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Apartment Investment & Management Co (AIV)
Q3 2018 Earnings Conference Call
Nov. 02, 2018, 1:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day and welcome to the Aimco Third Quarter 2018 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, today's event is being recorded.
I would now like to turn the conference over to Lisa Cohn, Executive Vice President and General Counsel. Please go ahead, ma'am.
Lisa Cohn -- EVP and General Counsel
Thank you. Good day. During this conference call, the forward-looking statements we make are based on management's judgment, including projections related to 2018 results and 2019 expectations. These statements are subject to certain risks and uncertainties, a description of which can be found in our SEC filings. Actual results may differ materially from what may be discussed today.
We will also discuss certain non-GAAP financial measures such as AFFO and FFO. These are defined and are reconciled to the most comparable GAAP measures in the supplemental information that is part of the full earnings release published on Aimco's website.
Prepared remarks today come from Terry Considine, our Chairman and CEO; Keith Kimmel, Executive Vice President, in charge of Property Operations; Wes Powell, Executive Vice President, in charge of Redevelopment; and Paul Beldin, our Chief Financial Officer.
A question-and-answer session will follow our prepared remarks. I will now turn the call to Terry Considine. Terry?
Terry Considine -- Chairman & Chief Executive Officer
Thank you, Lisa, and good morning to all of you on this call. Thank you for your interest in Aimco. The apartment business is good and Aimco had another solid quarter. In fact the strength of our summer leasing season led Paul to increase his expectations for full year bottom line for the second time in two months.
We are upbeat as we finish 2018 and optimistic that 2019 will bring further good news. As we look forward to next year, we continue to look for accretive opportunities to deploy capital while maintaining our commitment to a safe and flexible balance sheet. For their hard work and solid results in the third quarter and for the opportunities they provide us as we look forward, I offer great thanks to my Aimco teammates, both here in Denver and across the country.
And now for more detailed report on the third quarter, I'd like to turn the call over to Keith Kimmel, Head of Property Operations. Keith?
Keith Kimmel -- Executive Vice President, in charge of Property Operations
Thanks, Terry. I'm pleased to report that we had a solid third quarter in operations. We have executed a purposeful strategy focused on average daily occupancy. Third quarter finished at 96.3%, 30 basis points better than the third quarter of 2017. Our occupancy accelerated each month throughout the quarter from 96% in July to 96.6% in September. This has further grown to 96.8% in October, which we expect to maintain throughout the fourth quarter and provide a springboard into 2019.
This is driven by our low turnover of 44.8%, resulting from consistently high customer satisfaction and focused customer selection. We continue to have peer-leading margins in our same-store portfolio of 73.8% for the quarter, benefiting from our consistent focus on staffing efficiencies, process centralization and automation.
Turning to our same-store results, revenues were up 3.1% for the quarter. Consistent with our plan, expenses were up 4.5% due to a challenging comp related to nonrecurring items in 2017 and higher investment in maintenance across our portfolio. Going forward, we see continued innovation enabling us to return to a more Aimco-like expense result in 2019. Finally, net operating income was up 2.6%.
Looking at leases which transacted in the quarter, new leases were up 2.2%. Renewals were up 4.2% and same-store blended lease rates were up 3.2%. We saw new lease rates of 4% to 5% in Los Angeles, Boston, the Bay Area and San Diego, with the most pressure on new lease rates in Miami where we saw the impact of directly competitive new supply.
Turning to the third quarter same-store revenue growth, our top performers representing more than half of our same-store portfolio had revenue increases over 4% for the quarter. This includes Boston, San Diego, the Bay Area, Miami and Los Angeles. Our lowest same-store revenue growth came from Atlanta and Philadelphia which had negative revenue growth for the quarter. These two markets represent less than 5% of our same-store revenue.
Outside of same-store, our premier Philadelphia redevelopment and acquisition communities have delivered strong results. The Sterling was occupied above 95% for the quarter. Today, the first three towers at Park Towne are 95% occupied and the fourth tower is now over 80% leased. We have accomplished this with rents in line with our underwriting. Our four acquisition communities in Philadelphia have achieved revenue on track with underwriting.
