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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen. Welcome to the MAA Second Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, August 2, 2018.
I will now turn the conference over to Tim Argo, Senior Vice President, Finance for MAA.
Thank you, Priscilla, 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; and Rob DelPriore, our General Counsel.
Before we begin with our prepared comments this morning, I want to point out that as part of the discussion, 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. Reconciliations to comparable GAAP measures can be found in our earnings release and supplemental financial data.
I'll now turn the call over to Eric.
Thanks, Tim, and good morning. Leasing conditions across our markets continue to reflect strong demand for apartment housing. During the second quarter, we captured meaningful improvement in pricing with a blended lease-over-lease growth rate of 3.3%. This is 90 basis points better than Q2 of last year, and the best quarterly lease-over-lease rent growth captured since our merger with Post.
Looking at pricing trends for new move-in residents on a lease-over-lease basis, where new supply and competition generate the highest pressure, we captured a significant 170-basis-point improvement over last year. Resident turnover remains at a historically low level, and rent growth of renewal leases during Q2 was a strong 5.9%. We believe pricing trends have reached an inflection point, and we expect to see positive momentum over the next several quarters.
We're encouraged with the positive momentum in rent growth and believe this will support the stronger revenue growth that we expect to capture over the second half of the year. We continue to capture very favorable performance in year-over-year growth and operating expenses. As a result of the improving pricing trends and continued favorable expense performance, we continue to be comfortable with our outlook for same-store NOI performance.
I'm particularly encouraged by the emerging and improving trends in pricing performance across the legacy Post portfolio. As our work over the past year to strengthen and reconcile revenue management practices takes hold through this year's leasing season, we are beginning to capture the positive impact. This is despite the fact that many of the legacy Post submarkets are currently battling some of the more challenging new supply pressures across our portfolio. We're thrilled with the associates we now have in place at our legacy Post locations, and I very much appreciate their hanging there with us as we work through the merger and reconciliation of on-site operating practices.
Merger-related activities continue to wind down. During July, we successfully wrapped up the final systems conversion work and completed the consolidation of the legacy MAA and legacy Post operations onto one management and reporting platform. This has been a significant effort by every part of our company. We're excited to have this effort behind us, and to now be in a position to further harvest opportunities associated with being on one operating reporting system.
As outlined in our earnings release, acquisition activity remains fairly quiet for us as aggressive pricing keeps us largely on the sidelines. We did initiate 2 new development projects during the second quarter, both of which are expansions of existing properties. Each project is located on land parcels adjacent to existing communities that we already owned. In summary, while we still have a few months of a busy leasing season ahead of us, I'm encouraged with the performance and progress year-to-date. We continue to believe that the back half of the year will play out in line with our expectations. We continue to capture great early benefits from our merger with Post in the area of operating expenses and G&A synergy, and improving pricing trends are now clearly evident. While new supply pressures are currently creating some headwind, our revenue management practices and the improvements made in the legacy Post portfolio operation are beginning to make an impact.
Merger integration activities are essentially complete, and we now look forward to now executing on a fully consolidated platform. We continue to believe that based on permitting data and projected new starts as well as what we are seeing on the ground in our various submarkets that we will see some moderation in new supply pressure in a number of our markets in 2019. With continued strong employment expectations, we're optimistic that leasing conditions across our footprint will continue to see positive momentum.
I want to thank all our MAA associates for their hard work through this busy summer season and their focus in not only serving our residents on a daily basis, but also completing the extra work and effort associated with wrapping up our conversion and consolidation activities associated with our merger.
That concludes my comments, and I'll now turn the call over to Tom.
Thanks, Eric, and good morning, everyone. Our operating performance for the second quarter came in as expected with building momentum in rent growth, continued strong occupancy and overall trends that support our outlook for the year.
The integration work on the operating platform was evident in our leasing during the quarter. We saw blended lease-over-lease performance of the combined portfolio grow 3.3% in the second quarter, which is 170 basis points higher than the first quarter and 90 basis points higher than the same time last year.
