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American Campus Communities Inc (NYSE:ACC)
Q2 2019 Earnings Call
Jul 23, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the American Campus Communities 2019 Second Quarter Earnings Conference Call and Webcast. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions].

I would now like to turn the conference over to Mr. Ryan Dennison, Senior Vice President of Capital Markets and Investor Relations. Mr. Dennison, the floor is yours, sir.

Ryan Dennison -- Senior Vice President of Capital Markets and Investor Relations

Thank you. Good morning, and thank you for joining the American Campus Communities 2019 Second Quarter Conference Call. The press release was 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. Also posted on the Company website in the Investor Relations section, you will find an earnings materials package, which includes both the press release and a supplemental financial package. We are 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 of 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 fact 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 reasonable assumptions, they are subject to economic risks and uncertainties. The Company can provide no assurance that these 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, Chief Executive Officer; Jim Hopke, President; Jennifer Beese, Chief Operating Officer; William Talbot, Chief Investment Officer; Daniel Perry, Chief Financial Officer; and Kim Voss, Chief Accounting Officer.

With that, I'll turn the call over to Bill for his opening remarks.

William C. Bayless -- Chief Executive Officer

Thank you, Ryan. Good morning, and thank all of you for joining us to discuss our second quarter 2019 financial and operating results. As you saw in last night's release, it was another strong quarter for the Company with 8% earnings-per-share growth over the same quarter prior year.

Let me provide a high-level overview of what the team will cover today. Our operational and financial results, slightly exceeded our internal expectations. With our same-store NOI growth of 3.5% over the same quarter of the prior year. We're pleased with our core operating performance year-to-date and we remain focused on several important operational initiatives in front of us. Including, executing through the important final stages of our Fall lease up, administering our annual turn and make-ready process and ultimately in welcoming over 133,000 students, who will move into an owned or managed American Campus community during the months of August and September. Pre-leasing for Fall continues to be on track within our stated guidance range. And we're especially pleased with the year-one stabilization of our 2019 development pipeline. Also we will provide an initial outlook for the Fall 2020 new supply, which is projected to decrease, both on a national level and within our own markets.

In addition, we continue to see a vibrant P3 environment fostering both ACE and third-party development opportunities. We also see a significant continued global institutional investment interest, giving us a high degree of confidence in our ability to execute on the modest $100 million to $150 million we needed annually to fund our growth and execute on our highly creative development pipeline. While minimizing dilution to earnings.

With that, I'll turn it over to Jennifer to get us started.

Jennifer Beese -- Chief Operating Officer

Thanks, Bill. As Bill mentioned, our second quarter 2019 same-store operational results slightly exceeded our budgeted NOI for the quarter. As seen on Page S5 of the supplemental, quarterly same-store property NOI increased by 3.5% with strong revenue growth of 3.2%. We were pleased with the revenue results for the quarter, as we saw good summer leasing success at our apartment communities, as well as solid levels of summer camps and conferences at our res hall properties. Same-store expenses for the quarter came in at 2.9% with double-digit growth in repairs and maintenance category, which was in-line with our expectations as we communicated on our Q1 call. We had a tough expense comp in this category from one-time items that benefited the prior year's quarter. Excluding those one-time items this category would have reflected expense savings of approximately 2% for the quarter.

Utilities expense came in slightly below plan, as the category continues to benefit from renegotiated cable and internet agreements, as well as favorable electricity cost due to recently executed energy contracts and lower usage from our LED installs. Marketing expenses, one of our smallest categories from a nominal dollar standpoint had an elevated expense growth this quarter. We expect to finish the year at close to 10% growth in this category as we ramp-up our digital and social marketing efforts as well as our university sports marketing activities, while we continue to explore eliminating some of the more traditional marketing efforts.

Turning to our portfolio's leasing activity. Our projection for opening same-store rental revenue growth is trending within our guidance range. As always, the last 5 to 10 weeks of the leasing season is the most critical. And as of today, we would estimate the final leasing result that is near or slightly below the mid-point of our guidance. We also continue to be pleased with the lease up progress for our Fall 2019 developments. With this group of properties currently pre-leased at 96%, achieving first year stabilization at our anticipated yields. As always, we want to thank both our field and corporate teams who remain focused on completing our lease up, managing our annual turn cycle, no-show process and preparing our properties for moving and welcoming each resident to their new home.

I'll now turn the call over to William to discuss our investment activity.

William W. Talbot -- Chief Investment Officer

Thanks, Jennifer. Turning first to development. We are completing construction on our 2019 pipeline of developments and pre-sales which totaled 5 projects approximately 3,150 beds and $404 million in development cost, and look forward to opening the projects in the Fall. Developments are currently on-time and on-budget and we're fully stabilize and opening yields is in our anticipated range. We expect to close on the 2 pre-sale developments during the third quarter,

With regards to our on-campus partnerships, we are very excited to announced that we closed and commenced construction in July on our third-party on-campus development project with the University of California, Riverside marking our seventh successful closing within the University of California system. The 1500-bed apartment project is our second project as part of the multi-phase award anticipated to ultimately deliver up to 6,000 beds on campus.

