American Campus Communities, Inc. (NYSE:ACC)
Q4 2015 Earnings Conference Call
February 23, 2016, 10:00 am ET
Ryan Dennison - VP, Corporate Finance & IR
Bill Bayless - CEO
Jim Hopke - COO
William Talbot - CIO
Jon Graf - CFO
Jamie Wilhelm - EVP, Public-Private Partnerships
Daniel Perry - EVP, Corporate Finance & Capital Markets
Austin Wurschmidt - KeyBanc Capital
Nick Joseph - Citigroup
Ryan Burke - Green Street Advisors
Jana Galan - Bank of America Merrill Lynch
Ryan Peterson - Sandler O'Neill
Drew Babin - Robert W. Baird
Good morning and welcome to the American Campus Fourth Quarter 2015 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded.
I would now like to turn the conference over to Ryan Dennison. Please go ahead sir.
Thank you. Good morning and thank you for joining the American Campus Communities 2015 fourth quarter and year-end conference call.
The press release is furnished on Form 8-K to provide access to the widest possible audience. In the release, the company has reconciled the non-GAAP financial measures to those directly comparable GAAP measures in accordance with Reg G requirements. If you do not have a copy of the release, it's available on the company's website at americancampus.com, in the Investor Relations section under Press Releases.
Also posted on the company website in the Investor Relations section, you will find a supplemental financial package. We're also hosting a live webcast for today's call, which you can access on the website with the replay available for one month. Our supplemental analyst package and our webcast presentation are one and the same. Webcast slides may be advanced by you to facilitate following along.
Management will be making forward-looking statements today, as referenced in the disclosure in the press release, in the supplemental financial package, and in SEC filings. Management would like to inform you that certain statements made during this conference call, which are not historical facts, may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 as amended by the Private Securities Litigation Reform Act of 1995.
Although the company believes the expectations reflected in any forward-looking statements are based on a reasonable assumption, they are subject to economic risks and uncertainties. The Company can provide no assurance that its expectations will be achieved and actual results may vary.
Factors and risks that could cause actual results to differ materially from expectations are detailed in the press release and from time to time in the Company's periodic filings with the SEC. The Company undertakes no obligation to advise or update any forward-looking statements to reflect events or circumstances after the date of this release.
Having said that, I'd now like to introduce the members of senior management joining us for the call. Bill Bayless, our Chief Executive Officer; Jim Hopke, our Chief Operating Officer; William Talbot, our Chief Investment Officer; Jon Graf, our Chief Financial Officer; Jamie Wilhelm, our EVP of Public-Private Partnerships; and Daniel Perry, our EVP of Corporate Finance and Capital Markets.
With that, I'll turn the call over to Bill for his opening remarks. Bill?
Thank you, Ryan. Good morning and thank you all for joining us as we discuss our fourth quarter and full-year 2015 financial and operating results. As you read in last night's release, and as you'll hear from the American Campus team today, 2015 was a year of solid execution for the company on many fronts. The team delivered meaningful internal growth through our operations, continuing to create net asset value with full-year same-store NOI increasing by 4.5%.
Our operations and asset management teams also exceeded our annual goal of improving our margin to 53% in 2015, and we achieved 97.7% same-store occupancy in our fall 2015 lease-up leading the public student housing sector for 11th straight year. On that note, this is American Campus's 11th straight year of same-store growth and rental rate, rental revenue, and net operating income, an incredible accomplishment for our company which demonstrates the stability of cash flows our sector offers.
During the year, we continue to execute on the strategic disposition of our non-core and older communities with asset sales totaling $437 million, creating capacity for our high yielding development pipeline of core pedestrian assets, and meaningfully improving the quality, stability, and growth potential in future net operating income.
With regard to external growth, in the areas of both off-campus development and ACE opportunities related to our broader P3 initiatives on-campus, it was a banner year that has begun to set the stage for unprecedented high quality growth over the next several years.
During 2015, the company was awarded or began direct negotiations on a total of 15 on-campus P3 projects, clearly demonstrating American Campus's best-in-class standing among colleges and universities as the partner of choice.
