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Mid-America Apartment Communities Inc (MAA 0.71%)
Q2Â 2019 Earnings Call
Aug 1, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, ladies and gentlemen. Welcome to the MAA Second Quarter 2019 Earnings Conference Call. [Operator Instructions]. I will now turn the conference over to Tim Argo, Senior Vice President, Finance for MAA.
Tim Argo -- Senior Vice President, Finance
Thank you, Aaron, and good morning, everyone. This is Tim Argo, Senior Vice President of Finance for MAA. With me are Eric Bolton, our CEO, Al Campbell, our CFO, Tom Grimes, our COO.
Before we begin with our prepared comments this morning, I want to point out that as part of the discussions, company management will be making forward-looking statements. Actual results may differ materially from our projections. We encourage you to refer to the forward-looking statements section in yesterday's earnings release and our '34 Act filings with the SEC, which describe risk factors that may impact future results. These reports, along with a copy of today's prepared comments and an audio copy of this morning's call, will be available on our website.
During this call, we will also discuss certain non-GAAP financial measures. A presentation of the most directly comparable GAAP financial measures as well as reconciliations of the differences between non-GAAP and comparable GAAP measures can be found in our earnings release and supplemental financial data, which are available on the For Investors page of our website at www.maac.com.
I'll now turn the call over to Eric.
H. Eric Bolton -- Chairman, President & Chief Executive Officer
Thanks Tim, and good morning. Second quarter results were ahead of our expectation. Strong job growth and resulting demand for apartment housing are driving higher trends in rent growth across our Sunbelt markets. We believe our portfolio, which is diversified across this region in terms of both sub-markets and price point, is particularly well-positioned to capture the benefits of these positive trends. This strong demand coupled with the benefits from our merger and the retooling of our operating platform is really starting to bear fruit as our combined lease-over-lease pricing in Q2 was a strong 5%, higher than what we've seen in several years. We're encouraged with the trends is effective rent growth continues to climb, as anticipated, and in line with our expectations.
Same-store expense growth in Q2 was higher than what we've seen over the past couple of years, as we harvested expense synergies from our merger transaction, setting up a more challenging comparison for us this year. However, as has been our custom, we maintain a rigorous focus on driving efficiencies into our operation, and as you will note from yesterday's earnings release, we did revise down slightly our full year expectation for expense growth.
Overall, the 3% growth in same-store NOI captured in the second quarter as well ahead of our original expectations and we're encouraged with the overall trends. Given the strong year-to-date performance and that we are well into the busy summer leasing season, we are raising our full year expectations for same-store revenues, net operating income, and overall FFO growth. On the transaction front, we've not seen much change from the past few quarters with stable cap rates and a high level of buyer appetite. We continue to see good deal flow, but the private equity buyer remains aggressive in their efforts to deploy capital. We remain committed to our investment disciplines and, as noted in our earnings guidance update, we have pulled back on the level of acquisitions we expect to complete this year while increasing the level of funding we plan to allocate to new development starts.
You will note that we also increased our planned dispositions volume. Earlier this month we initiated marketing efforts with plans to sell five properties in the Little Rock, Arkansas market and we expect to exit this market by year-end.
During the quarter we completed lease-up at two of our new properties in Denver. Our remaining two properties in initial lease-up located in Charleston and Atlanta remain on track and should stabilize late this year. Our five new development projects currently under construction also remain on track. At a total investment of just over $354 million, we continue to forecast stabilized NOI yields north of 6% from these two pipelines. We also continue to work on pre-development activities at our existing owned land sites in Denver Houston in Orlando. In addition, we are close to finalizing a new JV development project located in Orlando. We expect to have construction under way at all four of these new projects by year-end.
Before turning the call over to Tom, I want to send a big thank you to our team of associates here at the home office, in our regional offices, and at and those associated serving at each of our properties. Our folks have done a tremendous job over the last couple of years working through the challenging process of merging and transforming two large -- two long-established companies systems and operating programs. The hard work is starting to show in our results, and we look forward to capturing additional opportunity over the coming quarters. Tom?
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
Thank you, Eric, and good morning everyone. Our operating performance for the second quarter was strong and better than our original expectation, driven by strong demand and the improved platform. We have continued momentum in rent growth, strong average daily occupancy and improving trends.
Same-store effective rent growth per unit was 3.2% for the quarter. This was the 5th straight quarter of improving ERU growth. As a result, our year-over-year revenue growth rate was the highest it's been since 2016 and revenues increased 130 basis points sequentially. The acceleration in revenues was widespread. The year-over-year revenue growth rate for the second quarter exceeded the growth rate of the first quarter in 19 of our 21 largest markets.
As signaled by or guidance raise, we expect this acceleration to continue. This is led by steady momentum and new and renewal blended lease-over-lease pricing. Blended lease-over-lease rents for the quarter, up 5% which is a 170 basis points better than this time last year. The improvement in blended prices from Austin, Atlanta, Charlotte, and Dallas were particularly impactful. Even with the great traction on blended pricing during the quarter, average daily occupancy remained strong at 96%. Operating expenses were in line with our guidance, but higher than they have been recently. As we have mentioned on prior calls, we have captured the benefits of the improved expense management platform on the post portfolio and the comparisons are now more difficult.