And in Washington D.C., we continue to be encouraged by the performance of our Bent Tree acquisition where rents were increased $100 on day 1 and we've seen occupancy rise by more than 300 basis points and this has resulted in both rents and occupancy ahead of our underwriting. Overall, our non-same-store portfolio represents over 30% of our total net operating income and had results that outperformed our expectations.
As we look at our October same-store results, blended re-lease rates are up 2.5%, 50 basis points better than the October 2017 results; new lease rates are up 80 basis points; renewals are up 4.2%, all while increasing average daily occupancy to 96.8%, a high watermark over the past five years.
And with great thanks to our teams in the field and here in Denver for your commitment to Aimco success, I'll turn the call over to Wes Powell, our Executive Vice President of Redevelopment. Wes?
Wes Powell -- Executive Vice President, in charge of Redevelopment
Thank you, Keith. Our redevelopment business remains on track, averaging about $0.40 of value creation for each dollar we invest. During the quarter we substantially completed construction on two transformative redevelopment projects. At Park Towne Place in Philadelphia, we capped off a successful four-year $220 million project with the delivery of our fourth and final tower. At Saybrook Pointe in San Jose, we invested $20 million and completely repositioned the property over a two-year period.
As we look ahead, given the depth of our pipeline and the strength of our team, we expect to increase redevelopment and development spending from approximately $180 million this year to about $300 million in 2019.
One example of that ramp up is our decision to move forward with the development of 58 new townhomes on land adjacent to our Elm Creek property in Elmhurst, Illinois. Both our programming and underwriting were aided by our operation of the existing 400-unit property, which includes 28 rental townhomes that we constructed five years ago. We plan to invest $35 million in the Elm Creek townhomes and achieve a stabilized NOI yield of 7% and a free cash flow IRR greater than 11%.
With that, I'd like to turn the call over to Paul Beldin, our Chief Financial Officer. Paul?
Paul Beldin -- Chief Financial Officer
Thank you, Wes. First, I would like to highlight our balance sheet which is strong and has abundant capacity. As reported on the second quarter earnings call, with $680 million in net proceeds from the July dispositions of our asset management business, Hunters Point properties and Chestnut Hill Village community, we repaid our $250 million term loan and all amounts borrowed on our line of credit.
We also invested excess proceeds by, first, increasing our pool of unencumbered properties by 15% to $2.3 billion. And secondly, following quarter-end, repurchasing $75 million of Aimco shares at an approximate 20% discount to our first quarter published net asset value. We have also worked to address 2019 through 2021 property debt maturities, targeting almost $1 billion of loans to refinance in the fourth quarter.
During the third quarter we repaid $120 million of property loans and since quarter-end we rate-locked another $620 million. The $620 million of rate-locked loans is comprised of $120 million of five-year loans with interest rates floating at 115 basis points over 30-day LIBOR and $500 million of fixed-rate debt with a weighted average maturity of nine years and a weighted average interest rate of 4.17%, a spread of 108 basis points to the corresponding treasury rates at the time of pricing.
As in the past, Aimco maintains asset flexibility with the right to substitute other properties as collateral for its property loans. When the almost $1 billion of refinancing are completed in the fourth quarter, we will have reduced refunding risk, lowered interest expense, improve our ladder of maturities and increased the value of our unencumbered properties to over $3 billion, a near 70% increase in just one year.
In connection with this refinancing activity, we expect to incur debt extinguishment cost of approximately $14 million. In accordance with our policy, we will exclude those costs from fourth quarter and full year pro forma FFO and AFFO. One last point on liquidity, as we consider 2019 capital uses we have approximately $1 billion of properties offered for sale. We regularly exposed to the market more properties than we sell. While we do it for price discovery, we only sell when we have identified accretive uses, consistent with our free cash flow, internal rate of return, paired trade philosophy.
Now turning to our financial performance for the third quarter, AFFO per share of $0.56 was up 4% year-over-year and $0.05 ahead of the midpoint of the guidance provided with the second quarter earnings release. $0.02 of the third quarter outperformance was from the timing of capital replacement spending which we expect will reverse in the fourth quarter.