The project is targeting a Fall 2021 opening and ACC will manage the community. Upon completion. With the first two projects ACC is anticipated earn a $11.7 million in development fees and $1 million in annual ongoing management fees. Overall, we continue to track a vibrant and expanding pipeline of on-campus P3 opportunities with colleges and universities, continuing to turn to the private sector to address their housing needs.

Finally, turning to new supply for the 2020-2021 academic year RealPage Axiometrics is tracking 30,000 beds, currently under construction nationally, with a potential additional 12,000 beds planned, but not yet under construction. Based on how many projects ultimately start construction for 2020 delivery new supply could range from 30,000 to 42,000 beds, down from a total of 48,000 beds delivering nationally this Fall, representing a decline of 13% to 38% in new supply nationally that has tracked by RealPage.

Within ACC 68 own markets we are tracking 21,000 beds, currently under construction for 2020 with a potential additional 11,00 beds planned, but not yet under construction. Based on how many projects ultimately start construction for 2020 delivery new supply could range from 21,000 to 22,000 beds, down from a total of 29,200 beds delivering this Fall in those markets, representing a decline of 24% to 28% of new supply. We will update the market with respect to these potential deliveries on our third quarter call.

I will now turn it over to Daniel to discuss our financial results for the quarter.

Daniel B. Perry -- Chief Financial Officer

Thanks, William. Last night we reported the Company's financial results for the second quarter of 2019, which with $0.56 of FFOM per fully diluted share grew 7.7% over the second quarter of 2018. As Jennifer discussed, overall this was slightly better than our expectations primarily due to property operations as we saw higher than expected same-store revenue resulting from out-performance in back-filling short-term leases this year and higher summer camp and conference business at our residence hall properties.

We also continue to see some out-performance in utilities from our asset management initiatives. As you heard from Bill, we are pleased with the out-performance, we have achieved in the quarter so far this year, but we are not making any updates to our 2019 earnings guidance at this time as many of the traditional risk to earnings still exist in the completion of the fall 2019 lease up, continued operating expense management throughout the year and the successful closing still to occur on one of the third-party development projects included in the mid-point of guidance.

Further as implied by the 1.5% to 3.4% same-store NOI growth guidance we are maintaining for the year, we anticipate the remaining quarters of the year to experience less same-store NOI growth than the 4.3% percent achieved year-to-date. This is due to the slower seasonal revenue growth in the summer months and the 1.5% to 3% targeted rental revenue growth from the fall 2019 lease-up, as well as tougher operating expense comps in the remaining quarters.

Also, as we talked about on the last call, we will be transitioning to an outsourced solution for online resident payments starting this fall. As a reminder, historically these payments were initiated through our portal, which required us to record a portion of the online payment as other income with an offsetting expense for the payment to the processor. With a fully outsourced online payment solution both the required revenue and expense entries will be eliminated. While this will be neutral to NOI during the initial 12 months of implementation comparable quarters and quarterly same-store revenue and expense increases will be reduced by $700,000 to $800,000 and revenue growth rates will be reduced by approximately 40 basis points and expense growth rates by 80 basis points.

Again, this change does not impact our NOI and is already reflected in our guidance figures for 2019. But we will continue to remind you of the temporary effect it will have on same-store revenue and expense growth figures later this year and into the first 3 quarters of 2020.

With that being said, you can refer to Pages S16 and S17 of the earnings supplemental to get complete details on each of the components of our 2019 guidance. As usual, we will update our 2019 guidance on the third quarter call for the final results of our lease up in our expectations for the remainder of the year.

Moving to capital structure. As of June 30, the Company's debt-to-enterprise value was 33.7%, debt-to-total asset value was 38% and the net debt-to-run rate EBITDA was 6.7 times. During the quarter, we took advantage of the attractive conditions in the bond markets and completed a $400 million bond offering to term out a portion of the balance on our revolving credit facility.

As you will see in our capital allocation and long-term funding plan on Page S15, we have not made any significant changes to the growth and funding plan.

We continue to expect to meet our capital needs for the remainder of 2019. And then for 2020 and beyond through a funding mix of cash available for reinvestment, additional debt and approximately $100 million to $150 million per year in disposition, joint venture and/or equity capital.

This will allow the Company to maintain a debt-to total asset ratio in the mid-30s and a net debt-to-EBITDA ratio in the high-fives to low-sixes, consistent with our stated strategy of trying to better match time to capital raising with the delivery of our development pipeline each year to create less disruption in earnings growth.

Our current 2019 guidance, includes approximately $100 million to $190 million in proceeds from dispositions and/or the sale of a minority joint venture interest in existing properties during the second half of this year.