Encouragingly, Post blended lease-over-lease pricing was up 2.5% during the second quarter, which is a strong 210 basis points better performance than this time last year. This steady positive trend in blended price drove down our -- drove our sequential average effective rent up 1% from Q1 to Q2. This is the highest sequential increase we have seen since the Post merger. This improving pricing performance is primarily the result of new lease pricing on the Post portfolio. Despite the fact that Post submarkets are experiencing heavy new supply, we saw new lease-over-lease rates improve by a significant 350 basis points in the second quarter from the same time last year.
Expense performance continues to be a bright spot for both portfolios. While improvement in revenue management practices are just now showing up in pricing, our programs to more aggressively manage operating expenses have shown more immediate results. Overall, expenses within the same-store portfolio were up just 1.1% for the quarter.
Total expenses on the Post portfolio during the quarter were down 1.8%. That was driven by reductions in personnel costs, repair and maintenance expenses as well as property and casualty insurance. As a result, the second quarter operating margin for the Post portfolio improved another 90 basis points. This is on top of the 130-basis-point improvement we made in the second quarter of last year. We're pleased to see the rent growth improvement, which should further drive margin expansion within the Post portfolio. July results show the continued benefit of our consolidated platform and momentum. Overall same-store July blended lease-over-lease rates were up a strong 3.3%. Average daily occupancy for the month was 95.7%, and we ended the month at 96.1% and we'll start August at 96.1%. Our 60-day exposure, which represents all vacant units and notices for 60-day period is [indiscernible] percent, which sets us up well for the slower winter leasing season.
The supply [indiscernible] documented. Currently, Dallas and Austin are facing the most pressure. In 2018, we expect 22,000 deliveries in Dallas. And in Austin, we expect 8,000 deliveries. We're encouraged by the job growth that has remained strong in both markets. Dallas job growth for the last 12 months was 3.4% and Austin job growth was 3.3%. These growth trends are strong and well ahead of nationwide trends.
Looking forward, deliveries in our market are expected to drop 18% in 2019, and with continued strong demand, we expect the leasing environment to improve next year. While elevated supply levels have pressured rent growth in several of our markets, particularly Dallas and Austin, we're seeing good revenue growth in a number of our markets. Phoenix, Richmond, Orlando and Jacksonville really stood out from the group. Our focus on customer service and retention coupled with strong renter demand continue to drive down resident turnover. Move-outs by our current residents continue to remain low. Move-outs for the overall same-store portfolio were down 2.7% for the quarter. Move-outs to home buying were down 4%. And move-outs to home renting remain an insignificant cause for turnover and accounts for only 7% of our move-outs. On a rolling 12-month basis, turnover dropped to a historic low of 49.2%. The steady decrease in turnover was achieved by increasing renewal rents by 5.9%.
Momentum is building on the redevelopment program across the legacy Post portfolio. Through the second quarter, we've completed 1,400 units and expect to complete 3,000 this year. On average, we're spending about -- we're spending $8,700 and getting a rent increase that is 11% more than compatible -- a comparable non-redeveloped unit. As a reminder, we've identified 13,000 Post units that have compelling redevelopment opportunity. For the total portfolio, in 2018, we expect to complete over 8,000 interior unit upgrades. On the legacy MAA portfolio, we continue to have a robust redevelopment pipeline of 9,000 to 12,000 units. On a combined basis with the legacy Post portfolio, our total redevelopment pipeline now stands in the neighborhood of 22,000 to 25,000 units.
Our active lease-up communities are performing well and in line with our expectations. Our remaining pipeline of leasing -- lease-up properties, Acklen West End, The Denton II, Post Midtown, Post River North and Sync36 are all on track to stabilize on schedule. The stabilization date for Post South Lamar II was moved up 1 quarter to the third quarter of 2018 as it leased up faster than we originally planned.
We're pleased to have the merger integration winding down. I'm proud of the effort and the hard work of our team -- our team has put in over the last 18 months. The results are progressing as we expected. We're looking forward to continuing to capture value-creation opportunities on both the revenue and expense sides of the equation as we move forward.
Al?
Thank you, Tom, and good morning, everyone. I will provide some additional commentary on the company's second quarter earnings performance, the balance sheet activity, and then finally, on our guidance for the remainder of 2018.