Finally turning to full-year 2018 guidance. In late September, due to the strength of our summer leasing season and increased clarity on our full year results, we raised same-store revenue guidance to 3%, equal to the high-end of our prior range. We maintain the same-store expense guidance in a range of 2.8% to 3.4%. And as a result, increased same-store net operating income guidance in a range of 2.9% to 3.1%, which at the midpoint equaled the high-end of the prior range. We also raised 2018 pro forma FFO and AFFO guidance ranges by $0.01 per share at the midpoint.
Now, following completion of the third quarter and based on our fourth quarter expectations, we are raising full year pro forma FFO and AFFO by an additional $0.02 per share. The $0.03 per share increase from second quarter guidance reflects stronger operational results for the second half of the year. We now expect 2018 pro forma FFO to be between $2.45 and $2.49 per share and AFFO to be between $2.14 and $2.18 per share.
With that we will now open up the call for questions. Please limit your questions to two per time in the queue. Rocco, I'll turn it to you for the first question.
Questions and Answers:
Operator
Thank you, sir. (Operator Instructions) Today's first question comes from Trent Trujillo of Scotiabank. Please go ahead.
Trent Trujillo -- Scotiabank -- Analyst
Hi, good morning. Thanks for taking the questions. Regarding the share repurchase, the stock has traded around a 20% discount to published NAV for a while, so what was the decision process for executing on the $75 million buyback. Was that a function of you having some available capital from no longer acquiring The Victor?
Terry Considine -- Chairman & Chief Executive Officer
Trent, this is Terry Considine. When we looked at our opportunities in October, we looked at it and we thought it was a good buy at that time. I wouldn't tie it to a particular event including The Victor.
Trent Trujillo -- Scotiabank -- Analyst
Okay. I guess as a follow-up, what kind of appetite do you have for additional share repurchases because if I recall correctly some prior commentary alluded to not just doing a small or nominal buyback? So how would you characterize the $75 million in this context?
Terry Considine -- Chairman & Chief Executive Officer
I would think it's a substantial buyback.
Trent Trujillo -- Scotiabank -- Analyst
Okay. If I may, since you executed it at a higher price than where the stock trades today, are you seriously considering additional repurchases or how are you thinking about capital allocation priorities?
Terry Considine -- Chairman & Chief Executive Officer
It's something we look at regularly and we compare it to all our alternative uses.
Operator
And our next question today comes from Juan Sanabria of Bank of America. Please go ahead.
Juan Sanabria -- Bank of America Merrill Lynch -- Analyst
I was just hoping we could talk a little bit more about uses of capital. You did the value-add acquisitions in Philadelphia. Are there any other more opportunities to put money to work with some developments maybe not meeting their underwriting hurdles? You'd talked about redevelopments coming up and now you've got the buyback in place. So could you rank order the pecking order in terms of what you see in the market today and the returns that are out there?
Terry Considine -- Chairman & Chief Executive Officer
Juan, it's Terry again. Wes has a deep pipeline of redevelopment opportunities which have free cash flow, internal rates of return in the low double-digits. And those are probably the most attractive opportunities we see.
Juan Sanabria -- Bank of America Merrill Lynch -- Analyst
And any acquisition opportunities out there that you guys are looking at or seeing that some of the developments maybe not meeting hurdles as we've seen and oversupply in some markets?
Keith Kimmel -- Executive Vice President, in charge of Property Operations
We look regularly at properties ranging from new properties that might be for sale for, either problem on the development or problem the developer might be having in another part of his business. But as you know we also look at very old properties where we think the ground is very good and across that whole range I would say there's a lot of investor interest, there's a lot of liquidity and for Aimco to find something that met our hurdles, it would be an anomaly. And of course that's what we look for. We found that earlier this year in Fairfax County and in Philadelphia and we keep looking.
Juan Sanabria -- Bank of America Merrill Lynch -- Analyst
I was just hoping on the debt side, should we just think of the $1 billion that Paul you mentioned refinancing, is there anything else that's an opportunity as we start to think about 2019 for refinancing beyond that? (inaudible) as you target in the fourth quarter?