Today, we'll provide color regarding how many of these institutions are choosing ACE as the preferred transaction structure and our progress in structuring these transactions. Our expanding ACE in off-campus development pipeline was the catalyst for our equity offering earlier this month. This offering, coupled with our planned asset sales in 2016, puts the company in an excellent position to fund and execute on our expanding highly accretive development pipeline.
2015 will also be remembered as a year of great progress in the continuation of the maturation and institutionalization of our industry. William will provide an update on a vibrant student housing transaction market and compressing cap rates, as institutional investors domestically and globally are recognized in the growth potential of this industry still in its infancy coupled with the stability of cash flows that our sector offers. This recognition, coinciding with uncertainty looming in macro economy, make student housing one of the most desirable investments globally. This, coupled with strong industry fundamentals, leads us to believe that our sector and our company is well-positioned for meaningful future growth and value creation.
As we look ahead, the recent equity offering, coupled with our planned capital recycling activities, results in approximately 6% dilution in earnings per share at the midpoint of our 2016 guidance. However, these activities in conjunction with our highly accretive expanding development pipeline, and a potential for solid internal growth moving into calendar year '17, set the stage for meaningful value creation for our shareholders through growth in our earnings per share and net asset value, while simultaneously continuing to improve the stability and growth of our net operating income via the refinement of our portfolio.
With that, I'll turn it over to Jim Hopke to discuss our operational results for the year and to provide an update on our 2016 and 2017 lease-up.
Thanks, Bill. We are pleased to report solid internal growth again in both our fourth quarter and full-year 2015 results. As Bill noted, this marks the 11th straight year of same-store growth in rental rates, rental revenue, and NOI since our IPO in 2004.
Fourth quarter same-store property NOI increased by 3.7% over Q4 of 2014 on a 2.9% increase in revenue and an increase in operating expenses of only 1.9%. For full-year 2015, same-store NOI growth was 4.5%, the result of a 3.3% increase in revenues, which were aided by an increase in other revenue of 4.8%, and a 1.9% increase in expenses. The resulting 2015 same-store operating margin was 53.3% exceeding our targeted goal of 53%.
Our full-year and fourth year total expenses were in line with our expectations. Full-year expense variances of note include an R&M increase of 6.6%, the result of nearly 700,000 of one-time expenses at three properties. Excluding these expenses R&M would have increased 4.1% in 2015.
Also of note, as part of our expense management and multi asset market initiatives marketing expenses were down 11.9% for the year. We believe the $131 per bed in marketing expenses for 2015 establishes a new annual baseline, which we would expect to grow at a more normalized rate going forward.
Reviewing preleasing for the 2016, '17 academic year Axiometrics recently reported that their national portfolio of beds tracked were preleased at 26.6% as of January, a significant 443 basis points ahead of last year's pace, which was also a strong lease-up for the industry. They're also projecting effective rental rate growth of over 2%. Axio's research estimates new supply for 2016 of approximately 45,000 beds nationally, a decrease of about 6% to 7% from 2015 new supply, resulting in continued strong student housing market fundamentals. Only 34% of the Axio markets receiving new supply in 2016 had any new supply in 2015. In the 72 markets where ACC owns assets we're seeing a 12% decrease in new supply with only 29% of these markets receiving new supply in both 2015 and 2016.
Turning to leasing for our portfolio of fall 2016. As of Friday, February 19, our same-store portfolio was an industry leading 59.3% preleased 100 basis points ahead of the prior year. We're currently projecting 3% rental rate growth for 2017 same-store properties as detailed on Page 19 of the supplemental.
Our fall 2016 development deliveries are 27.1% preleased for academic year '16/'17. Our Butler University property and on-campus ACE project, which is covered under the universities housing requirement has not started receiving assignments of students. And the second phase of Stanworth faculty housing asset at Princeton will not follow a cyclical life lease-up cycle of a purpose build student property and is expected to lease-up over the first year of operation similar to the first phase. The remaining development properties are 39.7% preleased.
