increase on the taxes on our Raleigh community which comes into the same-store pool in 2016 and which in prior years was valued for tax purposes as under construction.

But again, excluding these two factors we see the rate of increase in property taxes continuing to come down. As to controllable expenses other than property taxes, those grew only 2.3% in 2015 and we expect to be able to limit the growth in controllable expenses again in the coming year.

With that I will turn the call over Chris to talk about the balance sheet and guidance.

Chris Papa

Thanks, Jamie. As we finish 2015, we had redeployed substantially all of the net proceeds we have been holding in available cash from prior asset sales into value-crating development and stock repurchases. Moreover, the Company ended 2015 with book leverage, debt and preferred as a percentage of gross real estate assets of just under 30%, a fixed charge coverage ratio of five times and a debt to EBITDA ratio of only 4.5 times and no scheduled debt maturities until October 2017.

Overall the strength of our balance sheet gives us the flexibility and resources to fund development commitments, as well as opportunistically take advantage of dislocations in the market to repurchase shares at prices we find attractive relative to our estimates of net asset value. During the first six months since we announced this program, we have repurchased roughly 45% of our $100 million target at an average price per share of $55.65, which we believe represents a sizable and adequate discount to NAV and represents an initial cash yield on shares repurchased of about 4.8% based on the midpoint of our 2016 estimates of AFFO.

We regularly forecast our capital availability assuming the funding of committed developments and assuming the completion of the full $100 million share repurchase program. In that forecast, we project debt and preferred stock as a percentage of gross real estate assets will rise to only roughly 35% on a book basis and under 30% based on real estate assets at their market value.

Turning now to earnings guidance, FFO is expected to grow at about 6% at the midpoint of our guidance range in 2016 and AFFO or cash flow is expected to grow at about 6.7%, also at the midpoint. Of this growth, slightly more event half or about $0.10 per share will come from same-store NOI growth and roughly $0.05 per share will come primarily from communities in lease up during 2016. The remainder of the growth is expected to come largely from greater interest and development costs capitalized to our development pipeline and modest accretion due to stock repurchases to date offset by increases in interest expense from net borrowings expected on our lines of credit and modest increases in overhead expenses.

Although we do not give quarterly earnings guidance, we do expect that operating results in the first quarter of 2016 will be impacted by typical seasonal factors including the resetting upward of annual accruals for property taxes and other operating costs. Our operating results in the first quarter will also be impacted by higher compensation expenses resulting in part from vesting of annual long-term compensation awards for certain officers who have reached retirement age under our stock compensation plans as well as certain one-time expenses stemming from the initial implementation of a new human resource information system.

We do anticipate continuing to opportunistically purchase stock, generally buying on dips and condition on the trading price of our stock relative to our internal estimates of NAV. Not being able to precisely predict such repurchases however, we have not included any further repurchases at the midpoint of our guidance beyond what we have done already.

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

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we’ll first hear from Nick Joseph of Citi.

Nick Joseph

Thanks. I want to get your thoughts on the development at this point in the cycle. You started the project in Atlanta, the 2016 guidance assumes no additional starts this year and you have a few projects delivering this year. So how should we expect the size of the pipeline to trend going forward?

Dave Stockert

I think Nick, we’re getting – obviously we are getting deeper into the cycle, development is getting more challenging, more difficult. So I think that generally speaking more will come out of the pipeline than will go into the pipeline. That is not to say that we wouldn’t intend to have some future starts but I think just naturally the dynamics of costs, land prices, yield will make it more challenging.

Nick Joseph

I guess along that line, what are you seeing in terms of land pricing and what is your desire to backfill the pipeline at this time for the next cycle?

Dave Stockert

Yes. I mean we are clearly out there looking for some land that would backfill for the next cycle it’s not – but it’s – we have not seen any diminution in land prices and I don’t think we really expect to. So we are going to have to be very, very focused in particular about land that we might add.

Nick Joseph

And in terms of that land, are you looking in current markets or are there other markets that you could expand into?