Paul Beldin -- Chief Financial Officer
Yes, Juan. As we look at our opportunities to refinance our upcoming maturities, our focus is really trying to take advantage of the rates today and take refunding and repricing risk largely off the table. So included in our plans of that $1 billion, it will take out the preferreds, we had previously announced that so I didn't repeat that in my comments. But as you're thinking about your model for 2019, don't forget the preferreds are callable in May.
Juan Sanabria -- Bank of America Merrill Lynch -- Analyst
Great, thank you.
Operator
And our next question today comes from Nick Joseph with Citi. Please go ahead.
Michael Bilerman -- Citi -- Analyst
It's Michael Bilerman here with Nick. Terry, I'm not going to disagree with you in buying back stock because we have been talking about it for a little while. So I think it's definitely good use of capital. But I'm curious why it wasn't a better use of capital when the stock was in the high-$30s, low-$40s versus executing at $44. I guess what held you back then or what didn't make an attractive use when your stock was at a much more attractive level?
Terry Considine -- Chairman & Chief Executive Officer
Michael, hindsight is clear and probably I should have listened to you sooner. But we had to look at our competing uses and alternate activities at the time and each time we do that, we try to make the best decision. And what we're going to put as a postscript to our meeting agendas is, always listen to Michael.
Michael Bilerman -- Citi -- Analyst
Well, as you think about the $1 billion of sales that you're going to expose to the market, you've always talked about pair trading, does stock buyback given the continued wide disconnect with your stock trades, does that move up in your capital allocation decisions going forward, because historically it hasn't, right? Historically, you haven't been an active buyer of your stock.
Terry Considine -- Chairman & Chief Executive Officer
History is a long time and as you'll remember because you've been at it a long time, there are periods when we've been a quite active buyer of our stock. In recent history, your point is valid. And as we look towards the uses of capital, we'll be looking at pricing capital in property sales and in using capital across a spectrum of uses, including Wes' redevelopment, including investment in capital enhancements in our properties, perhaps debt reduction and certainly including stock buyback.
Michael Bilerman -- Citi -- Analyst
So it doesn't sound like it's moving up in the use side. And I know the tax situation has always been one that we've talked about as being a limiter of being able to use asset sale proceeds and stock buyback. So I don't know if you have found the silver bullet to correct that.
Terry Considine -- Chairman & Chief Executive Officer
Michael, I don't want to say more than I've said which is that we look at it carefully. And when it makes sense to us, we will. And we accept your advice that it's always better to buy at a lower price.
Operator
And our next question today comes from Austin Wurschmidt from KeyBanc Capital Markets. Please go ahead.
Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst
Quick one. In the context of the $300 million of redevelopment spend you've got next year, acquisitions and buybacks aside, how much of the $1 billion should we expect as a reasonable amount for you to execute on next year?
Paul Beldin -- Chief Financial Officer
Well, Austin, this is Paul. Thank you for the question. As it was brought up in our earlier question, everything we do from an investment standpoint is based on a pair trade philosophy where we look to invest at a higher free cash flow and rate of return than what we're selling to fund that activity. And so we have a plan in place to spend the $300 million of redev next year, that meets that benchmark and criteria. And then to the extent that if there are additional opportunities, that'll also meet the same criteria, we would sell those additional assets.
Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst
So maybe ask differently, I think leverage is supposed to come down here a little bit by year-end. I guess where would you target or where are you comfortable from a leverage perspective today?
Paul Beldin -- Chief Financial Officer
Yes. I would expect that our leverage will actually remain fairly constant between now and year-end. It's just we are reconstituting where that leverage resides across multiple of properties. So that's how we're able to grow the unencumbered pool while maintaining leverage. But with that, if you assume that our overall portfolio is on an LTV of roughly 30%, so to fund a $300 million redevelopment activity we would probably sell about $450 million of assets.
Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst
Great, that's helpful. Appreciate that. And then just lastly you referenced in the release that you've kind of implemented high occupancy strategy which weighed on renewals a little bit. Occupancies ramped up in October with renewals kind of stable. Do you think renewals will continue to moderate or do you feel like they stabilized here for the time being?