Guidance for our 2016 same-store NOI growth is 2.0% to 3.8%. Our guidance assumes revenue growth of 2.2% to 2.9% and expense growth of 1.8% to 2.3%, consistent with our average four-year same-store expense growth. The low-end of our revenue guidance reflects execution risk of backfilling May ending leases, overall some releasing, and more moderate other income growth projections due to the exceptional other income performance in 2015.
In conjunction with our longer-term goal of improving margin to 55%, we expect our same-store portfolio operating margin to be between 53.6% and 54.2% in 2016, a result of our ongoing asset management initiatives and operational efficiencies.
Our projected rental rate increase of 3% at the midpoint of our guidance range, combined with 85 basis points of occupancy upside in moving the 2017 same-store portfolio from the 96.9% final occupancy at the conclusion of the '15/'16 lease-up to our long-term portfolio average of 97.7%, and assuming expense growth consistent with our historical four-year average of 2.75%, results in 2017 same-store NOI growth potential at the upper end of the 3% to 6% range we previously communicated.
I will now turn the call over to William to discuss our overall investment activity.
Thanks, Jim. We continue to see strong demand for investment in student housing across all asset classes, including institutional interest in both core and value add acquisition. As detailed in CBRE's year-end student housing report 2015 represented a record volume of transactions for student housing, with over 5.5 billion of product trading during the year, representing an increase of $2.5 billion over 2014. This record volume occurred in a year where the public REITs only accounted for 8% of acquisitions, reflecting a significant interest of institutional capital to enter or expand their investment in student housing.
CBRE noted continued cap rate compression in 2015 with overall student housing cap rates decreasing 28 basis points over 2014 levels and core pedestrian product trading in the 5% to sub 5% range.
2016 is already off to a strong start with the announcement of two high profile portfolio acquisitions totaling over 3.3 billion, which are expected to close in early 2016. Harrison Street is expected to close on the value add Campus Crest portfolio in a $1.9 billion acquisition. And the core portfolio of University House Communities is said to be acquired by joint venture formed between new entrant CPPIB, the Institutional Investment Arm of the Canadian Pension System, GIC the Southern Wealth Investment Fund of the Government of Singapore, and Scion Group an established student housing operator for a total purchase price of $1.4 billion. These two large portfolio transactions in conjunction with the record volume achieved in 2015 totaled almost $9 billion of investment and are evidence of the deep and emerging demand for investment in the student housing sector.
Institutional investors are attracted by the growth potential of an industry in its infancy, the stability of cash flows that our sector offers, and the overall strong fundamentals of student housing, all of which are especially attractive in an uncertain financial environment.
For 2016, ACC expects a strategically capitalized and the strong transaction market with continued execution of our capital recycling program. Currently, we have two non-core assets under contract for sale for a total of $74 million. One asset, though located pedestrian to Tier 1 University is a conventional apartment community that is 36-years-old. The second asset is a purpose build student housing property that is 15-years-old in a drive location to a Tier 1 University. Both assets are non-core and were acquired through the GMH acquisition. Both buyers are through their due diligence period and have significant non-refundable earnest money in place, subject to only to seller default and the other standing closing conditions.
In addition to these sales, we plan to continue the disposition of our other non-core and older properties as we are able to command attractive cap rates due to strong demand for this type of product relative to their projected future NOI stream.
In total, we expect to dispose $200 million to $600 million of non-core and older assets in 2016, and we intend to recycle the proceeds from the sale of those assets into our higher growth, better quality, core development pipeline, improving the overall quality and long-term NOI growth profile of our own portfolio.
We have made significant advances in our own development pipeline. With regards to ACE, 10 of the 15 P3 projects we were awarded in 2015 are expected to be ACE equity development, with three already commencing construction, three under executed predevelopment agreements, and four currently in the project feasibility stage.
This high level of demand reflects the increasing interest by colleges and universities to leverage the expertise and balance sheet of American Campus to address their housing needs. We have also made great advancements in our core off-campus development pipeline. This quarter, we announced three core off-campus developments located pedestrian to the campuses of Texas Tech University, Baylor University, and the University of Illinois, expanding our existing market share in each of these Tier 1 markets.
Overall, we currently have $307 million of own development and pre-sales underway for 2016, and have grown the 2017 development pipeline to $443 million with $365 million of that pipeline currently under construction.