Dave Stockert

No, we are looking in current markets and particularly in markets where we are underrepresented markets like Denver, markets like Austin. We look for land in Houston with a longer-term view of that market.

Nick Joseph

Thanks.

Operator

And next we’ll hear from Gaurav Mehta of Cantor Fitzgerald.

Gaurav Mehta

Yes, thanks. Just a couple of quick ones. First, could you comment on the attractiveness of selling from assets to fund your development pipeline?

Dave Stockert

The attractiveness of, I’m sorry, I didn’t quite catch it. Selling…

Gaurav Mehta

Selling assets.

Dave Stockert

Yes, we have had a long history, 45 years actually, the entire history of our Company of essentially doing that. We create the value in the assets, we operate them, we season them, we own them for a period of time and then we harvest them and redeploy that capital back in the business. And so we would expect that to be – continue to be the case going forward. As it stands and we have talked about before, we essentially did an asset sale in advance of some of this development knowing that we had intentions to start a number of projects.

And so for a while now we have been burning through the cash proceeds of those dispositions as we get more into a borrowing position then we will consider additional sales down the road. And we are mindful obviously about AV, we are mindful of earnings and cash flow and trying not to dilute those two measures. We are mindful of the shape of the portfolio going forward, the age, the quality, the location of these assets but there is always assets that we will look to sell over time.

Gaurav Mehta

Okay. And then second one on your same-store revenue guidance, can you share your occupancy and rent expectations for 2016?

Jamie Teabo

Sure. We are not projecting really any year-over-year increase in the occupancy in the 2016 budget. We are looking portfolio-wide to have the occupancy be fairly consistent with what we saw in 2015. We also look for the renewals to be about where we have seen them tracking for the last year, so no increase. And actually we have budgeted a little less than what we experienced in 2015 on the renewal side and just slightly higher on the new lease side. We do think we are in a little bit stronger position heading into 2016 with the occupancy and the exposure levels and hopefully that will give us a meaningful pricing power into the spring leasing season.

Gaurav Mehta

Okay, thank you.

Dave Stockert

Thank you.

Operator

Next we’ll hear from Nick Yulico of UBS.

Nick Yulico

Good morning. On Centennial Park in Atlanta, you talked about I think a 5.8% yield and I think when you started the Midtown development, announced that last year you talked about a 6.5% yield on that. So maybe you could talk about why the yields in Atlanta sort of came down for new project and why you think it still makes sense to be building at a lower yield?

Dave Stockert

Yes. Well, a couple of factors. Number one costs continue to creep up and that is part of what I was speaking to earlier, Nick, about just the trajectory of the pipeline. The downtown submarket is not quite as proven as the Midtown submarket in terms of rents and we think we have been very down the fairway in the way we have underwritten this deal. The rents on the Midtown deal is average about $2,000 market rents and this is not that far away geographically and we have underwritten $1,600 market rents. So we have taken that into account. But we feel like the basis on this asset, about 219 a door and its location proximity to transit, proximity to both the Midtown and the downtown employment centers bode very well for the asset longer-term.

Nick Yulico

Okay. That is helpful, Dave. And then I guess on the other piece of the development pipeline that deliver in the next year Raleigh, Houston, Austin, three markets where there is more supply pressures, can you talk about what type of competing supply, lease up pressure you think you might face at those projects based on what the market looks like today? And then what is the latest thinking on yields you can achieve – sort of initial yields you can achieve on those three projects?

Dave Stockert

Jamie, you take the first part.

Jamie Teabo

Yes, I will take the first part. Really the only market where we will have meaningful competition in the short-term is Houston. So the Afton Oaks project that will deliver in the third quarter of this year would be the one that is going to experience the most lease up pressure. We actually feel pretty good about the second phase of our Raleigh deal. The first phase is performing at rents above pro forma for Phase II. So we are feeling as we enter into that, those deliveries, that we’re in decent shape in that market.