Year-to-date expense growth is now 2.8%. As a reminder, our annual operating expense growth since 2012 has been just 2.4%, well below the sector average. The favorable same-store trends continued into July. We're on track for another month of strong blended lease-over-lease pricing. July blended lease over lease rents were up 5.3%, which is well ahead of the 3.2% posted in July of last year. Average daily occupancy for the month continued at a strong 95.9%, which was 20 basis points higher than July of last year.
Our 60-day exposure, which represents all vacant units and move-outs notices for a 60-day period is just 7.3%, which is 50 basis points better than this time last year. On the redevelopment front, through the second quarter, we completed about 3,800 units, which keeps us on track to redevelop around 8,000 units in 2019. This is one of our best uses of capital. Through the second quarter on average, we spent approximately $5,800 per unit and achieved an additional 10% in rent, which generates a year-one cash-on-cash return in excess of 20%. Our total redevelopment pipeline now stands in the neighborhood of 14,000 to 15,000 units. Our technology platform continues to expand. Our overhauled pperating system in new website have aided our ability to attract, engage, and create value for our residents. The results are evident in our blended pricing traction. Our tests on smart homes are going well. The technology has been installed with minimum disruption and received well by our customers.
We are also exploring a range of AI, chat, customer resource management, and prospect engagement tools. We're excited about the innovations in the apartment space and look forward to continuing to incorporate new technology into our operating platform. Our teams are pleased to have the work of 2017 and 2018 in the rear view mirror. We're encouraged with the momentum in rent growth and excited to have our transformed platform fully operational. Al?
Albert Campbell -- Chief Financial Officer
Thank you, Tom, and good morning everyone. I'll provide some additional commentary on the company's second quarter earnings performance, balance sheet activity, and then finally on our updated guidance for the remainder of the year. FFO per share of $1157 for the second quarter included $0.04 per share of non-cash income related to the embedded derivatives in our preferred shares. Excluding this item, FFO was $1.53 per share for the quarter, which was $0.02 above the midpoint of our guidance.
That performance was a result of favorable operating performance. And as Tom mentioned, primarily related to the continued strong lease-over-lease pricing achieved during the quarter and year-to-date. Our pricing performance combined with the continued strong occupancy drove 90 basis points acceleration in total same store revenues for the quarter to 2.3% growth.
This revenue performance, combined with a 3.6% growth in operating expenses for the quarter, produced NOI growth of 3%, which is the highest 9 quarters and is projected to continue growing over the remainder of the year. Additional information gain during the second quarter confirmed real estate tax pressure in Georgia, primarily Atlanta, and Texas, as we continue to work through significant valuation increases over the last couple of years. We now expect real estate tax expense growth range from 4.25 to 5.25 for the full year.
Despite this increase, strong performance in overall same-store expenses in the first half of the year allowed us to slightly lower the midpoint of our expense guidance for the full year. We continue to make progress on our development lease-up portfolio during the quarter, we funded an additional $26 million toward the completion of our current development pipeline. We now have $148 million remaining to fund on the 5 projects currently under construction and we expect to fully complete two of these communities this year and as Eric mentioned, we expect to begin four new projects later this year with a total estimated cost of around $300 million. We continue to expect stabilized yields between 6% and 6.5% on our development projects, once completed and fully leased up.
During the second quarter were were fairly active on the financing front, we paid off $300 million 6-month term loan, which was due in June, and completed the renewal of our $1 billion unsecured credit facility, extending maturity until 2023. We also established our commercial paper program during the quarter to capture lower financing costs on our routine working capital borrowings. Our commercial paper borrowings will be capped $500 million and our fully backed by our credit facility.
Our balance sheet remains strong. Leverage remains low with debt to total assets of 32% and total debt to EBITDA below five times. And we proactively used the low rate environment in the last few years to further protect our balance sheet. At quarter end, we had 85% of our debt fixed or hedged against rising interest rates and an average maturity of almost eight years, which is historical high for our company. We also had over $670 million of cash and funding capacity under our line of credit and our current forecast is leverage-neutral for the year.
Finally, we are revising our FFO and same-store guidance for the full year to reflect a strong first half performance, as well as our updated projections for the remainder of the year. We're now projecting FFO per share for the full year to be in a range of $6.20 to $6.36 per share, or $6.28 at the midpoint, which is a $0.05 per share increase of our previous guidance, based entirely on increased operating performance.
Given the volatility of interest rates, which is the primary driver of valuation changes related to our preferred shares we're projecting the favorable preferred valuation to reverse later in the year, bringing the full year impact on earnings to 0.
With the continued strong pricing performance of the first half of the year, we are revising our full year guidance for same-store revenue to range of 2.75% to 3.25%, or 3% at the midpoint, which is a 70 basis points increase from our midpoint our previous guidance. And as mentioned earlier, though we expect continued pressure from real estate taxes, we project total operating expenses for the full year to now be in a range of 2.5% to 3.5%, or 3% at the midpoint. This performance will produce same-store NOI in a range of 2.5% to 3.5% or 3% at the midpoint for the full year, which is 120 basis points above our initial expectation for the year.
That's all that we have in the way of prepared comments, so Aaron, we'll now turn the call back over to you for questions.