In addition, we have continued to grow the shadow pipeline for additional developments that could deliver in 2017, 2018, and beyond.
With that, I will now turn it over to Jon to discuss our financial results.
Thanks, William. For the fourth quarter of 2015, we reported FFOM of $79.1 million or $0.69 per fully diluted share as compared to FFOM of $75.8 million or $0.71 per fully diluted share for the comparable quarter in 2014. FFOM increased by $3.4 million but per share amounts were impacted by 6.7% increase in the weighted average shares outstanding, primarily from shares issued in January of 2015 under our ATM program to fund our growth pipeline.
Full-year 2015 FFOM of $269.3 million or $2.36 per fully diluted share met the high end of our 2015 FFOM guidance range. As compared to the fourth quarter of 2014, the 2015 fourth quarter results benefited from the previously discussed same-store operating results and the 12 growth properties placed into service since the fourth quarter of 2014. This was partially offset by lost FFOM from the sale of 20 disposition properties during 2015, whose FFOM contribution was $7.7 million less this quarter as compared to 2014.
Since the beginning of 2015, our cash proceeds of almost $1.8 billion from our February 2016 equity offering, 2015 property dispositions, our September 2015 bond offering, and the first quarter 2015 ATM activity, have been more than adequate to fund our previously discussed growth opportunities, as well as the payoff of maturing fixed rate debt in construction loans, allowing us to maintain strong credit ratios in capacity for our future developments.
Fixed rate debt maturities within the next 12 months are approximately $154 million or 5.3% as the company's total indebtedness at year-end. Subsequent to year-end, we raised $708 million in net proceeds from a 17.9 million common share offering using a portion of the proceeds to repay our $250 million term loan scheduled to mature in March of 2019, and the outstanding balance on our revolving credit facility. With this offering, our balance sheet is well positioned to allow us to execute on the growing development pipeline that William discussed.
When looking at the pro forma impact of the offering, our 2015 year-end debt to total asset value would decrease from 42.8% to approximately 35%, and our 2015 year-end net debt-to-EBITDA would decrease from 7.4 times to 5.6 times. Depending on the ultimate amount of dispositions completed during 2016, these ratios are anticipated to range between 32% and 35% and 5.6 times to 6 times.
We are providing guidance for 2016 FFO in the range of $2.19 to $2.35 per fully diluted share, 2016 FFOM in the range of $2.14 to $2.30 per fully diluted share, and 2016 per share net income in the range of $0.69 to $0.70 per fully diluted share.
When considering the 2016 per share FFOM guidance, it should be noted that there is approximately $0.30 of per share dilution specific to the 17.9 million shares of common stock issued in the previously mentioned equity offering. The associated debt repayments results in about $0.07 in offsetting interest savings.
In addition, the anticipated dispositions in 2016 will result in approximately $0.05 to $0.19 of earnings dilution from lost NOI, offset by approximately $0.00 to $0.05 in interest savings from the elimination of mortgage debt outstanding on the properties being considered for disposition.
We believe this impact to our 2016 FFOM per share is well worth a value we are positioned to create and the overall improvement in our portfolio from the development pipeline we are set to execute on.
Some items to note about 2016 guidance assumptions include the 2016 FFOM range is very dependent on the timing and amount of dispositions which range from $200 million at the high-end of guidance or $0.05 of lost NOI to about $600 million at the low-end of guidance or $0.19 of lost NOI.
The interest expense range is primarily driven by the elimination of property mortgage loans associated with related dispositions within the guidance range.
G&A in 2016 is projected to increase between 8.9% to 9.9% over 2015. In addition to inflationary increases, G&A has been impacted by increased public company costs, restricted stock award amortization and certain payroll and costs from enhancements to our operating platform and system development.
Please refer to pages 17 and 18 of the earnings supplemental to get additional detail on each of the components of our 2016 guidance.
With that, I will turn it back to Bill.