Keith Kimmel -- Executive Vice President, in charge of Property Operations
Austin, this is Keith. Listen, at the end of the day, we saw the total revenue. And so it's always the combination of both new lease rates and renewals and occupancy. We have found the value in moving the occupancy up. And so there can be some movement up and there can be some movement down in all those components.
Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst
Okay. Thanks for the time.
Operator
And our next question today comes from Rob Stevenson of Janney. Please go ahead.
Rob Stevenson -- Janney -- Analyst
Hi. Good afternoon, guys. Keith, what markets have underperformed and outperformed the most year-to-date versus your expectations at the beginning of the year? And any markets looking to be at an inflection point good or bad right now?
Keith Kimmel -- Executive Vice President, in charge of Property Operations
Rob, I would point to the Bay Area and Boston, if we go back to the beginning of the year. The Bay Area was coming out of 2017, it was a little bit sluggish and we anticipated some acceleration and I think it has done better than we would've probably anticipated on day 1. Boston, we anticipated it would do well, but it was coming off a very strong 2017 and the question was could it do it again and it's done a little better than I would say that we anticipated. Seattle and Atlanta would be the two that I would point out that have been probably been a little bit more difficult than on day 1. And as far as an inflection point, I wouldn't point to anything at the moment that stands out at an inflection point.
Rob Stevenson -- Janney -- Analyst
And then Paul, how are you thinking about same-store expense growth going forward? Operating expense is up 3.2% year-to-date, but property tax is up 4.3%, insurance up 6.1%, but utility is down 2.1%. Where are you still feeling the pressure and is 4% property tax growth going forward for the next few years the reality of it?
Paul Beldin -- Chief Financial Officer
Yes, well, thanks for the question, Rob. In Keith's prepared remarks he mentioned that we expect to return to a more Aimco-like expense growth number in 2019. So I don't want to give specific guidance for expense growth for 2019, but I think that you will see that we expect to do better in 2019 than in 2018.
In regards to your particular question about real estate taxes, I would agree that it's an area where we have seen an increase year-over-year from 2017 to 2018. It's one where there is some level of exposure. But I would also point out that we have 40% of our capital is located in California where we have the benefit of Prop 13 limiting our tax growth to about 2% per year. So that does provide some level of protection for our overall increases and we can talk about specifics around our thoughts on 2019 and real estate taxes when we are together in January.
Rob Stevenson -- Janney -- Analyst
But are there any places where you are seeing the ability to save operating expenses going forward, personnel moving more to technology than people, I mean, what's the counterbalance, the continual cost inflation on the wages and the property tax standpoint for you guys?
Keith Kimmel -- Executive Vice President, in charge of Property Operations
Rob, this is Keith. I'll speak to the operating opportunities. We think that there continues to be opportunities to save in expenses. Now, personnel cost may be on an individual, person-by-person level. We know that unemployment is low and we're paying more for our best people, but what we know is that we continue to find efficiencies and ways to centralize and automate different things and we don't think that we're nearly at the end of the road of that.
Operator
And our next question today comes from Drew Babin of Baird. Please go ahead.
Andrew Babin -- Baird -- Analyst
A follow-up on the expense question for next year. Thinking specifically about wage pressure and kind of overall labor costs, would you say that you're seeing more pressure on the wage growth front for leasing and property management personnel or maintenance type personnel? We've heard from some companies elsewhere in the residential sector that are having issues retaining maintenance personnel and just curious how you're approaching that and whether you're looking at any different ways of maybe compensating people in the future or anything you're doing strategically there, would be helpful.
Keith Kimmel -- Executive Vice President, in charge of Property Operations
Drew, it's Keith. It's a carry-on to Rob's question. The maintenance side of the business without a doubt is the heart and soul of our onsite communities. We know at the end of the day, those folks have the most interaction with our residents in maintaining our assets and providing exceptional customer service.
And what I would tell you is we continue to know that our best people will -- we have to pay them more. And there's less folks that are in the service world these days. And so there's no question there's some pressure there. What we've done is we've made that particular role a top priority and we have for several years. And so therefore we believe we're able to maintain more of those folks than others.