With that, I'll turn it back to the operator to start the question-and-answer portion of the call.

Questions and Answers:

Operator

Thank you, sir. We will now begin the question-and-answer session [Operator Instructions]. And the first question we have will come from Austin Wurschmidt of KeyBanc Capital Markets. Please go ahead.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Hi, good morning everybody. So, you mentioned in your prepared remarks that supply or that pre-leasing is tracking below or at the mid-point of your expectations at this point. Do you think supply is having a greater impact than you originally projected, and what markets are you seeing the most softness relative to your initial expectations?

William C. Bayless -- Chief Executive Officer

Sure. And if you take Jennifer's prepared remarks, we talked about at this moment current trending has us near or just slightly below the mid-point. With 5 to 10 weeks left in the leasing season, our projection models we are best-case scenarios that have us still performing above the mid-point. And we have worst-case scenarios that have us performing slightly below the mid-point. So, when we take the -- at this moment in time, the most recent trending we're just slightly below the mid-point in those projections. And so I would say, largely relatively on-track with expectation on leasing.

When you look at the markets, Austin is a market we continue to focus on in terms of the impact of new supply. Taking Austin out of the equation, the other high-supply markets we talked about earlier in the year, we've continued to do well in, in San Marcos and some of the others, and for the most regard leasing is on-track. We always talk about this time of year, it's the power of the ones and the twos. With 5 to 10 weeks left in the leasing season, the things that we're looking at as we close out that have the impact or that can be significant swing positive and negative or the late market demand in the next 5 to 10 weeks as compared to the historical trend. Our execution on back-filling, late cancellations which you saw in our main numbers, our back-filling efforts there were significantly better than in years past and you saw about a 20% improvement from the historical diminishment in back-filling largely due to LAMS and Next Gen initiatives. Also the no-show management and late-season leasing opportunities. And so as Jennifer said, the guidance range is still in play, we have opportunities to still exceed the mid-point and to be slightly below the mid-point based upon those variables that I just went through.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

So, again just like markets you mentioned UT Austin, I mean Kennesaw State one I think you've mentioned in the past, Texas State has come up in the past as well as Tallahassee. Any of those markets that have continued to see softness or that are under-performing a little at this point?

Daniel B. Perry -- Chief Financial Officer

Yes, Kennesaw, we saw softness about 8 weeks ago and the team is actually done incredible there. We've had a very strong lease up finishing out through the last weeks, I've given up a little bit on rate but done very well there. Also San Marcos is tracking to not be a diminution on this year's lease-up in terms of its revenue growth. So overall, we've done very well --and Tallahassee, as I mentioned, the team is just absolutely not cover off the ball in terms of our improvement in that market, and so in the new supply markets Austin is the only one that we continue to track cautiously.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Appreciate that. And then just one more from me. I appreciate the early detail on the supply figures. Just curious looking back what probability would you place on those numbers being kind of good final supply figures for 2020, and then can you point to some markets next year where you see the heaviest level of deliveries?

William C. Bayless -- Chief Executive Officer

Yes, I got to tell you this is the positive headline of this call and that is the new supply dynamics moving into 2020. As William talked about in our range where we see a decrease of 24% to 28%, that 24% is based upon projects where there has actually been a shovel in the ground and they are under way for construction, and the 28% is the 1100 other potential beds that are planned, but not yet a shovel in the ground and we have to see whether or not they truly get under way to be delivered next year. And so, those numbers are fairly solid. And just about any way you slice and dice the data, it is a positive story in terms of the new supply in our portfolio. Total new supply as a percent of enrollment of the portfolio is only a 1%, which is the lowest number and about six years. When you look at the impact of NOI at our largest top 10 markets, it's down to 14% versus 18% this year. With only 5 of the top 10 markets having new supply. And so overall -- and again I would make the statement that and Axiometrics number nationally, RealPage-Axiometrics is down 13% that decrease is in no way due to a lack of interest or desire to do development in the space. But rather it is the natural barriers to entry that exist in the markets that makes new development difficult and new supply difficult. And so, those numbers are very encouraging and also consistent with the trend that we have seen over the last 2 to 3 years. When you look at the markets where we see repeating supply in 2020 where it also occurred in 2019 those markets are Champaign, Austin, Auburn and San Marcos and we've done well in those markets. Again, Austin is one that we're watching this year and probably will continue to watch for the next couple of years, given the potential supply horizon there. Champaign, which had been a challenging market a couple of years ago, this year has gone extremely well for us. We're already full and had significant revenue growth, one of our better ones about 6%. And so, we feel we're well positioned there and also with our current price point in the market compared to new supply. And so on the new supply front, overall, it is a very positive picture in the fundamentals moving into 2020 both nationally for the industry and specifically to our portfolio.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Great. I appreciate the thoughts. Thanks, Bill.

Operator

Next we have Nick Joseph of Citi.