Thank you, Jon. In closing, we're very pleased with our annual 2015 results; it was a year of solid execution. I would like to thank the entire ACC team for their hard work, dedication and the excellent results they once again delivered. As we discussed with the recent equity offering, and planned dispositions included in our guidance, 2016 will be a transitional year that sets the stage for meaningful value creation in earnings per share and net asset value moving into calendar year 2017 and beyond, as we execute on our expanding high yielding development pipeline and execute internally on our prospects for accelerating same-store NOI growth.
With that, we now like to open it up for Q&A.
Thank you. We will now begin the question-and-answer session. [Operator Instructions].
And the first question comes from Jordan Sadler with KeyBanc Capital.
Hi, good morning, it's Austin Wurschmidt here. Bill and William you guys spoke to the increased private market demand and new entrants into the sector. So thinking about the $200 million to $600 million of dispositions in your guidance I was curious if you expect these will be outright sales or if you would view this as an opportunity to bring in a long-term institutional capital partner?
We'll certainly look at both of those alternatives. Given what we're looking at is mostly all non-core properties drive from campus and older, it is more likely to be a straight disposition. However we wouldn't rule out very attractive pricing if there is some type of small participating role for us. But right now the intent is outright disposition.
Thanks. And then what should we expect in terms of potential embedded gains from the planned sales and what might be the tax implications. Will there be a need I guess for any type of special dividend or 1031 opportunity?
Austin, this is Daniel. Obviously we're still in the process of finalizing what exact assets those would be, but we have plenty of room in terms of the REIT compliance calculations that would not require any kind of special dividend.
Thanks, Daniel. And then just lastly for me, could you give some detail on the portfolio make up on the sale of the full $600 million. And I guess specifically I'm focused on what percent of the portfolio would be on-campus following the sale of the full $600 million?
If you look at and again refer to the charts that we provided over the years, we still have about 15%, 16% of our NOI that actually is down to about 13% now this is derived from the -- our direct properties. And so with that being the main target, we will transform the portfolio at the end of the execution of the $6 million that consist almost entirely of properties that are pedestrian or bicycle to campus inside of a mile.
The percentage that would either be on-campus or immediately across the street pedestrian will actually increase into the mid-90s, and so continues to be the transformative refinement of the portfolio, it really dates back to again the major M&A transactions that we did with GMH back in '08, where we're still liquidating a portion of those non-core assets that really take us more to our key investment criteria of everything being proximate to campus and being able to walk class and finishing out the -- or finishing out the portfolio sales.
And even then I would point out, we always anticipate to continue to be a capital recycler and always identify on an ongoing basis into the future even when we get to the point that our entire portfolio is core. So always look the slowest growth rate assets on a going forward basis 2% to 5% a year of your bottom NOI and continue to recycle when the constant portfolio refined on a long-term basis.
Thank you. And the next question comes from Nick Joseph with Citigroup.
Thanks. Just sticking with disposition. How do you think about the balance between the earnings dilution and timing of -- and I guess ultimately the size of the asset sales this year, especially after the large equity raise help reduce development funding needs?
This is Daniel, Nick. So when you look at the amount of dilution from the dispositions at the midpoint after assuming the debt payoff associated with those, we do have mortgage loans on them that we would prepay as part of the disposition. At midpoint it's about $0.07.
In terms of how we think about it relative to the earnings solution, certainly, it's a big impact and especially on top of the equity raise from earlier this year to this year's earnings per share. But we really like the leverage levels that it move us into from a target perspective and gives us the opportunity to be able to be positioned, regardless of the environment to continue to execute on the development pipeline. And so it's a short-term impact earnings per share, but long-term the value creation opportunity we think justifies it.
And especially tying it also to the refinements we were just talking about, it's transformative also then in terms of the growth profile of internal same-store NOI potential of that refined portfolio moving forward. So the internal growth prospects become better at the end of that initial dilution it's taking place through the disposition of the non-core.
On that point, how do you think about the longer-term growth rate of the remaining core assets versus the non-core assets you're selling?
Yes, and we have broken record in that regard, Nick. And given the stability and resiliency of our sector this answer hasn't changes since IPO. And 3% to 6% ongoing annual same-store NOI growth continues to be the norm of consistent operation we believe for core Class A student housing. And so, obviously, the better the tailwinds are in the market and the portfolio itself you have the opportunities to get to the higher end of that 3% to 6% range at times and other years to 6%. But the beauty of the industry is the stability of that cash flow. The downside of the industry is when multifamily and other secretors are running double-digits; we're still running at same 3% to 6%. It's going to work for us in this macroeconomic environment.