Questions and Answers:
Operator
Certainly. [Operator Instructions] We can take our first question from Austin Wurschmidt with KeyBanc Capital. Your line is open.
Austin Wurschmidt -- KeyBanc Capital Markets, Inc -- Analyst
Hi, good morning, everybody. Tom or Tim, maybe -- or I'm sorry Tom or Al, you discussed that you expect continued acceleration in your markets, you highlighted July lease rates remain well above last year. Occupancy is up on a year-over-year basis, but the revised guidance assumes same-store revenue growth stabilizes at a consistent level with what you achieved in the second quarter. So can you just give us the moving pieces are or what it is you see that could drive stabilization in your same-store revenue growth in the back half of the year?
Albert Campbell -- Chief Financial Officer
I think, if we think about the forecast- this is Al, Austin, and I'll start with that and Tom can add some if he wants to. I think what we really think about it is, we're proud to see the trends that we've seen in the first half and we expect to continue to have good pricing trends, but remember we have dialed in about 20 basis points of occupancy that we will expect to give up and remaining over the back half due to continue to be aggressive on the pricing. And so I think given all that put together, and obviously we have the slower leasing season ahead of us. I think traffic will decline as we get into the 4th quarter, late 3rd and 4th quarters. I think all that together tells us that we feel like we have a good expectation in place and we feel good about that. I don't know if you have any more.
Tim Argo -- Senior Vice President, Finance
Yes, I'd just say, I think we'll continue to make progress on the ERU growth with another month of blended pricing in at 5-3 above that.
Austin Wurschmidt -- KeyBanc Capital Markets, Inc -- Analyst
What month do you typically peak from a seasonality perspective?
Tim Argo -- Senior Vice President, Finance
Last year we peaked in May. This year right now, the peak would be July, and too early to say where August will be.
Austin Wurschmidt -- KeyBanc Capital Markets, Inc -- Analyst
Okay, and then just last one for me. Based on kind of the refined supply analysis, you guys have done a lot of work on that front. But curious how the supply compares in the back half of the year versus the first half?
H. Eric Bolton -- Chairman, President & Chief Executive Officer
Austin, this is Eric. I would tell you that the, we think that the supply levels over the back half of the year probably are a little bit higher than what we saw in the first half. We continue to see a lot of evidence of delays occurring in the construction processes. A combination of construction labor shortage coupled with a lot of the, the regulatory our oversight processes that these cities and others inspections that have to get done, a lot of these cities really backlogged right now. So we have seen supply over the first half of this year come in a little less than we expected and really that's just delayed.
So I think that we're in a period right now we're just supply is going to continue to be fairly high, I think it's moving around a little bit, usually delayed a little bit for the reasons I just mentioned. Having said all that, I am comforted by the fact that I think we're also at a point where it's unlikely. We see a material increase in the supply levels, given the challenges that are continuing to mount on getting deals to pencil. So as a consequence of that, I just think that over the back half of this year, if I had to guess right now, I would tell you that it will be a little bit higher than what we saw the first half of this year. We'll have a lot more to say about 2020 later this year as we complete our more detailed analysis.
Austin Wurschmidt -- KeyBanc Capital Markets, Inc -- Analyst
Great, thanks for taking the questions.
Operator
And we can take our next question from Trent Trujillo with Scotiabank. Your line is open.
Trent Trujillo -- Scotiabank -- Analyst
Hi, Good morning. Just following up really quickly on Austin's question there about supply in your previous disclosures, you mentioned about 48% of your NOI would have lower supply at 44% higher, and 8 about the same, roughly. That was earlier in the year with the shift of supply going in the second half does that dynamic change. Do you happen to have updated figures to think about how supply is impacting your NOI?
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
What I would tell you, Trent, is that I don't have the specifics here in front of me. And as I mentioned, we'll be doing a lot more detailed analysis on this as part of our budgeting process that gets under way later in the fall. But I would tell you that those numbers are -- the percentage that's going to get better is going to be a little lower. The percentage is going to get worse, is going to be a little bit higher. And it's just shifting around a little bit over the course of this year, but as I say a lot of the delays that we've seen take place just put some of the stuff, more toward the back half of the year.
Trent Trujillo -- Scotiabank -- Analyst
Okay, I appreciate that context and look forward to the next update. As it relates to your updated dispositions guidance, it sounded like you're exiting Arkansas completely. Why are you making that decision and are and are other markets you're considering exiting given the pricing strength that you cited in terms of market deals?
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
Our strategy surrounding dispositions is really built around almost really starting in an asset level and considering age of asset, capex requirements that may or may not be growing and sort of what the long-term value growth prospect is, comparing that to alternatives that we might be able to fine with that capital. As we began Little Rock's market, we've been in since our days of our IPO, the five properties that we, that we have there have an average age of roughly about 25 years old. So these are assets that we just felt like have reached a point in their life cycle, that we need to rotate out of. And we think better to exit the market altogether versus just pulling out two or three assets out of the market, given the size of that market. So that's what really drove us on that.