Net income available for common shareholders was $0.52 per diluted common share for the quarter. FFO for the quarter was $1.55 per share, which was $0.07 per share above the midpoint of our guidance.
Our core or same-store earnings results were in line with our expectations for the quarter. Same-store revenue growth for the second quarter was primarily based on effective rent growth of 1.7%, which was encouragingly 30 basis points above our reported growth in the first quarter. Average occupancy for the second quarter also remained strong at 96%, but was 10 basis points below the prior year, slightly offsetting rent growth.
You may recall our first quarter revenue performance was enhanced by a 30 basis points year-over-year increase in occupancy, primarily built to support stronger pricing during our busiest leasing season. Perhaps most importantly, as mentioned before, our blended lease-over-lease pricing growth for the second quarter, which is new and renewal leases combined, was 3.3%, which provides continued support to the momentum projected over the back half of this year. All this combined with a strong 1.1% expense performance, as Tom mentioned, produce same-store NOI growth of 1.7%, which is in line with our forecast expectation.
Favorable FFO results for the second quarter were primarily produced by an unexpected settlement of a life insurance policy acquired with the Post merger, producing $0.04 per share favorability; favorable G&A and interest expenses for the quarter, another $0.02 per share combined; and finally, favorable timing of some remaining integration expenses, another $0.01 per share. Our total expectation for integration expenses for the full year remains unchanged, but certain lease costs are now being incurred in the third and fourth quarters. We also had $2.8 million of noncash income during the quarter related to the valuation of the preferred shares, which essentially offset the $2.6 million of noncash expense recorded during the first quarter, making the full year impact insignificant, which is in line with our previous guidance. And as a reminder, due to the uncertainty in forecasting this noncash item, our projections do not include any impact from valuation adjustments in our full year guidance for this item.
During the second quarter, we closed on acquisition of one new high-end community, the 374-unit Sync36 located in Denver, which included a land parcel to develop an additional 79 units. We expect to begin additional units during the third quarter, which will bring the projected total investment in the community to about $128 million. Once the final phase is fully completed and leased, we expect a 5.6% NOI yield on this total project.
We also continue to monetize non-core land parcels acquired with the Colonial merger. We closed on the disposition of a 29-acre land parcel located in Las Vegas during the quarter. MAA received total proceeds of $9.5 million for the sale, producing a recorded gain of $2.8 million during the quarter. This brings total non-core land sales for the year from 3 parcels all acquired from Colonial containing 66 acres for total net proceeds of $15.2 million and recorded gains of $2.9 million for the year.
During the second quarter, we began the construction of 2 expansions of existing communities, Post Parkside at Wade Phase III located in Raleigh and Post Sierra at Frisco Bridges Phase II located in Dallas. We now have 4 communities under construction with a total projected cost of $219.8 million, of which $97 million remains to be funded. Once competed and fully leased, we do expect a stabilize NOI yield of 6.2% for the portfolio.
As Tom mentioned, our lease-up portfolio continues to perform well. At the end of the quarter, we had 6 communities remaining in lease-up, including Sync36, which was acquired in lease-up during the quarter. Average occupancy for the group was just over 75% at quarter-end, and we expect 2 of the communities to achieve full stabilization during the third quarter, which is 90% occupancy for 90 days. We expect 2 more to stabilize during the fourth quarter and the remaining 2 to stabilize in the first half next year, all of which will provide a growing contribution to our 2019 earnings stream.
Our balance sheet remains in great shape. During the second quarter, we issued $400 million in 10-year secured -- excuse me, unsecured senior notes at a 4.2% coupon rate. Proceeds from this issuance were used to pay down borrowings under our unsecured credit facility, bringing our combined cash and available borrowing capacity to $920 million at quarter-end. Our leverage defined by our bond covenants was only 33.1% at quarter-end, while our net debt-to-recurring-EBITDA was just over 5x.