Thanks. And then just finally, going back to Austin questions for the dispositions, would you expect the larger portfolio sale or more individual asset sales?
To be seen. Certainly the market hedges, as William talked about, we see with the institutional capital coming in, there is appetite for those larger portfolios. You saw that last year in our sales at Starwood. Also a larger portfolio the Scion is part of that the transaction, the University House also, and so the potential exist for that.
For us it's going to be balancing institution risk with maximizing pricing. And so, I would say the environment exist that it could go either way in that regard. Obviously, if it's a larger portfolio that may facilitate a quicker timing. And if it turns out to be more piecemeal then would obviously I think be dragging that out a little bit in terms of the timing throughout the year. But the environment exists to get strong pricing in both.
Okay. So there -- is there a portfolio premium for larger portfolios or is it more just on the timing?
I would think that the opportunity exists. Another thing that we talk is about strategically is that given some of the institutional capital coming in one thing we may consider is if -- taking if the market is to offer to continue to manage it, in that there is lot institutional capital but isn't partnered up with operating platform and so the opportunity exists. It reduces integration risk certainly from a pricing perspective and also it's no additional burden on the organization. So we think that's something that may be a unique alternative to what we typically done on dispose, it could even bring a few more potential players to the table and make it a more attractive acquisition target for them.
Thank you. And the next question comes from Ryan Burke with Green Street Advisors.
Hey, Ryan. I have a question.
Hey, Bill. How are you?
Question on the 29% to 34% pro forma leverage. Certainly, a target through 2018 given what you currently have on your play. Do you also consider that a target in the long-term?
Yes, I mean certainly, when you look at the current environment that we're in and you look at that capital allocation strategy page on Page 16, that 29% to 34% of the target we think is prudent to operate in certainly given the current macro environment and the opportunity set that exists for us and so we that that is certainly a comfortable range.
I also think when you look at definitive targets -- and I know you folks utilize a more of market value leverage where we look at gross asset value. And so even when we say 30% to 35% that may provide a little more room and you're probably little lower leverage than that using a market cap rate. But we think this is the prudent target for the company for the foreseeable future. Certainly, you always take place and look at what is a changing dynamic environment and what makes sense. But given where we are today and the historical outlook for what appears to be the mid-to long-term, this is where we think we need to operate and gives us plenty capacity to continue to execute on the expanding development pipeline. And I think that's the key point in the offering. It wasn't -- this wasn't just to fund the current pipeline, but it was to be able to fund what we are seeing at the expanding development opportunities both on and off campus.
And you acquired a large portfolios in the past in a hypothetical scenario where you were to buy let's call it a $2 billion portfolio tomorrow it sounds like you would seek to fund that transaction in a relatively leverage neutral manner?
Yes. Well we -- anytime we have had that large of a transaction I think the history speaks best. And we've always come to the market, told that story and raised the equity with you to pursue it. And so as we talk about acquisitions in general -- and again, right now we are focused on development and that those opportunities are numerous, they are high yielding, we did this offering to be able to create capacity for that expanding pipeline.
As we look at acquisitions on the short and longer-term, right now on the current environment with cap rates being as strong as they are as William talked about five and even sub-five on core to buy something fully stabilized at a five cap with a normalized growth rate this isn't the best use of our capital giving the developmental opportunities that are out there.
And so, we would look at acquisitions on a short-term basis as not having the growth potential and the yields that we can achieve through development. That's not to say if there is not a small one-off strategic acquisition of an underperforming asset or something that we can drive growth beyond. What I just described is more like the development we wouldn't look at it. And certainly, to the extent that there is larger opportunities, from an M&A perspective, which I do think, given all the institutional capital coming in, we're probably I would say two to five years out from bigger M&A opportunities that are going to be there.
And so we're focused on development at this point in time and think that a broader growth plan would drive leverage out of those targets, we would have to look at on a leverage neutral basis in terms of how we would approach it.