And then South Lamar in Austin, we won’t be delivering until end of this year, beginning of 2017. And we actually are seeing Austin over the last couple of quarters has done better in that submarket. We’ve seen South Lamar perform better than we have seen in the prior several quarters. So if that trend continues, then once we get our deliveries in 2017, we should be in decent shape.

Dave Stockert

So, I think our yield expectation is intact on Raleigh and Austin and in Huston, we may see some diminution early in the yield on that asset. We underwrote that at roughly 6%, I want to say if memory serves. But the basis again in that asset is very attractive. We’ve seen asset trades and numbers well in excess in the submarket. It’s a very high-quality asset and we feel very good about the long-term position of that, of that asset, and the galleries market going forward.

Nick Yulico

And Raleigh and Austin would be still, what over 6% type development yields?

Dave Stockert

They are in that range. Raleigh, I think it was high 5% when we underwrote it, and Austin was probably 6% when we underwrote it.

Nick Yulico

And is Houston a market – I have heard from others that maybe new lease ups today it is two months free and the people think that as you get closer to the summer you have more supply deliveries, it could go to three months free. Do think that is a reasonable assumption?

Dave Stockert

Are you talking about in Houston?

Nick Yulico

Yes, Houston specifically.

Jamie Teabo

Yes, we are definitely seeing two months free today in Houston. Now there is a little bit slower traffic and leasing period. The hope is that that doesn’t increase to three months as we hit the summer season. We will draw in more traffic and leasing velocity now, sort of the interesting fact is we’re seeing, residents coming in saying they’re getting laid off by one oil company and then right behind them a prospect will come in saying they’re being hired by another oil company.

So it’s still a very mixed bag of what’s going on in that market on a day-to-day basis. But I definitely think we’ll continue to see the two months, hopefully it doesn’t expand and when the leasing velocity picks up in the summer, it’s hopefully two months insufficient.

Nick Yulico

All right. Thanks everyone.

Dave Stockert

Thanks, Nick

Operator

Next, we’ll hear from Jordan Sadler with KeyBanc Capital Markets.

Austin Wurschmidt

Hi, it’s Austin Wurschmidt here with Jordan. Just first off, you mentioned you expect to dial back a little bit on the renewals to push new leasing pricing. I was just curious about what your thoughts on as – for optimal occupancy across the portfolio and do you think you can kind of hold steady occupancy levels where you are today?

Jamie Teabo

Yes, we are actually, we are sitting nicely up a little bit from where we ended the fourth quarter on occupancy through January. So we are in a much better position this January versus last January on the occupancy side. We are hoping as we get through February into March holding onto that strength in the occupancy, we will see a little more pricing power on the new lease side.

We think the renewal side continues to track right around where we have seen it the last few quarters in that low 5% range. We don’t foresee that changing. We have some markets obviously exceeding that and then the Houstons, DCs of the world are a little bit less, but it’s a balance. We are obviously getting more on the renewals. The turnovers still remain tightly down in January year-over-year. So the more conversion we can get on the renewal side that’s better pricing power for us in today’s environment. So we want to be measured about pricing power and not over pricing on the renewal side to create an issue on the new lease side. Does that make sense?

Austin Wurschmidt

Yes, could you give us where occupancy ended in January and then I guess just what you are sending out renewals at today?

Jamie Teabo

Sure. We finished January at 95.7% which was up a little bit from the 95.4% end of year number and that is tracking so far through the beginning of February where we look to be in good shape. And renewals are very consistent with what we have done in the past. The markets that have a little more strength, Florida, Atlanta, Dallas going out anywhere from 5% to 7% and then the Austin, Houston, DC are going to be anywhere really from 1% to 3%.

Austin Wurschmidt

Thanks. And then, would you mind giving some additional color on your thoughts on the stock buybacks given the plan to ramp development this year and how you kind of think about – I think you mentioned a 4.8% cash yield on the share repurchases versus what you are getting on the new development today just under 6%?