Going forward, as has been our approach, I mean we will look at this every year. I think it's important that we strive to cycle capital out of some of our older assets every year. And we will look at that going forward into next year. There'll be as it turns out a lot of our older assets tend to be in some of the smaller markets that we have where we also have, frankly, a little bit of inefficiency from an overhead perspective. So I think you'll see us continuing to work to clean that up over the next couple of years.
Trent Trujillo -- Scotiabank -- Analyst
All right. I appreciate that. Thank you very much.
Operator
And we can take our next question from Nicholas Joseph with Citi. Your line is open.
Nicholas Joseph -- Citi -- Analyst
Thanks. Just going back to leaselover-lease pricing. It's obviously strong on an absolute and year-over-year basis. But how does that spread versus last year trend within your expectations for the back half of this year?
Albert Campbell -- Chief Financial Officer
This is Nick, this is Al. I think as we look at the back half of the year we certainly have seen a great spread and a lot of momentum over the last couple of quarters for a lot of reasons, and Tom to talk about the reasons for that. I think when we look at the back half of the year, we are expecting that year-over-year spread to tighten a bit. Primarily related, as we talked about maybe moving into the softer leasing season or the more challenging leasing season, and you've got to remember and total revenue, when you look at that, we still have the 20 basis point occupancy. So I think in summary, we expect it to continue tightening. We hope to outperform that, but that's what we've outlined our plans on.
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
I would just add to that, I think that to some degree some of the lift is occurring right now is coming out of some of the legacy post locations and it's a combination of just market dynamics coupled with frankly just a little bit more stability now on the operating side of the platform as it pertains to those properties. And we really began to see some early trends of that emerging late last year. And so as a consequence of now going a full year, I think that that will further support what Al's suggesting, that we'll see a little compression of that on a year-over-year basis.
Nicholas Joseph -- Citi -- Analyst
Thanks. If it was 170 basis points in the second quarter, where could that spread go to in the back half?
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
I think we expect in the fourth quarter, which is your most challenging, to be a pretty tight spread over the prior year, is kind of what we expect. And so that's, but again that, what's important to remember that's lease-over-lease that we're talking about here, and now the momentum that ultimately frankly really matters is what's happening with effective rent per unit, which really drives revenue. And we think that that momentum in ERU will continue as a consequence of what has been happening with lease release over the last five or six months.
Tim Argo -- Senior Vice President, Finance
And certainly contemplated in the guidance, as you see. You can do the math on that Nick, but expected revenue is 2-8 year-to-date and 3 for the year, 3 and a quarter range average for the back half. So that, so we still have to have the trends playing into strengthen our portfolio. But this gap over the prior year in terms of that, just improvement of a trend, we expect that to narrow a bit as we get to the end of the year.
Nicholas Joseph -- Citi -- Analyst
Excellent, thanks. So then from a short-term funding perspective, how do you think about and expect to balance the use of the CP Program versus using the line?
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
We've got a little discussion on that as we put that and we're happy to put that program in, and first of all, and we think that is sort of them, one of the final ways we can use the strength of our balance sheet to lower our borrowing costs and we're using it, the way we're going to use it to just tell you is it's essentially do the same borrowings and we would have done on our line of credit. But just do it cheaper. I mean at the end of the day its working capital borrowings that we're targeting. And so you'll see the borrowings on our commercial paper go up, you'll see it come down, just like we would you would have seen our line of credit and our line of credit will stay closer to zero. And so we're doing that because there's some pretty significant savings in that, just using our balance sheet. We think we've gotten to little strong level now and so we're not increasing, we're not taking on marginal debt, and we're actually, you talked about the comments, we improving the average maturity of our debt extending it out. So we feel like that where we're getting cost savings, we're not adding risk or balance sheet and that's how we expect to use the program. Hopefully that answered your question.
Nicholas Joseph -- Citi -- Analyst
It does. So you'll use the line essentially as a backstop to the CP Program in case there is ever any issues on the CPE side?
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
Exactly right. And the program we're going to cap with capping our commercial paper borrowings of $500 million, have a $1 billion line, and to your point, fully stopping that. So we haven't, we see no risk to that program or lowrisk.
Nicholas Joseph -- Citi -- Analyst
Great, thank you.
Operator
And we will take our next question from John Kim with BMO Capital Markets. Your line is open.
John Kim -- BMO Capital Markets. -- Analyst
Thank you. On your blended lease growth rate assumption for the year, how realistic is even the midpoint of this because you got 3.9% in the first quarter, 5% second quarter, it looks like 3rd quarter probably will get at least what you did achieve in 2nd quarter. So you really need a huge drop-off down to about 2% to even if you have reach the midpoint of your guidance, can you just comment on that?
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
Well, I think it's going to be a couple of things that it's to some degree, what we've what we talked about a moment ago, and that we do see market conditions continue to be very competitive. We do think that as a consequence of supply delay in the first half of the year that is conceivable. We see a little bit more supply pressure in certain markets at certain locations in the back half of the year. So I think that factors into our thinking here a little bit, coupled with the fact, the second point being that we really began to get the momentum on the lease over lease performance in the back half of last year. And a lot of that, as I said was recovery taking place and some of the legacy post asset locations. As we now come full cycle, full year on that improvement trend the comparisons will get a little bit tougher. So I think that for a couple of reasons you'll just see the lease-over-lease comparisons get a little bit more challenging in that regard.