Andrew Babin -- Baird -- Analyst
Okay, that's helpful. And one more question from me, just on capital enhancements. As you kind of break down your Capex in the supplemental, you're very good about giving yield economics for developments and redevelopments and I was just curious if there's any way you can quantify whether it be an ROI or maybe kind of an expected tailwind from revenue growth going forward. Help us understand kind of the return you're getting under this kitchen and bath type projects because the amount spent during the quarter is roughly equivalent to kind of combined development and redevelopment. I was just curious how you look at the yield economics?
Paul Beldin -- Chief Financial Officer
Drew, thank you for the question. This is Paul. We evaluate the opportunity to invest in capital enhancement projects in the same manner we evaluate redevelopment opportunities. So we have a required free cash flow, internal return hurdle of a 10% target and we underwrite each of these projects individually. We ensure that the projects on an individual basis hit those target levels and then we monitor progress against those in that achievement. And so, so far year-to-date our capital enhancements have been returning at levels in line with our underwriting and expectations, and as we plan for 2019 we'll undertake a similar course of action.
Andrew Babin -- Baird -- Analyst
Okay, great. That's all for me. Thank you.
Operator
And our next question comes from John Kim of BMO Capital Markets. Please go ahead.
John Kim -- BMO Capital Markets -- Analyst
Just to follow-up on Drew's question on capital enhancement. But you took up your guidance for this year, it looks like it's approaching what you spent last year which was $101 million. I guess one can argue that you're spending this capital to help with your same-store results. But I'm wondering do you think this moderates next year like your OpEx does or is this just a sign of kind of upgrading some of your older assets?
Paul Beldin -- Chief Financial Officer
John, let me start and then I'll see if anybody else in the group has anything they would like to add. As we think about our capital enhancement spending, first and foremost, we wanted to do it in projects that makes sense and where we are going to get return. So, our dollar spend is really driven by the opportunity set that we see within our communities. And so, as we increase guidance this year is because we continue to see good opportunities in that regard.
Secondly, there is an element of benefit that we do see to our reported revenue results for this capital enhancement and that's exactly what we want to do. I think that's exactly what our shareholders are paying us to do, is to make good investment returns to generate profits for them. And so I think that's an opportunity that we have in our portfolio and we continue to see that as we move forward into the future.
John Kim -- BMO Capital Markets -- Analyst
On the $1 billion that you mentioned that are offered to see, I think that's the first time you've provided that number, and I know you sold $825 million this year. But can you just maybe provide some color on where this figure was in the past few quarters?
Terry Considine -- Chairman & Chief Executive Officer
John, this is Terry. We routinely will have amounts in that magnitude in the market over the course of the year. There will be ebbs and flows depending on take rates, our spending activities and so forth. But it's not an unusually large number for us overall. It's probably at a high watermark for this year -- during the timing of this year and some of that's driven by our planning for 2019.
John Kim -- BMO Capital Markets -- Analyst
I'm just curious why you mentioned it at this call.
Terry Considine -- Chairman & Chief Executive Officer
I think just as a source of liquidity.
Keith Kimmel -- Executive Vice President, in charge of Property Operations
John, we had actually mentioned it in some of our investor materials that we put out earlier this fall. So we just wanted to, to the extent that folks missed it originally, we wanted to make sure that it was mentioned in our prepared remarks, but no deeper meaning than that.
Operator
And our next question today comes from Rich Anderson of Mizuho Securities. Please go ahead.
Richard Anderson -- Mizuho Securities -- Analyst
Paul, we spent some time over the summer together and one of the concepts that you guys were working on was this idea of targeting Pinterest users for their planning purposes and perhaps longer length of stay. I'm wondering where that data experiment has gone lately, if it's sort of died a slow death or if it's actually working?
Keith Kimmel -- Executive Vice President, in charge of Property Operations
Rich, this is Keith Kimmel. I'll take it. It hasn't died a slow death. Pinterest still exists and we're continuing to utilize it. What I'd say is, it's early days. What we have found is that there was an opportunity to, one, understand how Pinterest users behave and one of those facts are that they are planners and they do things much more thinking -- forward-looking. And we have found a way that we can market to those individuals. I would say that it's part of our marketing strategy, but it hasn't taken over the sole source.