Dave Stockert

Well, it’s a balance. As I said in my remarks, it’s a balance between the longer-term objectives that we have for how we want to shape the portfolio over time and the nearer-term considerations about where the stock is trading relative to NAV.

So we have been looking to try and buy back at pretty – what we think are pretty big discounts to NAV because we understand that we are taking some permanent capital out of the balance sheet. But we also positioned, and Chris positioned it going in to have the opportunity to do that and as he laid out, we forecast our capital in where the balance sheet will go and we still feel even after doing the development and the share buybacks that we will have a – still have a very strong balance sheet and that is again without considering future asset sales

Jordan Sadler

It’s Jordan Sadler. I just wanted to get a little follow-up on the potential land to bank for the next cycle. I heard Houston is a potential target and you piqued my curiosity. Obviously we’ve got the liquidity and the capacity. So I’m curious how do you go about underwriting Houston land in an environment like this, what kind of sort of hold period for the land bank do you sort of factor in and how do you think about it?

Dave Stockert

I think you’ve got to factor in probably a multi-year holding period and it would be really looking at can you pick up, given some dislocation in that market, can you pick up a really well located piece of land that you would like to – that you probably aren’t going to get the shot at in a different kind of environment. And if you have to hold it for two or three or four years, the short-term cost of holding the land is not that significant these days and you would look at the land price on a per unit basis and what you think that might translate into on a development cost basis.

So there are a lot of factors that go into it, but the main thing would be trying to make sure you had something that was really well located that you liked a lot and felt like this was an opportunity that might not come up otherwise.

Jordan Sadler

As you guys are shaking the trees, are you seeing anything, any opportunities?

Dave Stockert

It’s tough because we are not seeing that many – you are not seeing that many opportunities yet. It is a lot like what has been going on in DC where I think everybody under the sun felt like would be in – these opportunistic situations and they just haven’t come. Maybe a little bit different in Houston just because I think that market may be a little bit more dynamic, but I think it is going to be challenged.

Jordan Sadler

Okay. Thank you.

Operator

Next we’ll hear from Rob Stevenson of Janney Montgomery Scott.

Rob Stevenson

Good morning, guys. Jamie, can you talk a little bit about what your same-store revenue growth is for your top three markets around the sort of 2.6% to 3.2% guidance? I mean what are you expecting sort of range-rise for Atlanta, Dallas and DC this year?

Jamie Teabo

Sure, Atlanta will continue to be the top perform on a year-over-year revenue basis of our markets and we see that coming in around four. And then the next would be Orlando and Tampa that we would see in the mid- threes Dallas just below that just under mid-three.

Rob Stevenson

And what about DC?

Jamie Teabo

DC we actually – we’ve seen in the last few quarters some improvement in our DC year-over-year trend and so we’re looking to see that any high one by around two year-over-year growth for DC.

Rob Stevenson

Okay, and is there any…

Dave Stockert

Some of that in fairness is occupancy.

Jamie Teabo

Yes, some it baked into where we were this time last year on an occupancy basis was pretty low.

Rob Stevenson

Okay. And then with the DC are you seeing any real bifurcation by submarket, anything the district versus the Alexandria, Arlington sort of corridor looking better getting more traction to you?

Jamie Teabo

The Alexandria, Arlington corridor will continue to see new supply in 2016. So I don’t anticipate seeing a large improvement in that corridor this year. The more suburban assets are more than Virginia and our Maryland asset definitely are doing better and they are not facing as much supply pressure.

Rob Stevenson

Okay, and then did I miss, did you give a yield expected stabilize yield for the development portfolio overall today for the almost $500 million you have a construction?

Dave Stockert

On a blended basis, we’re our bids in the six range north of that in a couple with 5, 8.

Rob Stevenson

Okay, thanks guys.

Operator

And next we’ll hear from Dan Oppenheim of Zelman & Associates.

Dan Oppenheim

Thanks very much.

Dave Stockert

Good morning, Dan.