Finally, given the strong second quarter performance, we are maintaining and converting our same-store guidance for the full year as both revenue and expense trends continue to be in line with our previous projections. Expectations for the remainder of the year are built on continued strong occupancy, 96% average for the remainder of the year; and blended lease pricing, which is combined new and renewal leases averaging about 2.2% for the remainder of the year, which compares well to recent trends. We are increasing our net income and FFO per share guidance ranges for the full year to reflect the items mentioned earlier. We're also slightly narrowing our earnings guidance ranges to reflect the reduced uncertainty following 2 quarters of performance for the year.
In summary, net income diluted common share is now projected to be $1.85 to $2.05 for the full year 2018. FFO is projected to be $5.96 to $6.16 per share or $6.06 per share at the midpoint, which includes $0.08 per share of projected final merger and integration costs related to Post merger.
AFFO is now projected to be $5.35 to $5.55 per share and $5.45 at the midpoint. The third quarter FFO is projected to be $1.45 to $1.55 per share or $1.50 at the midpoint. We continue to remain on track to capture the full $20 million of overhead synergies related to the Post merger as well as the other NOI and earnings opportunities outlined with the mergers, which are reflected in our current guidance.
So that's all we have in the way of prepared comments. Priscilla, we'll now turn the call back over to you for questions.
[Operator Instructions] And we'll take our first question today from Nick Joseph with Citi.
Just on the same-store revenue guidance. The maintained range implies a meaningful ramp in 2H versus year-to-date results, and thank you for the components that you just gave. But you trended towards the midpoint above or below? And then from a quarterly perspective, how do you expect it to trend in 3Q and 4Q?
I think we typically lay our guidance -- Nick, this is Al, I'm sorry, we typically lay our guidance out trending towards the midpoint. And as we talked about, that performance is going to be based on pricing performance for the year, expected stable occupancy of around 96% average. And so our pricing guidance is 2.25% to 2.75% for the full year, which is new and renewals combined of blended leasing. And as we talked about, I think through July, we actually achieved 2.8%. And so that leaves about 2.2% on average for the remainder of the year, and I think we feel that's achievable.
And from a quarterly perspective, would you expect it to accelerate from 2Q to 3Q and then into 4Q?
I think we would expect -- 2 things there. I think we would expect pricing to follow seasonal trends, which would be strong continued strength in the third quarter, seasonally softening in the fourth quarter. But the continued compounding of strong pricing performance into our portfolio will drive effective rent per unit, which is the average of all of your leases, at one time, that will continue to grow. We expect that to be -- grow in the third quarter and even more so in the fourth quarter to drive that rent performance -- excuse me, the revenue performance close to the midpoint.
And then you mentioned the 18% drop in delivery is expected next year. Which markets are projected to have the largest decrease? And then which will continue to see pressure?
Nick, it's Tom. The trade-off is really across-the-board with only DC and Atlanta seeing slight increases. But it's really pretty widespread, and it's not being driven by any one market.
We'll take our next question from Austin Wurschmidt with KeyBanc Capital.
Just wanted to start off with a clarification. Al, I think you just mentioned 2.8%, which I thought you said was the blended lease rates for July. But in the release, I thought it said you achieved 3.3%. Can you just clarify those 2 numbers?
Yes, Austin, that's a great question. Let me clarify that. I was -- 2.8% was referring to the average for the full year, 7 months together. And so we did achieved for the month of July 3.3%, which shows that trend is growing.
2.8%, year-to-date.
Yes, 2.8% year-to-date. I'm sorry. But the month of July was 3.3%.
So the momentum is building.
Got it. And so --then can you kind of compare, you mentioned 2.2% needed to achieve the midpoint of guidance with sort of stable occupancy. How does that 2.2% compare? I guess, the first half, you answered the question largely in that 2.8% or just a little below that. But how does that also compare versus last year and the second half of 2017?
Yes. Nick (sic) [ Austin ], I mean, the last half blended for 2017 was 1.6%, which is a bit of a fall off for us last year. We're assuming 2.2% going forward and feel pretty good about that. And that's what helps drive that compounding effective rent growth that Al was talking about in the back half of the year.