Okay. Thanks. Question on NOI growth guidance it came in at a range of 2% to 3.8%. That was mentioned on the last earnings call of expectations for 4% for 2016. Can you bridge that gap for us? Jim touched on I mean, I think some of the potential reasons in opening remarks.
Yes. And actually it was Jim and Jennifer Beese and the team's outperformance in 2015 that have done us in there. And when I made that statement last quarter, it was we now expect to finish calendar year 2015 with approximately 4% same-store NOI growth and expect calendar year 2016 to have the same potential.
Well, obviously, as you saw, we had a great fourth quarter. And so they actually brought in the year at 450 bips versus the 400 bips. And therefore, when you look at the accumulative growth in NOI that we're talking about on the last call that equates to 3.5% in 2016 to end up with the same NOI and the same net asset value. And so that 3.5% is indeed within our current guidance range of 2% to 3.8%.
And as Jim mentioned, the mid -- with the midpoint being 2.9%, we have allowed for little bit of execution risk related to improving what was a really tough comp and other income. And this year was exceptional in that regard. And also, allowing for execution risk and backfilling our May ending leases in summer.
Okay. It is still a pretty large gap though. So it seems like not all of that outperformance could have come during the fourth quarter. Is it fair to say that it's really attributed to outperformance during the full-year 2015; perhaps you guys just didn't realize the extent of it on the October front?
Well, I'd say it was two things. One, it certainly was both a better other income in Q4 and better expense management in Q4. And then that there were no surprises on real estate taxes at the end of the year and those things came in favorable which would have been a broader impact throughout the year.
So I would say the core was better in terms of controllable related specifically to Q4. On a non-controllable the tax number benefited what would have been the full-year.
Thank you. And the next question comes from Jana Galan with Bank of America Merrill Lynch.
Thank you. So your fall 2017 that will be your largest delivery year but you mentioned you could still potentially add some more projects. Are you comfortable having call it over the 10% to 15% of enterprise value in development now that you have lower leverage or what's your outlook there?
Jana, we always look at total development in terms of two years worth of development, so with gross assets today just under $7 billion, $600 million of the individual years would be slightly under 10%, and in total for over a two-year period to be 15% to 20%. Certainly that's on the higher end but given the history of development expertise that we have both from our own development as well as our development for our university partners through the third-party development, we feel pretty confident on our ability to deliver that and certainly that was a lot of the thought process again going out with the equity offering with the size of that development pipeline to make sure that the balance sheet was well-positioned to be able to execute on that.
And Jana, let me comment beyond what Daniel just said in terms of the balance sheet tolerance but to the actual execution on that level of development and its two points. One we always like to refer back to 2012 when we delivered 16 projects simultaneously for our own portfolio and for our third-party university clients actually where the National Association of Homebuilders Development firm of the year nationally not just student housing all developers because of that successful delivery on time and on budget. And also the deals why you look at the quantitative dollars, the one thing that ACE has been a transformative variable is that those ACE deals tend to be much larger. And so while the dollar amounts are big going into '17 from a number of project development capacity it doesn't approach our highest years of execution in that regard. So it's something we’re very comfortable with from a delivery perspective.
Thank you. And then may be just on the impressive preleasing to-date for '16, '17. How are you balancing your view of pushing rate and then having the sector leading preleased occupancy at this point?
That we view it as we always do is that it is property by property using lamps to measure velocity in absorption by unit type day and day and making changes on an ongoing basis. And so as we're more than halfway through this lease-up it is a full mixture where you -- there have been literally hundreds of price adjustments on a per accommodation type basis up and down to maximize it to the finish line. So it is a process that we are well versed in administering and focused on this year as we are every year.
And the next question comes from Ryan Peterson with Sandler O'Neill.
Thank you. As you guys continue to announce more and more ACE deals at faster rates, do you attribute this to schools just hastening their approval process for subsequent deals after you complete the first one or is it just more a lot of numbers in that, do you have a lot more proposals out there for a lot more announced deals?