Tim Argo -- Senior Vice President, Finance
And just make sure to add it is very common and expected in our, in our business in our model that in the fourth quarter because of slower traffic and things you will have a moderating blended lease over lease we've seen in the past, we expect that we expect to have good comparison compared to prior year, but that is a typical part of our business. I think when you think about that plus the occupancy decline that we built in a 20 basis points to continue to, to get that pricing that drives your total revenue.
H. Eric Bolton -- Chairman, President & Chief Executive Officer
Yes, I'll add John. I mean the midpoint of our lease-over-lease pricing 3.9, we are 4.5 year-to-date through June. So it's still implying a pretty strong, call it 3.5 lease-over-lease growth the full six months of the back half.
John Kim -- BMO Capital Markets. -- Analyst
And is there any update on the portfoliowide rebranding?
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
Nothing really to to talk about of substance at this point. It's something we continue to look at and refine and work on. We'll have more to say about that as we, as we go into next year.
John Kim -- BMO Capital Markets. -- Analyst
It's more of 2020 event.
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
Yeah.
John Kim -- BMO Capital Markets. -- Analyst
Thank you.
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
Thanks, John.
Operator
And we will take our next question from Haendel St. Juste with the Mizuho. Your line is now open.
Haendel St. Juste -- Mizuho -- Analyst
Hey, good morning. So a question on your investment activity. So you lowered your full-year acquisition expectations by $75 million despite an improved cost of capital here versus the start of the year. And given your comments earlier, it sounds like market pricing has reached levels you're not quite comfortable with. So what's your mindset here on perhaps more opportunistic dispositions? Any other markets beyond a Little rock that you may consider exiting on an opportunistic basis?
H. Eric Bolton -- Chairman, President & Chief Executive Officer
Hi, Haendel, this is Eric. I mean, our plans for the year, really, and the focus we have is limited to the Little Rock dispositions. We continue to think about looking for ways to continue to deploy capital to capture growth in between our free cash flow and the asset sales that we are triggering, that covers it and. And so, I mean broadly, we like the diversification, we have in our portfolio. We like the footprint, we like to balance between both some of the larger and some of the smaller markets. So there is nothing fundamental about the portfolio composition today that we think needs to be altered or needs to be changed. It's Just really just a combination of what our capital needs for supporting new growth and how do we fund that growth, and I think asset sales should always be a part of that effort.
And right now we are just finding that the best uses of capital, other than the redevelopment effort that we have, really centers on the in-house development that we're doing as well as some of the JV development that we're doing. We're essentially pre-purchasing something to be built, and when we look at the opportunities that we have to deploy capital at the moment, coupled with free cash flow in the cash proceeds were generated from the asset sales, all kind of works and keeps the balance sheet, strong and so doing anything beyond what we're doing at the moment, it doesn't seem to be something we need to do.
Haendel St. Juste -- Mizuho -- Analyst
Got it, got it, helpful, thanks Eric. And maybe some more commentary on the land acquisitions in the quarter. Sounds like Orlando in Huntsville you're on track for late 2019 start. I think you previously mentioned in your development yield target 6, 6.5. So I'm curious how the current underwriting for those two projects compares to the overall pipeline and then maybe some color on how those yields compared to prevailing cap rates in those specific markets.
H. Eric Bolton -- Chairman, President & Chief Executive Officer
Just to be clear, the hunt you mentioned Huntsville, that was an asset sale. We're not buying land in Huntsville. But we did buy a site in downtown Orlando. We continue to believe that based on our latest underwriting that those -- that property along with the others that we've forecasted is to start and we're going to be able to deliver a stabilized yield and that's 6 to 6.5 range. One of the things that we look at in an effort to make sure that we're deploying capital in a value-accretive manner is we take a look at what is the, cap rate that we will, could -- that we're delivering, if you will, a new development at, using today's rents, looking at assumptions that we make regarding capex and the management fee and then what are all-in basis is going to be. And if we can deliver an asset today into the market at a 100 basis points or more spread in terms of the cap rate versus where assets are trading out in the market today, we think that's a value add. And every one of these properties that we're looking to tee up to start this year fit that hurdle easily. So we still think that it makes sense to continue moving ahead with the development that we are doing.
Haendel St. Juste -- Mizuho -- Analyst
Thanks for the clarification, but within the -- what assumptions for rent growth and expense growth are embedded within that stabilized yield protection?
H. Eric Bolton -- Chairman, President & Chief Executive Officer
Usually we assume zero to 1%, if anything, in the first year or two. And by the time we get to actually starting to deliver units, that first year we're delivering units. I guess, again it will a very by market, will vary by project, but it may be 2% to 3%. And of course you know when you factor in what we always assume some kind of lease-up concessions that we bring into it, t brings the effective rent growth down 2% or less. So it is fairly modest assumptions obviously during the construction in the lease-up period before we get to a stabilized situation where --- and leasing concessions can be burned off and then you get into more of a normalized 3 to 3.5, whatever, depending on the market. Depending on the particular location.
Haendel St. Juste -- Mizuho -- Analyst
On the expense side, any trending there or the cost fairly locked in?