We do expect, and to your point, Austin, we do expect the fourth quarter to moderate seasonally. And so in the last year, our blended pricing portfolio was flat blended. And so we believe we'll exceed that -- we're projecting to exceed that this year and have a strong third quarter based on July and continued August-to-September performance. For fourth quarter, we project it to moderate some with seasonality, but be above last year about 60 basis points or so.
That's helpful. And then can you just give us a sense in terms of the backdrop of supply in the back half of the year? Do you expect it to ratchet down or ramp up kind of portfolio-wide in the back half of this year before seeing a year-over-year decrease in '19?
No, it's awfully consistent. Last year, again, we saw a real change in the volume of supply that occurred. This year that has been relatively consistent throughout the quarters and expect it to be pretty consistent the rest of the year.
Last year really saw a big ramp-up in the last several months of the year, particularly in Dallas, particularly uptown.
Correct, yes. And we don't expect that to occur this year.
Great. And then just one more for me on sort of the investment side. You talked and have repeatedly kind of discussed the challenges in the acquisition market due to the competitiveness. But could we see a ramp, I guess, in the development pipeline or even a bigger ramp in the development program as you look to what opportunities you have to reinvest your available cash flow?
Austin, this is Eric. We're looking at a couple of other development opportunities, another adjacent land parcel that we own that we're looking at. We've got a couple of other sites, an existing own site in Denver, another site under contract, another site in Orlando under contract, another site in Raleigh under contract. These are all the things that if we do pull the trigger on some of these, it would be next year, frankly, before we would do that. So you're not going to see us create a really significant development pipeline. I think we've sort of laid out a parameter of no more than 3% to 4% of enterprise value, which is going to be in that $400 million to $500 million range for us. But we do continue to feel that, that ought to be part of our external growth story at some level going forward.
What I'm encouraged by, frankly, is just while it's been frustrating on the acquisition front given where pricing is, we haven't been able to put much money to work. I will say though that our deal flow, our deal volume is higher in Q1 and in Q2. Year-to-date, it's higher than we've seen the last 5 years. So I mean, we are looking at a lot of things right now and continue to have a number of conversations with developers about prepurchase opportunities and sort of funding the development as we go, things of that nature.
So I continue to be encouraged [Audio Gap]
Later in the cycle that more opportunities are going to emerge. As Al mentioned, the balance sheet's got -- is in great shape. We've got a lot of capacity. We're going to stay disciplined. We're going to stay patient. But I continue to believe that the opportunities are going to emerge, which is going to facilitate our ability to pick up the pace of growth a little bit.
We'll go next to Rich Anderson with Mizuho Securities.
So the pipeline of redevelopment 22,000 to 25,000 units, pretty substantial obviously. But I'm curious, first question is, are they -- are there units within a community that are in that and others that are not in the same community? In other words, do you kind of identify a building with X number of units and that's a redevelopment opportunity? Or is there something about some buildings where some are redevelopable and some are not?
Rich, it is -- in general, it is a property-by-property assessment. And the way that we figure out whether the market will accept that is through a pretty rigorous testing process that we do. But generally, it works on the property or it does not work on the property. Every now and then, there's a particularly -- a studio floor plan-type that may be more sensitive to renovate than others and we might leave that out. But that, honestly, is a rarity. We pick the units, test the units and then roll forward on the property.
The only hesitation we ever have, we don't force turnover, so we do it on turns. I think if we start forcing turnover, we start driving up vacancy loss and we start impacting negatively the economics on the renovate program. But as Tom mentioned, it's really a more systematic approach, and it really affects all units at a given community for the most part.
Yes, correct.
So that leads to my next question. You said you don't force the process, but I guess, why not? I mean, if you have this great rent growth potential in front of you, not that you could force anything, but if you -- someone's lease expires and you say, "Well, I'm going to raise your rent by kind of a above-market rate." And if they take it, great. If they don't, you've got a redevelopment opportunity right there. Is that something that you think about?
Yes, I mean, we have considered that and thought about that. But those -- what you mentioned on the pros to it, the... [Audio Gap]
is strong now, 6% reprice, no additional investment, no downtime in average days vacant and no turn costs. So we feel like that's -- our approach is a little more stable.