Nick Joseph -- Citi -- Analyst

Thanks. Maybe just staying on same-store revenue. The maintain mid-point guidance assumes a deceleration in the back half of the year to 1.9%. Is that 1.9% a good run rate in the first half of 2020 as well, given the expected 2.3% growth for academic year '19 '20 lease-up and the 40 basis point drag from the outsourcing of the online resident payment processing that you mentioned?

Daniel B. Perry -- Chief Financial Officer

Yes, Nick, this is Daniel. That's right. With the -- just from a optical standpoint, you'll see that impact of the portal fee elimination on revenue with an offsetting reduction in expenses about 40 bps on the revenue growth statistics and about 80 bps on the expense side, obviously as we talked about going into this year, the variable to the total revenues, is total same-store revenue growth can be other income. And what we're able to project there in terms of any growth that we might see in other income and whether that's a positive or negative contributor to overall revenue growth. We will give the guidance on that on our fourth quarter call, but in terms of rental revenue growth, we're taking 40 bps off of that too in the quarter would be mid-point if that's where we end up would be the right assumption.

Nick Joseph -- Citi -- Analyst

Okay, thanks. And then just on development. The Auburn development now looks like delivering in the August versus July previously, will it open in time for school year and then is there any impact for opening a little bit later than expected on final numbers versus what you assumed in guidance initially?

William C. Bayless -- Chief Executive Officer

No, not at all and that's just candidly an administerial clean up in terms of when we actually expect revenue generation to occur. We have a handful of July move-ins, but you all should be modeling that property and it's 100% pre-leased, everything is gone great there, development is on-time, on-budget and fully leased, will stabilize in year-one as anticipated. But just from a modeling perspective revenue should begin consistent with the commencement of the academic year in August, so we just have a handful of July early move-ins.

Nick Joseph -- Citi -- Analyst

Great, thank you.

Operator

Next we have Alexander Goldfarb of Sandler O'Neill.

Alexander Goldfarb -- Sandler O'Neill -- Analyst

Hey, good morning down there. Just a few questions. First, on the pre-leasing Bill, and you guys have talked about this in prior calls, based on various industry conferences, but overall the trends for this year in general were pretty favorable and I understand that the private companies have the benefit of being private. So they don't have FD because they don't have D. For you guys, you're still sort of within the range, you're touch below, but obviously it sounds a little bit different from the narrative that we've been hearing over the past few months. So maybe you can just provide a little bit more color, and maybe it's just perspective on sort of you guys running your portfolio at 96%-97% versus the private guys running 95% plus and maybe that's where the delta, but it does come as a little bit of a surprise that you guys are at a touch below the mid-point given the commentary to-date?

William C. Bayless -- Chief Executive Officer

Yes. Alex, I would say it's actually consistent from our commentary and that again we still have projections above the ranges and below the range and would say that right now based on this moment projection with 5 to 10 weeks left, we're just slightly below the mid-point. And you hit on exactly the case-in-point, as to what the differentiation is between us in the private company competitors and that we typically operate at an occupancy improvement over our competitive base between -- they are typically at 95% or slightly below and we're typically at 97% and slightly above. And so when you look at the positive tailwinds and the fundamentals that the sector does have at this moment in time, other folks have opportunity to start to close the gap between their own portfolios and our best-in-class portfolio from an occupancy perspective, where this year our growth driver is a little more limited and that the occupancy provides less upside for us and it's largely driven by the rate. And so, I don't think there is any change whatsoever in terms of the industry fundamentals and the positive messaging that you have heard at the past conferences and we have a good solid comp of the occupancy last Fall, coming in at the 97% that we're working off of. It doesn't give us quite as much upside as some of the other private that are out there.

Alexander Goldfarb -- Sandler O'Neill -- Analyst

Okay. And then a question for DP, if you look at guidance and you look at where you guys have been trending you've been having a good year so far, it seems like internally you guys have been buttoning up all the issues, you were better at the drop-outs in the back-fills and yet it would seem like you're number should be toward the high-end. So, maybe you can just go through the variables, because obviously in your guidance originally you knew that the back half would be a little tougher, you knew that you have to wait for that Berkeley deal to come, the timing of the JV or outright sales like those items haven't really changed. So, maybe you could just talk about what would prevent you from being toward the high-end based on where you are in that you already know how your pre-leasing is coming in and certainly your pre-leasing is not at the low-end, which again, suggests that it's pretty much on-track. So, what are the things that would prevent you from getting toward the high-end of earnings guidance?

Daniel B. Perry -- Chief Financial Officer

Sure, Alex. Let me go through that in two components. First, in terms of NOI and then in terms of FFO overall. When you look at the first two quarters of the year we produced 4.3% same-store NOI growth and our mid-point is 2.5%. So certainly I understand just trying to -- everybody trying to continue to get a better feel for how the second half of the year is expected to play out. Our mid-point of rental revenue growth for the Fall is 2.25%.