Dan Oppenheim

So wondering if you can just talk a little – hey, how are you?

Dave Stockert

Good.

Dan Oppenheim

So wondering if you can you just talk a little bit about the turnover which has been very low throughout 2015. I think the count was it stayed low here in January. And so just wondering about that and what the expectations for the year given that any rise in turnover presumably brings on some frictional vacancy with it?

Jamie Teabo

Right, we did not anticipate in the 2016 budget the turnover would decline year-over-year and we’ve actually baked into the budget a slight increase in the turnover because as you said we’ve been running – we were well below 2014 and 2015 and although that would be fantastic if that continued we’re not anticipating that more actually anticipating a slight increase.

Dan Oppenheim

Got it. Okay. I guess everything else has been answered. Thank you.

Dave Stockert

Thanks, Dan.

Jamie Teabo

Thank you

Operator

Next we’ll hear from Alexander Goldfarb of Sandler O’Neill.

Alexander Goldfarb

Hey, good morning.

Chris Papa

Good morning.

Alexander Goldfarb

Just a few questions here. First, can you just walk us through the tax incentive on Centennial and then the 10-year program, is it cliff – it comes off in 10 years or in 10 years it starts to gradually come off and sort of what the impact, what the benefit on the 5.8 yield is from the tax?

Dave Stockert

Yes. It’s basically a graduated tax incentive that starts with the 50%

Chris Papa

Starts at 50% and burns off over the 10 years ratably.

Dave Stockert

That’s right.

Alexander Goldfarb

Okay. So it’s

Dave Stockert

Part of that Alex is a way to compensate for the 10% of the units that are workforce housing. So we’ve got 10% units on that other workforce housing where you see, we disclosed, average rents that are about $1,100 a little under that relative to the market rents at $1,600. And so that workforce housing requirement also burns off, it doesn’t burn off ratably but it ends in 10 years.

Alexander Goldfarb

Okay, so basically you get a 50% reduction on the real estate tax and then that…

Dave Stockert

To begin with.

Alexander Goldfarb

Begin with and then over a 10-year period, it steadily goes away?

Dave Stockert

Correct.

Alexander Goldfarb

Okay. Great. And then, Jamie, did you say that on – you obviously said that you expect turnover to go up a little bit but you also talked about a focus on renewals given lighter traffic. And I wasn’t sure were you only just specifically talking to just the seasonal point where we are right now or your view is that in 2016 there is going to be more of an emphasis on you guys on renewals versus softer on new rents?

Jamie Teabo

Well we’ve seen that trend really throughout ‘15 where we had a lot more pricing power on renewals than new leases. As we head into 2016, we have seen that again in January. I think it will really be dependent on what we see on the new lease rates as we head into the spring leasing season but we are already working renewals out into second quarter currently. So we are continuing to push forward and anticipate the renewals coming in that low 5% range through second quarter and as we see what kind of leverage we are getting on the new leases in March and April, that will really shift – potentially shift our pricing plan for renewals going into third and fourth.

But for now we definitely have better pricing power on the renewal side so we want to make sure we are maximizing that but also keeping the turnover in check because should those move out, we haven’t seen the pricing power on that new lease side. So hopefully we will have more visibility into the latter part of the year in the next 60 days on the leasing front but for now continuing to push forward in that average 5% plus or minus renewal side.

Alexander Goldfarb

And what your regions and your property managers are telling you on that front on the new side, are they hopeful for later in the year that they will have better pricing on new rent? And if not, is it more supply driven or is it employment driven?

Jamie Teabo

It’s definitely supply driven and I think we are going to be taxed like we said in the opening comments, Houston and Charlotte on the new lease side for sure just based on the supply in the market. We talked about the lease ups in Houston giving two months free and they are just competing on a pound for pound when you discount the new lease up 16%, it is getting pretty close to our rental rates on our stabilized assets.

So it is definitely a function of where the new supply is competing with our properties on the new rent side. But we are a little bit better occupied going into the spring currently so that may give us a little more pricing power as we mobilize through the season.