H. Eric Bolton -- Chairman, President & Chief Executive Officer
We usually trend that pretty consistent at 2.5% to 3%, and we kind of start that on day one. I mean generally during -- in the modeling in the first year or two during the development period, I mean, our expense growth rate exceeds our revenue growth rate.
Haendel St. Juste -- Mizuho -- Analyst
Thank you.
Operator
And we can take our next question from Drew Babin with Baird. Your line is open.
Drew Babin -- Baird -- Analyst
Good morning. This is Alex on for Drew, just one quick one for us. We were curious if you could break down the leasing performance of Post and legacy MAA assets and Atlanta, Dallas and Charlotte given you guys impressive performance year-to-date? We're just curious on what the position is in those really important markets and are hoping to hear the Post is really flowing through to the P&L at this point.
Unidentified Speaker
Yeah, I mean the Post movement certainly helped us. Blended for Mid America is 5.3, Post is 3.9 on an overall basis, but when you take just the assets for Post in Austin, Dallas, Atlanta, Charlotte they're like 340 basis points better than last year, and so that's, has helped a great deal.
Drew Babin -- Baird -- Analyst
That's very helpful. Thanks.
Operator
And we can take our next question from Rob Stevenson with Janney. Your line is open.
Rob Stevenson -- Janney -- Analyst
Good morning, guys. Tom, most of your markets are outperforming expectations, but where do you see this sort of pockets of weakness or the smallest level of outperformance among your major markets?
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
Yeah, Rob, I would say, you know, I mean you can look at the numbers and sort of being comparative Dallas is weaker, but it is -- it's sort of moved along at a good pace. The two markets that were a little weaker than we expected were really Houston and Orlando. And those are there still pretty, they are both doing fairly well . We just expected a little more blended progress out of those in the first half of the year than we got.
Rob Stevenson -- Janney -- Analyst
Okay. And then why was the per-unit redevelopment cost so low in the second quarter? You were about $600 per unit lower than the first quarter.
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
It's likely just mix on that, Rob. I mean, no real changes with it, but it just depends on where the availability comes on it, whether it's a high cost renovate, we just did more lower than higher this time around. But no real strategy shift and it will change again.
Rob Stevenson -- Janney -- Analyst
So you did skinny redevelopments?
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
I'm sorry, say again, your block there a little bit.
Rob Stevenson -- Janney -- Analyst
Yes, so you were -- so-called skinny redevelopments, where you just do kitchen and no bath, or a bath and no kitchen and things of that nature. That did not factor into the mix?
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
No, we didn't, we didn't change our strategy there. Just, just to which units turn or what generated the difference.
Rob Stevenson -- Janney -- Analyst
Okay. And then last one for me. Al, the preferred derivative numbers, is that a one-time item or is that a recurring sort of amortizing thing?
Albert Campbell -- Chief Financial Officer
Yeah, you know, what will happen is it will slowly over time amortized -- we have an asset on the balance sheet now because of the favorability that's built up in that, and it was recorded initially. It will slowly, for about nine more years, amortize off, but it's going to be very volatile with primarily interest rate changes. Rob. So there's no cash value that, no change in our business. I mean it's really, it's frustrating us. But what we do, as you saw in our guidance, we had a very favorable amount this quarter purely related to the change in interest rates we thought that volatile, who knows what's going to happen. We just like to take that out. And so in the 4th quarter, we said the year-to-date favorability of $0.03 we took it out in the 4th quarter and has zero impact on earnings for this year. That's the way we prefer you guys think about it, that's really how we think about it. And so that's kind of how we do it.
Rob Stevenson -- Janney -- Analyst
Okay, thanks guys.
Operator
And we will take our next question from John Guinee with Stifel. Your line is now open.
John Guinee -- Stifel -- Analyst
Great, thank you, and nice quarter. I'm looking at your development strategy you've got about 1,100 units under construction right now, mostly in the early phases then some in lease-up, and I think you said you were going to announce four more in addition to what you've got on page S-8. Is there a trend? Because what we see throughout the industry is more movement away from high-rise and podium and into wrap and garden, and more move maybe into secondary locations where land can be acquired at a more reasonable number. Any trends, you could comment on?
H. Eric Bolton -- Chairman, President & Chief Executive Officer
I think you're right. John, I think we are seeing more suburban garden-style or mid-rise wrap out in some of these satellite cities and/or suburban locations and less downtown, city-type. Development of the four projects that will begin later this year, one is in downtown area of Orlando. The other three are out in satellite -- market satellite cities in Denver and Houston and in Orlando. So I think you're right, I think you're just you're seeing some of the capital migrate more to, away from some of the more inner city type locations.
John Guinee -- Stifel -- Analyst
And any comment on wraps versus podium, in terms of what it cost to build and and where you're getting, dou see a better return right now?
H. Eric Bolton -- Chairman, President & Chief Executive Officer
Usually the wrap is going to be a little bit better, but for us right now. I mean all three of the locations that we're looking at are surface park. So we, it varies a bit. In course numbers the are, the cost are moving around a little bit as some of the impact of tariffs and other things start to start to make an impact.
John Guinee -- Stifel -- Analyst
Great, thank you very much.
Operator
And we can take our next question from Hardik Goel with Zelman & Associates. Your line is open.