It’s a mix of both and certainly you all have heard us now talking for since 2007 and then ASU pioneering the ACE program. And it seems like a longtime but when you look at now, the number of ACE transactions that are in cumulative nature and the percent of the portfolio is really starting to pay dividend. But obviously when you've done a transaction with a system like the Arizona board of regions that cover both Arizona State and Northern Arizona University repeat transactions are much easier. You already have the template; you already have the format, ASU as you guys recall PV Main which is the very large ACE transaction we have underway right now over $110 million. We announced that on February last year and are under construction and that will be delivering. Well that typically never happens on a new client to have that kind of pace. And so you will see that affects snowball on itself as we have more clients undertaking it.
And the second part of your question is holding true too and you just seen more tier 1 flagship universities looking at it as the alternative of choice as it relates to the safe way to protect their balance sheet and their credit capacity. Now ASU recently had a right up for Moody's on their rating in the P3 transactions they've done actually were looked at as credit positive. And so as those type of things mature, it gives more and more credence to schools looking at it as the mainstream alternative, so both are true.
Okay, great. Thank you and then second question is just a quick modeling one, is there any idea yet of what the magnitude of prepayment charges might be, if you complete the $600 million of dispositions?
Ryan, this is Daniel. Again we’re still in the process of finalizing exactly the assets that would be part of that portfolio but based on our expectations with it being our non-core assets, the $600 million portfolio size it could be as much as $30 million. Obviously that moves day-to-day with the movement in treasuries. So it inevitably will be slightly different than that, but that's what we estimate it this time.
Thank you. [Operator Instructions].
And our next question comes from Drew Babin with Robert W. Baird.
Good morning. As it applies structurally going forward, in years where you faced both a difficult occupancy comp as you do in 2016. In the future, how do you view your ability to push rents, just pure rents rates about 3% and may be you can highlight some properties being able to do that on a sustained basis and help us to understand how that may be done?
Yes, and first of all and we're really excited about 2017, and as Jim talked about in his script while our historical occupancy has been 97.7%. The 2017 same-store grouping is at 96.9% and the blessing and curse of being American Campus is you operate at that level of nearly perfect occupancy every year which can be a put more pressure on rates. However, that 96.9% to 97.7% we're excited about and it is where we get potential for 80 bps of occupancy upside, so going into '17 we're really excited about that.
Now when you go to the second half of the question related to pushing rate and this really ties into the questions related to the asset dispositions and the portfolio refinement. So to put in context, we talked that our midpoint of our rental rate growth for you all that we talked about projection was 3% for the '16, '17 lease-up. Our properties that are a mile from campus average 1.62%. Our closest assets that are inside of a half mile are well over 3%. Actually the on-campus in point two-tenth of a mile are at 3.76%. So as you see our portfolio refinement take place that's where we speak to the incredible opportunity of the transformative qualitative growth potential in NOI.
I guess related to that can you talk about the 2015 deliveries that will be entering the same-store pool in 2017 and what may be makes those deliveries kind of a unique year in terms of final occupancy that kind of leaves that upside?
I'm sorry that is related to the '15 deliveries or upcoming '16 deliveries. '15?
The '15 deliveries it will be in the same-store pool for '17?
We have one property at the University of Oregon in Eugene which and that market had two developers come in two years before us in sequential years missed their opening which really jaded the market in terms of its acceptance of new construction and while our property had no issues in schedule and we were able to deliver on time, we ended up where we started the quarter only about 76%, actually was just at 70%. That property preleasing is gone fantastic and we're actually already up over 70%. We are well on track still we have upside there.
Also you had our the summit in Philadelphia actually starts the fall semester in the low 90s that actually recovered and already by the end of the fall term was up in the mid-to-high 90s. But both offered just a little more juice than we typically have when everything stabilized day one at the 96%, 97%.
Thank you. And as there are no more questions at the present time, I would like to turn the call back over to management for any closing comments.
We would like to thank you all. As you all heard today; we are very excited and pleased with our results for 2015. In closing, I would like to once again thank the entire American Campus team, you all delivered each and every year, you are the best in the business and we appreciate all that you do for us.
And with that we look forward to seeing many of you at the upcoming investor conferences and at speaking to you at the next quarterly call. Thanks so much.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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