Alexander Goldfarb

Okay. Finally, Dave, on the favorite topic of stock buybacks.

Dave Stockert

Sure.

Alexander Goldfarb

If the yield, if you are implied cap rate is roughly the same as your latest development yield and you guys were a small cap to begin with which means liquidity is always a topic, how do you guys see the trade-offs of – I know you sort of addressed development yields versus buybacks before. But in terms of your decreasing your liquidity, the NAV impact is, it is pretty small and at the same time the amount that you are spending could go toward a new development which would sort of grow the enterprise and maybe enhance liquidity.

So can you just walk us through how you guys balance those three elements?

Dave Stockert

I think you just described it pretty well, Alex. Obviously those are the considerations that we look at, the accretion to NAV, the impact on earnings and cash flow and the capacity of the Company going forward to invest principally in development. I would tell you if I thought that there was a really big opportunity on the development side going forward, we would be a lot less inclined to be buying back shares. I think it is going to be challenging making development work as we get deeper in the cycle. We have talked about that a lot and so we feel a little more comfortable with that.

We have had the liquidity and flexibility to do these things and to engage in this balanced approach and so that has been a wonderful place to be. And then as we have talked about going forward, we do always have assets that we will look to sell and I would expect us to continue to put a premium on liquidity and strength but there is no near-term reason to do that at present. We’ve got plenty of balance sheet to handle this.

Alexander Goldfarb

But I’m talking about liquidity as far as float, shares outstanding.

Dave Stockert

Well, I don’t think we are changing it plus or minus, I don’t think that – honestly I don’t think that as nearly as high a consideration as anything else I just talked about.

Alexander Goldfarb

Okay, okay cool. Thank you, thank you, Dave.

Operator

Next we will hear from Drew Babin of Robert W. Baird.

Drew Babin

Good morning.

Dave Stockert

Hi, Drew, good morning.

Drew Babin

I was hoping you could talk about the supply conditions in the downtown Atlanta submarket, where Centennial Park is going in and how that submarket may look different than the rest of the market?

Dave Stockert

Well, there is really hardly any supply in that downtown submarket and most of the supply has been in Midtown and a lot of the supply in the Midtown market is going to be high rises, like the one we are building. And those rents in Midtown tend to be anywhere from we underwrote $235 a foot or about $2000 a unit up to $265 or $270 a foot. So pretty expensive market. The downtown submarket is candidly not as far along as a residential submarket but it is coming. There has been a fair amount of student housing down there connected with Georgia State.

There was a renovation of an office building into residential that has been very successful down there. So we think there is plenty of data points and we think we will compete very well in that asset because of its proximity to Midtown and the transit and downtown and hopefully we will have success and that will motivate continued investment in the downtown area. The fact that we are on the Park is a big deal as well.

Drew Babin

Great. One more. Just as you look at your markets across the country, are there any markets other than Houston where you are seeing new developments offering two months free rent?

Jamie Teabo

Not yet, no. I wouldn’t be surprised if we don’t see it later in Charlotte this year when more of that supply hits in the in town submarket but currently it is just Houston.

Drew Babin

Okay, great. Thank you.

Operator

William Kuo of Cowen and Company.

William Kuo

Great. Thanks, guys. Just a little more color on the submarkets. Atlanta has been your strongest market but topline growth looks to have been moderating there for the past few quarters. Can you just talk about what is driving that, how much lower you expect it to go? You talked about 4% outlook in that market this year. Does it kind of level off in that range or does it kind of moderate further?

Jamie Teabo

Well, we are seeing more supply come into the Atlanta market. They were fortunately fairly immune to that in the last few years but there is definitely more construction and more supply deliveries. And that is what is affecting really the year-over-year growth. The occupancy is holding strong. We are getting 6% on the renewal side instead of 7.5% and the new lease side, maybe down to 3% to 4 instead of 6%. So it is just tempering the rent growth on a year-over-year basis but the occupancy still is doing quite well.