Hardik Goel -- Zelman & Associates -- Analyst
Hey guys, nice quarter. Thanks for taking my question. You guys, January I think it was, or maybe before that in March. You guys put out the margin for the Post portfolio and your MAA legacy portfolio, and that was quite a spread there. What is the spread today and where do you expect it to go, maybe over the next couple of years, just longer term?
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
We don't have it right in front of us at the moment on the, where it is right now, but I would tell you, obviously the gap is closing. I mean we fully anticipate that the legacy Post margin, Post asset margin will surpass the legacy MAA margin at some point. I think we're probably another couple of years away from that as the redevelopment effort continues to work its way through that, that portfolio. We got a lot of the expense gains are ready and that, and that's what help close the gap. As Tom's alluded to, we're seeing great pricing momentum out of the legacy Post locations now, and I think is going to continue to work on that gap and it will close more over the next year or so. And then is the redevelopment continues to kick in, I think it will, it will, at some point it will surpass it. I mean, that was ultimately one of the things that compelled us on the merger transaction itself, was that when you look at the two portfolios side by side, recognizing that the Post locations commanded an average rent structure that was $500 more per month than what legacy MAA was commanding, but yet legacy MAA had a 100 basis point higher operating margin. We knew there is opportunity there. And we'll see that continue to emerge over the next couple of years.
Hardik Goel -- Zelman & Associates -- Analyst
Got it. Thanks. That's all from me.
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
Thanks.
Operator
And we will go next to Wes Golladay with RBC Capital Markets. Your line is open.
Wes Golladay -- RBC Capital Markets -- Analyst
Yeah, good morning guys. As we look to the second half of the year, are you seeing any sub-markets that stand out as you may know, causing maybe the biggest variance to your forecast at the end of the year from developers offering a lot of concessions and that, would be not even, not available to push rate, any occupancy risk, sort of like we had in uptown Texas a few years ago?
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
That Uptown deal happen kind of as the first, the leading edge of supply hit that market, and I think in most places. I'm trying to think of an exception right now Wes, and I can't. The pipeline is pretty steady and I think we will see it taper off in the back half of the year, as it always does seasonally, but I don't see us going over a cliff on pricing in any one market at this point.
Wes Golladay -- RBC Capital Markets -- Analyst
Okay. And how is the Dallas market progressing for you? Is supply now starting to move to different markets? Do you see a gradually improving as we get through next year?
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
The -- Dallas is -- I mean there is a fair amount of supply moving through the system. It is competitive, but we are making better progress there. So Dallas as a group, blended pricing is up 250 basis points. So we're handling well, demand is is excellent, but we're going to need demand to stay intact for it to continue. But we like the progress that we've made in Dallas, and particularly in uptown .
Wes Golladay -- RBC Capital Markets -- Analyst
Okay and then just for the portfolio level, how is rent to income trending for new residents?
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
It hasn't really budged. It's right there and that 19% to 20% range, and very, very steady.
Wes Golladay -- RBC Capital Markets -- Analyst
Great, thank you.
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
Thank you.
Operator
And we will take our next question from John Pawlowski with Green Street. Your line is open.
John Pawlowski -- Green Street -- Analyst
Thanks. Eric, what type of blended cap rate do you think you could fetch on the Arkansas portfolio sale?
H. Eric Bolton -- Chairman, President & Chief Executive Officer
You know, we will see. I mean we are in the market right now, but I would anticipate something in the 5.5 range.
John Pawlowski -- Green Street -- Analyst
Okay. Tom, apologies if I missed this. Marketing costs were up 10%. Are you guys doing anything different on the concession front for your stabilized same-store pull?
H. Eric Bolton -- Chairman, President & Chief Executive Officer
No, we are not, that is not gift cards. Thank you for asking that question, John. We had some one-time expenses with, related to the ramp of our new marketing platform. Expect that to trend down over the last half of the year and being more normalized range for marketing. It never occurred to me to address that in that way, and I really appreciate you asking that.
John Pawlowski -- Green Street -- Analyst
Not coupons, and not not gift cards, it's not --
H. Eric Bolton -- Chairman, President & Chief Executive Officer
It is none of those things. Al will let me do any of those things.
John Pawlowski -- Green Street -- Analyst
Okay. Alright, thank you.
Operator
And will take our final question from Buck Horne with Raymond James, your line is open.
Buck Horne -- Raymond James -- Analyst
Hey, thanks for the time, appreciate it. Just following up on the expenses, and the operating expense guidance here. And I know property taxes have kind of been out of your control to a degree here, and I understand the comment about a tougher year-over-year comp against the savings from Post last year, but I guess the question is why weren't those savings that were achieved a little bit more sustainable on a year-over-year basis? I'm just wondering, I know you're at an elevated level historically, but why weren't those overall operating level synergies more sustainable?
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
They were sustained. I think that our point is, I mean we captured those efficiencies, they are now, if you will, memorialized into our system. And so we absolutely believe that the synergies that we captured the last couple of years in the margin improvement that came from that is very much intact. I think the point really is just that is there is some, it's not so much inflation, to some degree, it's -- I mean, you're seeing some wage inflation and you're seeing some level of material, maintenance material cost rise, taking place and so our ability to rework to staffing model or rework the model that we did last year on how we turn apartments and how we staff for that, those gains have already been captured and they are still there, but we don't have the gain this year to offset the rise that we see taking place in some of these other line items. So that's really the point that we're making. But, but for absolute certain the gains that we have made over the last years are very much intact.