Richard Anderson -- Mizuho Securities -- Analyst
Well, that's good. My wife is a Pinterest user, so hopefully she is around for a while. Next question, with legalization of marijuana, I'm curious if it's a lease violation for someone to smoke pot or eat edibles. I'm just curious how you handle that as it becomes a legal thing over and over, and how it might disrupt your communities. Newsflash, it's already happening. So I'm just wondering if how you manage that situation?
Keith Kimmel -- Executive Vice President, in charge of Property Operations
Well, Rich, this is Keith. I'll take that one as well. I can't speak to edibles, but what I can tell you is that 100% of our communities are smoke-free. So smoking of any sort, whether it's cigarettes, marijuana or any other source, it's illegal in our communities and we don't allow it. And so, not something that we have a lot of concern about.
Terry Considine -- Chairman & Chief Executive Officer
And Rich, just to supplement that a little bit on the, not necessarily on the edible point, but on a broader context point, we have a code of conduct and expectations that we have with our residents. And in that process as we've talked about in the past with many of you, it almost works like a driver's license point system. And so if a resident's behavior for any reason at any cost is disruptive to their neighbors, that would be cause for us to non-renew at the end of their lease or if their behavior is serious enough, for us to initiate an eviction process.
Operator
And our next question today comes from John Pawlowski of Green Street Advisors. Please go ahead.
John Pawlowski -- Green Street Advisors -- Analyst
Thanks. Keith or John, just curious what the long-term house thesis on continued (inaudible) Chicago is?
John Bezzant -- Chief Investment Officer
John, this is John. We look at all of our markets all the time. We look at our individual properties all the time. If you look at the sale list, it's on our website, you'll see some of that $1 billion of assets is in Chicago. And we don't have it as a direct point of thesis. We also have an active redevelopment asset that we've been working on this year and will do next year in Evanston. So we don't have a blanket philosophy on Chicago that we want to out, but we certainly will look at individual assets where it makes sense.
John Pawlowski -- Green Street Advisors -- Analyst
Okay. Maybe Keith, nearer term, I know Chicago has not seen much supply versus most markets, yet demand seems to be not falling off the cliff but decelerating quickly. So what's happening on the ground there?
Keith Kimmel -- Executive Vice President, in charge of Property Operations
John, basically we had moved about 150 leases into peak season, they caused a little more frictional vacancy, that will be the first point. So, in the third quarter we're at 95.6%, average daily occupancy I'd give you a reference point to October, we're almost at 97%, we're at 96.9%. So it was a build there. And then there's been some softening in some of the new lease pricing. At the end of the day, we just, we wanted to get full before we got into those cold winter months.
John Pawlowski -- Green Street Advisors -- Analyst
One last one from me. John, the $1 billion of products you're offering the market, how would you compare the bid for those type of assets versus earlier this year?
John Bezzant -- Chief Investment Officer
Pretty similar. There hasn't been a whole lot of change. And as we look at it on an active basis, maybe to some of the earlier questions regarding how much of that we will execute, it's all going to be driven off the pair trade and where we get exceptional pricing on the sell side, that frees up exceptional uses on the internal side of reinvestment; we'll execute. And from a demand standpoint, it's not the same as it was earlier in the year.
Operator
And our next question is a follow-up from Nick Joseph with Citi. Please go ahead.
Nick Joseph -- Citi -- Analyst
Paul, obviously it's been a busy year in terms of transactions. Is $0.63 the midpoint for core FFO in the fourth quarter, good run rate going forward.
Paul Beldin -- Chief Financial Officer
Nick, we'll always have some volatility quarter-to-quarter just based on upon our activities. And so, I don't want to set a marker or expectation for any one particular point or even a range. What we can do though is talk about 2019 in January and help kind of give you some guidance around how our FFO will build from quarter-to-quarter at that time.