William Kuo

Okay. And then maybe just along those lines, DC, Orlando, Austin are some markets that have seen some softness in the past and more recently have begun accelerating. Is that just a function of kind of your assets get more competition from new development and so as kind of supply tapers or settles out, those markets can recover?

Jamie Teabo

Yes, that is correct. As we work through some of the new supply in those markets, then we get more pricing power and more leases coming our way so the occupancy improves. So we have seen that in Orlando, we have seen that in DC and also in Austin, where there was just a ton of supply in that South Lamar Corridor. We have really seen that submarket firm up in the last couple of quarters.

William Kuo

Okay, great. Thanks, guys.

Dave Stockert

Thank you.

Jamie Teabo

Thank you.

Operator

[Operator Instructions] Next, we’ll hear from Dave Bragg of Green Street Advisors.

Dave Bragg

Thank you, good morning.

Dave Stockert

Good morning, Dave.

Dave Bragg

Hi, thank you for the update on the new development and the plans for that but could you please take a step back and walk us through Post’s history with that Centennial land?

Dave Stockert

We bought it in the last cycle. We planned it as a mixed apartment and condo project in the last cycle. We didn’t do that obviously and then we replanned it as a mid rise apartment community with the intention of having unit sizes and things that we thought were attractive and hitting a price point that we thought would be very attractive in that market.

Dave Bragg

So once you complete it, what sort of total return do you expect to achieve for shareholders on that investment?

Dave Stockert

You mean going back to the IRR…

Dave Bragg

From an IRR perspective?

Dave Stockert

I would have to go back and relook at that, David. I can’t answer that right now.

Dave Bragg

I just ask because I think that is an example of the risks of buying land at the top of the cycle as you just suggested that you do. And with what are arguably superior risk-adjusted returns elsewhere including your stock, we were a little surprised to hear those plans. How do you balance that experience with the desire to continue to grow the Company?

Dave Stockert

How do I balance, I guess I didn’t follow the last part. I get the part about – let’s talk about land for a second, all right. Yes, we have a desire and yes we have an intention to examine opportunities to add land. It is not something that I suspect is going to be easy to do but I want to have that out there. It is not like we would say no. And then in terms of balance again, yes, we have a balanced desire to evolve the portfolio is what I would say by creating value and new assets that become in essence the replacement assets for assets that we would sell over time. And we temper that with the nearer-term opportunities we might have on the stock. But it clearly is a balance.

Dave Bragg

Okay. I just think that is an interesting example and we have seen it from many companies but the risks associated with adding land at this point in the cycle particularly with such an unfavorable cost of capital and what could be argued a superior risk-adjusted returns elsewhere as you have accomplished with the stock but still seem to be available for you.

Dave Stockert

Yes, but I guess the other point I would make, David is – and there was a land that we bought in the last cycle that we wrote down, okay, and that was pretty common. One of the things also though that happened coming out of the last cycle was that construction costs collapsed and most of us were able to develop properties at a lot lower basis per unit early in the cycle coming out than we did before. And if you go back and look at where a project like Soho Square that you’ve seen in Tampa, shakes out today relative to its original land price or right down on land price, what the assets were today, and the construction cost of that asset when we did it versus what the construction cost would be today. A lot of these deals look pretty good today.

So it’s not clearly one way or another. Yes, you can make a mistake certainly. But it’s also impossible to predict the market and the cycle and you can make another mistake by not having anything in the covered if you will as the cycle turns. And I think construction cost maybe more variable than land costs if we get into a dip in the economy.

Rob Stevenson

Thank you for that. The last question just want to ask for your observation of the environment that we just went through in 2015 we saw a couple of your peers proactively take advantage of very strong bid or portfolios equity residential and home properties or a couple of them. How do you precise that bid out there today and that opportunity for others to take advantage of it?