H. Eric Bolton -- Chairman, President & Chief Executive Officer
I'll on to that. In our long-term history book, and you will know this is one of the things we've seen is very good expense control has been about 2.5% on average, 3% this year is really that some of the pressure from a real estate taxes and as Tom mentioned, in the back half of the year some of the other expense lines are going to moderate a little bit and get us that 3%. So I think we still a long term expect 2.5% range with a short-term impact from taxes as that hopefully moderates over the next couple of years as cap rates remain stable.
Buck Horne -- Raymond James -- Analyst
Now, that's very helpful color, I appreciate that very much. And just real quick on the acquisition guidance reduction, just how competitive it is out there, and just wondering if you can maybe just add a little bit of color in terms of what you're seeing and how competitive the bidders are? Just, I think you mentioned earlier in the call that cap rates were stable but it seems to suggest if you're, with your improved cost of capital and how competitive things are out there if you're having to reduce the guidance. It seems like yields might be compressing out there in any any extra thoughts you may have there?
H. Eric Bolton -- Chairman, President & Chief Executive Officer
I do think yields are compressing. I think that we are seeing as a consequence of efforts by a lot of private equity to get the capital deployed that they are, they are at a point where I mean -- they're either getting much more aggressive on their underwriting assumptions in terms of rent growth or other line item expectations, or they're compromising yields a little bit. I don't think there has been a material shift in cost of capital for them, per se, other than just they're forcing a more modest return on some of the equity that that they perhaps we're hoping to get earlier. So I think yields are compressing a little bit.
Buck Horne -- Raymond James -- Analyst
Any chance you could kind of quantify what you think Class A or Class B and core Southeastern markets is going for these days?
H. Eric Bolton -- Chairman, President & Chief Executive Officer
I mean it's the is compressed a good bit, I mean we're routinely seeing Class A assets are trading 4.25 to 4.75 range in terms of cap rate, in older B asset may be 5 to 5.5 range. It depends on the market, but it's, in some cases even lower than that on the Bs. If you think there is a redevelopment or repositioning opportunity that's where you see a lot of aggressive activity occurring where you'll see a 10 to 15 year old asset trade in some cases, at a sub 5, the cost, the plan is to go in and do a massive upgrade and I think they'll get massive rent growth as a result and get the returns they're after and therefore they they'll pay out big time upfront.
Buck Horne -- Raymond James -- Analyst
Great, very helpful, thank you.
Operator
And we will take another question. It comes from Rich Anderson with SMBC. Your line is open.
Richard Anderson -- SMBC -- Analyst
Hey, thanks for taking it. I jumped on late. Was a topic of rent control brought up at all on the call yet?
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
No, it was not, Rich.
Richard Anderson -- SMBC -- Analyst
And so I guess the question is do you have any, any of that percolating through your portfolio in terms of something that could be coming down the pike that you have to defend? I'm just curious if that's happening anywhere. It's big news item in California and New York.
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
Right, no, to be honest with you, we're not seeing really much happening in any of our markets are any dialog along those lines. In Denver, we've seen a little conversation taking place out there, but I do think that we are very alert to the growing issue of housing affordability. For the most part throughout our Southeast markets where we see the issue kind of coming up is new development starts requiring a certain affordability component to what they do, and a certain percent of the units have to be limited in terms of the rent that can be charged and at this point anything beyond that is not something that we see being actively talked about. But we're staying very closely attuned to lot of the local associations and state apartment associations and it's something we're all watching very closely.
Richard Anderson -- SMBC -- Analyst
Okay, great. That's all I have. Thanks very much
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
Thanks, Rich. Thanks so much.
Operator
This does conclude the Q&A session, I would like to turn the program back over to our presenters for any additional comments.
Tim Argo -- Senior Vice President, Finance
All right. Nothing else on our end appreciate everyone joining us this morning and will see everyone, I'm sure later this year. Thank you.
Operator
[Operator Closing Remarks]
Duration: 50 minutes
Call participants:
Tim Argo -- Senior Vice President, Finance
H. Eric Bolton -- Chairman, President & Chief Executive Officer
Thomas L. Grimes -- Executive Vice President, Chief Operating Offcer
Albert Campbell -- Chief Financial Officer
Unidentified Speaker
Austin Wurschmidt -- KeyBanc Capital Markets, Inc -- Analyst
Trent Trujillo -- Scotiabank -- Analyst
Nicholas Joseph -- Citi -- Analyst
John Kim -- BMO Capital Markets. -- Analyst
Haendel St. Juste -- Mizuho -- Analyst
Drew Babin -- Baird -- Analyst
Rob Stevenson -- Janney -- Analyst
John Guinee -- Stifel -- Analyst
Hardik Goel -- Zelman & Associates -- Analyst
Wes Golladay -- RBC Capital Markets -- Analyst
John Pawlowski -- Green Street -- Analyst
Buck Horne -- Raymond James -- Analyst
Richard Anderson -- SMBC -- Analyst