If you just think about normal inflationary expense growth of 3% that would get you down into a range of NOI growth in the mid-to-low 1s that would combine with that to put you closer to your same-store NOI growth mid-point. We talked a little bit about tough comps on the expense side. And I mean even though we're talking about 3% that's not necessarily significantly high operating expense growth, you still have to consider that we've been able to drive below that.

When you look at 2018 second half of the year, excluding repairs and maintenance, where you have incident response cost for hurricanes and things like that and property taxes, the expense growth was 1.7% . So, we had very low growth last year, we saw in the second half of last year a lot of the benefits of the energy efficiency initiatives that are helping us drive those savings in utilities. And so, you start to lap those deployments in the second half of this year and you start seeing less benefit from those.

So we only have about 30% of our property taxes in and settled at this point. It's hard for us to anticipate fully where that will all finish out. We're still holding our 4% or a little over 4% projection in property tax growth, but it is a variable that requires us to maintain a range there.

And then, we're just entering hurricane season and that is something we can't control. We don't know what we will have in terms of incident response cost there this year. Last year was a very light year, and so if you know if we have anything on the heavy side of the equation that would lead to greater growth in repairs and maintenance. So that's where we get to maintaining that mid-twos. Same-store NOI growth target for the rest of the year.

And then in terms of overall FFO, we do still have a third-party fee deal to close, that's $1.8 million in fees for 2019 at UC Berkeley. As you've heard us talk about there is a lawsuit between the city and the university with regards to the fees that they will have to pay as part of their environmental approval process. We want to see where that settles out. It could impact the timing of commencement of that project.

We think that they'll ultimately come to agreement, but we just don't know when that will occur. We didn't expect that project to start until Q4. So there's still time for them to come to agreement. But again another variable in the FFO equation that makes us want to just continue to see things develop as we move through the third quarter

Nick Joseph -- Citi -- Analyst

Okay, thank you.

Daniel B. Perry -- Chief Financial Officer

Thank you.

Operator

Next we have Samir Khanal of Evercore ISI .

Samir Khanal -- Evercore ISI -- Analyst

Good morning, guys. I guess in the past you've talked about the ongoing efforts to control operating expenses to asset management initiatives I guess, how much is left to do on that front as it relates to controllable expenses at this point?

Daniel B. Perry -- Chief Financial Officer

I mean you know as we, as I just discussed. We deployed a lot of our LED initiatives and also peak billing our usage reductions throughout the portfolio, last year. We are still continuing to deploy some of those this year, but a lot of that started in the second half of last year and so you're seeing it occur in the first half of this year, we'll get a little bit of help from it, but it starts to roll off as you get into the second half of this year.

We continue to explore opportunities on the multi-asset efficiencies that we've talked about, where we have multiple properties in a market and we look at strategies from a marketing standpoint, from a staffing standpoint, from a maintenance standpoint that will allow us to control expenses there. And then of course, we've talked about on the marketing side that we are really doubling up right now in terms of our traditional marketing efforts that would have driven our marketing expenses historically and a much bigger move into social and digital marketing.

And as we really start to get our process and our strategy oriented around that digital and social media marketing and we can eliminate more of the traditional marketing efforts that will allow some improvements over the growth levels that we're seeing right now in marketing,

And then of course, we are always scrubbing the portfolio for opportunities on national purchasing agreements, contracts with vendors that we can use our footprint to take advantage of, and other types of asset management initiatives . So we will continue to try to control expenses as much as we can and we always have the uncontrolled those of property taxes, but on some of the things that others have seen whether it'd be on payroll increases across the country, we -- our approach there has been able to -- a lot has allowed us to keep those expenses in check and we expect that to continue as well.

Samir Khanal -- Evercore ISI -- Analyst

Okay, that's it from me guys. Thank you.

Daniel B. Perry -- Chief Financial Officer

Thank you.

Operator

Next we have Drew Babin of Baird.

Drew Babin -- Baird. -- Analyst

Hey, good morning. Quick question on -- question on a UT Austin last year I think in the West campus market you saw some of the higher-end, more amenitized, better located product kind of generally lease up faster and your product out of the block those type of assets may be took a little longer to kind of fill in. Is that what you are seeing once again this year? And is there anything you're doing? I think last year, some of the I think the Castilian demand. I think it was kind of diverted out to the block or there was something to do with maybe strategically being done there. Could you just talk a little more in depth about how that's coming together in Austin?

William C. Bayless -- Chief Executive Officer

Yes, and Austin continues to be over the last 5 years and this year and looking into the next 2 to 3, one of the most prolific new supply markets in the country and that it is unique and Austin at the City of Austin, because there is such an overall housing affordability crisis, did the university overlay district, which is one of the few pedestrian sub-markets near a major University in America that is actually encouraging and eliminated the barriers to entry related to high-density development.