Dave Stockert

Well, I think the bid – generally speaking there is still a lot of capital enthusiasm for multi-family. I have to believe that everybody gets influence to some degree about what’s going on the stock market. So maybe it’s modestly not as floppy as it might have been before, but I think its still – there is still a lot of capital out there.

Rob Stevenson

Thank you.

Dave Stockert

Thanks, Steven.

Operator

William Horne of Raymond James.

Buck Horne

Hey, good morning, guys. This is Buck. A question on the CapEx guidance, I just noticed that – I guess the guidance for this year is at recurring and periodically recurring CapEx is basically expected to be in line with last year, but just noticing – last year’s CapEx was fairly elevated. I’m just wondering, give us an color on what the extra spending is going forward and would you expect maybe 2017, would you see CapEx come down a little bit from these levels?

Dave Stockert

Yes, I would say – one thing I would say Buck is, 2014 was actually lower than we had initially plan. And part of that was just the ability to execute the CapEx projects in 2014 as timely as we would have like. And so we actually – we’re under in 2014 and we’ve shifted – and we shifted some of those to 2015. And we do 10-year CapEx budgets for the assets and it is really just trying to make sure that we over that 10-year period make the kinds of investments that we need to make in these assets to keep them of the quality that one would expect either as operating assets or as assets potentially that we would look to sell down the road. But I think the CapEx, what is that?

Buck Horne

I was just going to ask if any of this was really revenue enhancing or is it more maintenance and updating the properties?

Dave Stocker

Well, some of the things are updates and I think arguably they help with the revenue side at least hold onto the revenue side. And a lot of it is just simply the things you’ve got to do, the parking lots, the roofs, the painting, the things, the water heaters, the HVAC units, the things that you’ve got to do to serve your customers.

Buck Horne

Okay, thank you. And then lastly, just some extra color if you can on the expected stock comp expense for the first quarter. Can you guys help quantify that impact for us?

Chris Papa

That piece is running about $0.01 a share for the first quarter as it would compare to the rest of 2016. So it should be about a $0.01 higher in Q4.

Buck Horne

All right. Thanks, guys.

Jamie Teabo

Thank you.

Operator

And our last question for today will come from Vincent Chao of Deutsche Bank.

Vincent Chao

Hi. Good morning everyone. I apologize if I missed this from earlier, but I just curious from a job growth outlook perspective, what’s assumed in your current outlook for your own results?

Dave Stockert

You are talking about from a national perspective?

Vincent Chao

National, I guess just broadly speaking are you looking for…

Dave Stockert

Broadly speaking it would be, I suppose a conventional view of the economy that would be low 2% GDP growth and plus or minus 2 million jobs. We tend to favor the markets that get better than average national job growth, and we have got some of our markets where the 2016 job forecast looks a little better than 2015, and then we have other markets where the job growth looks not as good as 2015. So, the plus or minus fairly comparable, maybe a shade less than what we had in 2015.

Vincent Chao

Okay, but no major shifts there it sounds like in the growth rate expectations. Okay. And just going to the share repurchase comment in terms of the midpoint, not including any share report. Does the high-end contemplate the full utilization?

Chris Papa

No, what we have included in the guidance range is what we have done to-date. We did not include any additional share repurchases in that range.

Vincent Chao

Not even in the high-end, okay, my misunderstanding. And then last question, just a clean-up question here. In terms of the 1Q expenses that you highlighted in terms of things, maybe being a little bit higher than maybe in the fourth quarter and rest of the year for 2016. I was just curious if you expect any noticeable impact from Jonas on costs in the first quarter?

Jamie Teabo

Yes, Vincent, we didn’t experience too much. We have a little bit of course in snow removal and some overtime associated with that in Charlotte and DC, but it’s not material.

Vincent Chao

Okay. Thank you.

Operator

I will turn the conference back over to our presenters for any additional or closing comments at this time.

Dave Stockert

Well, thank you all for joining us and we look forward to seeing you at various events down the road. Take care.

Operator

And that does conclude today’s conference. Thank you all for your participation.

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