Nick Joseph -- Citi -- Analyst
Thanks, maybe on one specific line item for the tax benefits, you increased guidance for this year, assuming about $3.5 million, it looks like in the fourth quarter, what is recurring for 2019 for that line item? Is $14 million the right run rate or does some of that drop off?
Paul Beldin -- Chief Financial Officer
Nick, I would direct you to our supplemental schedule 2 where we break out our tax benefit into two lines. One is labeled Historic Tax Credit Benefit and the other is labeled Other Tax Benefit Net. We have talked about previously that our historic tax benefits where we have earned those in connection with our redevelopment activities are going to decline to zero in 2019. That is the piece that I would take out of your models. And for the other tax benefit, there is always some change year-over-year based upon the activities of our taxable reit subsidiary. So we will provide guidance for that line item again in January.
Operator
And our next question comes from Buck Horne with Raymond James. Please go ahead.
Buck Horne -- Raymond James -- Analyst
I just want to talk maybe a little bit more detail about a couple of markets where I think you are facing some supply pressure, particularly Miami where I think you did see some slowing in leasing activity. Just how that -- I guess how long the supply pressure might last in Miami? Are you seeing the competitors stay rational there, what the concession level is doing? And also any comments you might have on Philadelphia, just kind of Center City and how things are faring with the supply bump in Philadelphia?
Keith Kimmel -- Executive Vice President, in charge of Property Operations
Buck, it's Keith. Thanks for the question. In Miami, you're right, it's actually very specific though, it's in across the way in Brickell and it's at our Yacht Club Community, there's a panorama, it's leasing up directly across the street, literally it's 800 units. We thought it was going to come in a little bit sooner this year. We actually benefited because it was late to delivery and we're now seeing it. So they're moving in and leasing as we speak. That's really where the direct supply that we are feeling in Miami.
And then as far as Philadelphia goes, there is a lot of new development, but I'd point to how well our lease up is going at Park Towne. So the three towers are at 95%, in the fourth tower, better than 80% is leased up faster than any of the previous three. And then I'd also point to The Sterling maintaining 95% and better throughout the quarter. So we're obviously quite aware of the supply. We will keep a keen eye on it but our communities have performed well with it being there.
Terry Considine -- Chairman & Chief Executive Officer
And Buck, just to add to Philadelphia a little bit, we have seen supply to be fairly high in Center City Philadelphia during 2018. As we look out into 2019, we think it's still going to be elevated, but it's improving. So, it's moving in the right direction.
Buck Horne -- Raymond James -- Analyst
That's very helpful. And just going back to panorama real quick, how many quarters or months do you think it takes before they kind of reach some sort of stabilization over there?
Keith Kimmel -- Executive Vice President, in charge of Property Operations
If I had to guess, I'd say it could be most of next year.
Operator
And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.
Terry Considine -- Chairman & Chief Executive Officer
Well, thank you very much. Thank you all for joining on this call. Many of you, we hope to see next week in San Francisco. And so, if you have further questions either feel comfortable calling Paul or one of his team or save them, we'll talk about it when we're together on Tuesday -- or Wednesday and Thursday of next week. Thank you very much.
Operator
Thank you, sir. Today's conference has now concluded and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Duration: 42 minutes
Call participants:
Lisa Cohn -- EVP and General Counsel
Terry Considine -- Chairman & Chief Executive Officer
Keith Kimmel -- Executive Vice President, in charge of Property Operations
Wes Powell -- Executive Vice President, in charge of Redevelopment
Paul Beldin -- Chief Financial Officer
Trent Trujillo -- Scotiabank -- Analyst
Juan Sanabria -- Bank of America Merrill Lynch -- Analyst
Michael Bilerman -- Citi -- Analyst
Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst
Rob Stevenson -- Janney -- Analyst
Andrew Babin -- Baird -- Analyst
John Kim -- BMO Capital Markets -- Analyst
Richard Anderson -- Mizuho Securities -- Analyst
John Pawlowski -- Green Street Advisors -- Analyst
John Bezzant -- Chief Investment Officer
Nick Joseph -- Citi -- Analyst
Buck Horne -- Raymond James -- Analyst
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