And so all of the development that you see taking place given the land cost and also construction pricing each year the new products tend to be the highest priced product price points in the market and you don't see this in all markets nationally. This is somewhat unique to Austin.

You continue to see the new highest priced products lease first, and so we continued this year to see the new deliveries that are at the highest price point that are at a significant premium to our Block Texan, Jefferson 26 properties or 26 West properties continue to lease first, and so that did continue this year as we look at new supply coming in, in the future there is absolutely going to come a point to where you have an over-built situation at the absolute highest price point in the market, which is some point you put some pricing diminution ability on some of the second, third generation, 2- to 3-year-old new supply, but that's probably going to occur in 2021, 2022.

We continue to have a good price point, the Block property, for example, you can still lease there as low as $399 per accommodation. And so really our product positioning in that case-in-point, is to compete with the dried sub-market on Riverside in offering accommodation in price points where students can still walk to class versus having to drive Interstate 35.

But we do see the upper socio-economic properties continue to lease very quickly, but that is candidly where the invest -- the long-term investment risk is in the market is at that higher price point. And so, Austin is a market that even with the new supply we always continue to do well from a year-over-year revenue growth perspective. This year continues to be a little tougher than usual. But overall, we like our product positioning and that with our strategy of build for the masses, not the classes, the longer-term installation that we have for new supply is the more affordable price point and the spread that does still exist with our products, especially in the apartment sector to the new apartment supply coming in. Castilian and Callaway House tend not to be as impacted by the new supply which off-campus has continued to be all new apartment supply, and so they operate somewhat independently of that and don't directly correlate to the apartment development

Drew Babin -- Baird. -- Analyst

Okay, that's helpful and then just one more from me. The overhead related to the third party businesses. If you look at kind of what is cost year-to-date versus the full-year guidance, it looks like there is some uptick in the rest of the year. I know there is some expense or some payroll reimbursement dynamics in that number, is that back-end loaded where you're going to see those higher revenues and higher expenses in those segments? Or are the third-party overhead costs increasing in the second half of the year?

Daniel B. Perry -- Chief Financial Officer

Yes Drew, we did see a little bit of benefit in the second quarter relative to our expectations in terms of how that third-party expense trending has played out. We're reserving our expectations there as we continue to pursue third-party projects and a lot of those expenses are in that line-item. And so, just depending on the activity throughout the rest of the year and the cost associated with that whether not the savings that we've seen there will ultimately materialize or turn out to be a timing thing. We just are withholding expectations on that for the time being.

Drew Babin -- Baird. -- Analyst

Okay, that's all from me. Thank you.

Operator

And next we have John Pawlowski of Green Street Advisors

John Pawlowski -- Green Street Advisors -- Analyst

Thanks. Bill or Jennifer circling back to Fall lease up being slightly below the mid-point, I guess everybody has got a different definition of slightly. So, are we talking 10 basis points? Are we talking 50 basis points?

William C. Bayless -- Chief Executive Officer

Yes. And again, I would say first of all we'll Jennifer said we're trending near the mid-point, I would take near as above or below the mid-point. And when we talk slightly typically when we talk slightly we're talking 0 to 30 bps

John Pawlowski -- Green Street Advisors -- Analyst

Okay. Just so we get a sense for the breadth of strength or weakness, what -- how much of the portfolio is trending below the 1.5% low-end?

William C. Bayless -- Chief Executive Officer

You know, and this is where, what we always talk about. At the end of every lease up rather than focusing on particular properties, it really comes down to the execution of what we refer to as the onesies and twosies and we'll have our employee call every -- after every earnings call each quarter we do an employeewide call and the focus of tomorrow's call is the execution on the four variables that I talk about in terms of the execution back-filling of late cancellations and no-show management and that when you look at our leasing projections, you typically have more than half the portfolio, 80 properties where you have vacancies that exist with candidly in our projects is about 40 properties that have between 1 and 10 beds being vacant.

And when you're within 1 to 10 beds being vacant it really comes down to execution on your back-filling and no-show process, that can have a meaningful 30 to 40 basis point difference in terms of execution of filling in the places that you can. And so, really for us the key to performance in terms of finishing at the mid-point or above or below the mid-point is it looking at the 1 or 2 or 5 to 10 properties where you have double-digit vacancies that you hope to excel, but it's really in the execution at each and every asset of those ones and twos.

And so, that's the focus of the company and candidly, you know what -- and Alex asked this question previously, where we have always out-performed our competition, the reason that we operate at that 150 to 200 basis points better than competitors and what ultimately makes the difference in our final numbers as it relates to whether we're slightly above or slightly below the mid-point is in the execution of those 80 to 90 properties where we can make those incremental differences where you have the best opportunity to do just one or two better versus just focusing on the properties where you have more significant diminishment to your original projections

John Pawlowski -- Green Street Advisors -- Analyst

No, I understand it's an execution game. Again I'm talking the extreme, so at this point 10 weeks out how much of the portfolio is trending below the low-end, not, slightly below the mid-point, but below the 1.5% low-end?

William C. Bayless -- Chief Executive Officer

Yes, we're not going to give that statistic in terms of property-by-property in terms of, again, it's a combination of the roll-up each and every year. You have a handful of properties, 5 to 10 to where you have somewhat what I would say is material diminishment to your mid-point projections that you have at the beginning of the year. And you also have 5 to 10 that significantly out-perform your mid-point projections. So it tends to be a fairly balanced pro and con to each of those categories.

John Pawlowski -- Green Street Advisors -- Analyst

Okay. One longer-term question for me. I guess what inning are we in, on the portfolio transformation and is the current school list pretty steady state or additional school exits on the horizon?

William C. Bayless -- Chief Executive Officer

I would say we're probably in the seventh inning stretch on the portfolio we refined. My favorite statistic and this really gets into -- what went Daniel was talking about the operational efficiencies. I believe the portfolio today, while our growth over the Company's history has been largely 65% acquisition and M&A because of our dispositions typically being properties that we bought in larger M&A portfolios that did not meet our investment criteria, 56% of the portfolio today consists of American Campus Program Designed and Developed Communities. And so, it's a much higher quality base and we believe we can put all of our expertise into the design and the operations of properties, which then does translate into better operating costs, better capital cost and the like. When you look at the remaining portfolio, and as Daniel talked about our capital needs in his script, our recycling of about $100 million to $150 million a year over the horizon of the next -- through 2023 and we look to funding out of Disney. And then we have always said historically that we're looking at 2.5% to 3% of our portfolio on a long-term ongoing basis to continue to refine and you'll see that refinement continue.

Certainly as you look at the evolution of market selection, we have more thoroughly defined over the last 3 to 5 years that our investment, we prefer to be in Power-5 conference and Carnegie R1 institutions. We still do have a handful of markets left, probably 5 to 7 where we had done M&A transactions where we ended up at schools that don't meet that criteria that over the long term. We would expect through our disposition to exit out of, and we would expect the large majority of our investment activity to take place in those more targeted Power-5 conference and R1 institutions. And so again, I would say at this point in time, looking at the current portfolio middle of the seventh, maybe even top of the eighth in that regard, but that will be over time.

And as we get -- I think the greatest opportunity for the Company going forward over the long term horizon of 3 to 10 years is when all of this global capital that has come into the space and is now in the new development stage in 3 years or so there's going to be a lot of good M&A acquisition opportunities for us that we intend to be positioned to continue to be the industry consolidator. And as we get back to expanding our portfolio beyond just our own development, then that's going to foster different recycling opportunities on the long- term based on those initiatives, so it's an ongoing process.

John Pawlowski -- Green Street Advisors -- Analyst

Understood. Thank you.

Operator

Again as a reminder, if you'd like to participant in today's Q&A, [Operator Instructions] And the next question we have will come from Shirley Wu from Bank of America . Please go ahead.

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

Hey guys, thanks for taking my question. So for the 2Q revenues came in higher than expected, with intensive acceleration of same-store revenues, which is slightly different than your usual deceleration from 1Q to 2Q, so how should we think about that contribution from the short-term lease back-filling and how should we expect that to flow into 3Q as well?

William C. Bayless -- Chief Executive Officer

One of the initiatives that we've talked about as part of our Next Gen initiatives is having better corporate controls and oversight over what we refer to as current period leasing and then if you follow the Company historically and the people that have always come in for Investor tours and seen LAMS demonstration. LAMS was originally designed as a future period leasing season for the next academic year where we had all of our business intelligence and sophistication, and what Next Gen has done is has evolved LAMS into having a major impact and full purview into the current period leasing season, which is your December back-filling leases,your summer back-filling leases also something we refer to as a May-to-May initiative where you undertake 12-month leases commencing in May versus doing a stub summer period and then in August.

And so,as the Company has advanced its Next Gen initiatives, this year you start to see improvement in both that December diminishment between Q4 and Q1, and you're seeing it again from Q1 to Q2, and so we would say that that is something that we have seen continued improvement as we continue to add sophistication, to our Next Gen systems and something we hope, over the next 2 to 3 years will continue derive benefit and you see some of those historical trends in seasonality that may be better.

Now the one thing that we do always point out though and we started at this point out about 3, 4 years ago, a lot of the, the new development does tend to be in the on-campus ACE transactions and Residence Hall style products. And so from a seasonality perspective as those on-campus assets tend to be more academic year, you may see a little bit of difference in the seasonality trend, but we're hoping to do better in terms of the year-over-year, quarter-to-quarter diminishment from each quarter to the sequential.

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

Great, that's good color. So, moving onto your marketing expense you mentioned that you're moving on to more social and digital method, could you give a little bit more color on what you're actually doing and maybe a little bit on the Sports initiatives that you mentioned briefly in your prepared comments?

William C. Bayless -- Chief Executive Officer

Yes. And this is something that for the when -- we survey very sophisticated demographic in terms of the 18- to 22-year-old student that is the power user of social media, digital media and technology. And so, there has certainly been an evolution in our marketing program over the years in terms of, you go back even 5 years ago, the largest expenses in our marketing programs were direct mailings and more traditional promotions on-campus. Where today those efforts are very much Facebook, Instagram I'm not equipped to say all the ones that the -- our marketing team that is very much in touch and much younger than I am and understand these things, into our day-to-day interaction. Where you see the duplication between traditional marketing efforts and social and digital media really goes as the year progresses.

And that when you look at our most likely target markets early in the leasing season, it's the students who are living on campus, it's the students who are in the market and when you develop your social media strategy, it's much easier to implement that and know where those students are and what their behaviors are through sophisticated social and digital -- social media and digital marketing tools that we have. As you get later in the leasing season and some of your target markets become students who are transfer students and first year incoming students that are not currently in the market. The social and digital media becomes a little bit more complex and that's where we tend to still fall back on some of the more traditional direct mailings, mailings to parents and also on-campus direct interaction promotional activities through the orientation programs and the like. And so that's where when Danny refers to, we're still doing some of the double implementation, you tend to see that later in the leasing season having a little more of the cost impact versus the average.

The other area where we continue to see, and this goes hand-in-hand with our strategy of multi-asset markets is that once we build scale in a market, we have found that our most effective marketing activity are through the University Athletic Sports Marketing programs and we also continue to refine those. And so those are the three components of the evolution of our marketing strategies, and the marketing spend and why you see a little bit of the uptick over last year's cost as we balance those initiatives out.

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

All right, thanks for the color guys .

Operator

And it looks like we do have a question that will come from Derek Johnson of Deutsche Bank.

Derek Johnson -- Deutsche Bank -- Analyst

Hi, everyone. Good morning. I'm sorry if I missed this, but can you just give an update on the targeted stabilized development yield. I see today, you're at 6.25% to 6.8% last year, in 2Q. You guys were 6.25% at the low-end and 7%, so is the low-end safe here and any just update given all the info we've heard about rising costs and labor shortage and stuff like that? And I apologize if I missed this. Thank you.

William W. Talbot -- Chief Investment Officer

Hey, this is William Talbot. As we stated in the prepared remarks, we do anticipate for the '19 deliveries to deliver within that stated range of 6.25% to 6.8%. They are already fully pre-leased at 96%, so yeah our targets are still very much in-line as we had previously stated.

William C. Bayless -- Chief Executive Officer

And I would comment this continues to be along with the new supply outlook that we talked about, which is very positive on this call. The real investment thesis for American Campus in the sector today is the spread between current market cap rates being at the 4% to 4.25% for Class-A pedestrian to the development yields of the 6.25% north that we're producing and you know it's amazing from our perspective there 15 years after going public, we have the widest spread we have ever had between our development investment opportunities and current market cap rates.

Operator

And Mr. Johnson any further questions, sir.

Derek Johnson -- Deutsche Bank -- Analyst

That will do. Thank you very much.

Operator

Yes, sir. Looks like we're showing no further questions at this time, we'll go and conclude our question-and-answer session. I'd like to turn the conference call back over to Mr Bill Bayless CEO for any closing remarks, sir.

William C. Bayless -- Chief Executive Officer

Yes. We'd like to thank all of you for joining us today. As we've talked about and we want to thank the team. We are very pleased with our performance year-to-date with both our financial and operational results. At this point in time through Q2 slightly exceeding our expectations.

We are pleased with our pre-leasing and as Jennifer mentioned, do you expect to be near the mid-point. We still have the opportunity to be above or below. Also, we want to talk about in close, we continue to see a vibrant P3 market is William discussed and a really positive outlook as it relates to 2020 supply.

And with that, I would like to thank the American Campus team members and thank them in advance for the hard work that they're going to do to finish out this lease up and create value for you. Thank you very much.

Operator

And we thank you, sir. And again to the rest of management team also for your time today. [Operator Closing Remarks].

Duration: 54 minutes

Call participants:

Ryan Dennison -- Senior Vice President of Capital Markets and Investor Relations

William C. Bayless -- Chief Executive Officer

Jennifer Beese -- Chief Operating Officer

William W. Talbot -- Chief Investment Officer

Daniel B. Perry -- Chief Financial Officer

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Nick Joseph -- Citi -- Analyst

Alexander Goldfarb -- Sandler O'Neill -- Analyst

Samir Khanal -- Evercore ISI -- Analyst

Drew Babin -- Baird. -- Analyst

John Pawlowski -- Green Street Advisors -- Analyst

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

Derek Johnson -- Deutsche Bank -- Analyst

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