Got you. Fair enough. Last question is for anyone in the room, the theme this quarter has been low turnover. You guys mentioned it, pretty much everybody is mentioning it. We have a pretty good economy. You would think people would be more inclined to look around and improve their residence to some degree. I'm curious what your thoughts are as why turnover is so low? Is it just simply the housing market is sort of questionable, single family market? Or is it something else that's driving it down?
Rich, this is Eric. I think there are a couple of things at play here. One is what you referred to. I think the housing market in general is challenged increasingly by the lack of affordable single-family housing. I think that we see the rental side of that business continue to really ratchet up with pretty high rent growth. We see pricing for starter homes continuing to move up. There's just not enough supply out there. And as a consequence, I think it is becoming increasingly more expensive.
But I think the other thing that is at play here a little bit is more a function of just demographic and society changes. If you look at our portfolio today, our resident profile, 75%, 76% of our renter profile is single, not married; 52%, 53% are female. And I just -- I continue to believe that this is a demographic more so today than ever in the past that's not really motivated to go out and move into a single-family home, whether that be for rent or for purchase. And so I think it's a combination of those factors right now that are sort of helping the industry as a whole capture some pretty good retention.
I guess, if you're single, you can't get divorced, so.
That's right.
We'll take our next question from John Kim with BMO Capital Markets.
I guess, one of the levers you have to maintain your same-store expense growth at 1.3% for the year is decline in building and maintenance cost of 6%. And I'm wondering if you're basically deferring some of these costs to future periods or capitalizing these costs to redevelopment? Or is that...
Yes, we're doing neither of those, John. I mean, what really is driving it is putting our approach to repair and maintenance on a portfolio that was more heavily weighted to contracting out labor. At the end of the day, they did -- drastically increasing the number of paints that we do in-house and the number of carpets that we do in-house, and the number of cleans that we have in-house, and that is 100% what is driving this. And certainly, nothing in the deferred maintenance or capitalizing those costs.
And I'll tell you the other thing that's been part of the equation as well is just the benefits of economy of scale. I mean, we renegotiated virtually every single contract we have for procuring services and products that we use in the operation of on-site activities, and all those prices went down as a consequence of the scale we got to, so there's no deferral going on, I can assure you that. It's really the point that Tom mentioned and the scale advantage.
So this is mostly attributable to Post integration?
Right.
That is right, yes.
Yes. We've been talking about that I think last several quarters, John, that was the first thing that was really easiest for us to jump on. And again, was actually a little better and faster than we had expected. I think as we move into '19, we would expect that to normalize a bit, but the revenue opportunities are growing and will be contributing in 2019. So that's kind of how we think about it.
Okay. And then the 3.3% blended rent growth you got in July, I know you've kind of forecast it's going to come down a little bit in the second half of the year, but how much visibility do you have on August as far as renewal rates and new lease growth?
Sure. I mean, limited like none on new lease growth, obviously, because we haven't executed enough to do that. But as far as our renewals, they're continuing to go out. August, September and October all went out in the 6% range, and we're getting back high 5% in that range. So we feel good about that part of the equation.
So that's about 40 basis points lower than what you got in the second quarter. Is that correct?
Yes. I mean, and I think we mentioned at NAREIT, 5.9%, we're really pleased with. But we didn't plan for that. And one shouldn't plan on 5.9% going forward.
And we'll take our next question from Tayo Okusanya with Jefferies.
Could you talk a little bit about the markets where you are seeing still a lot of supply pressures? How these developers are competing? Are you seeing increased concessions? What are they kind of trying to do to kind of drive lease-up in their assets? And how is that impacting your portfolio?
I would tell you, Tayo, you're hitting on it in places like Atlanta, Austin and Dallas. In just pockets of Atlanta, really, they're competing with concessions. I will tell you that as we mentioned on an earlier Q&A, we saw a heavy hit of new development in late last year; it ramped up. And what we are seeing now as far as concessions in the marketplace in those kind of places is generally better than it was at that time. So they're still doing 1 month, 2 months free. It really depends on the submarket and market there. But there you're seeing that with that's how they're competing, it's just upfront discounts of concessions.
Got you. Okay. And then second of all, when we kind of think about the back half of the year, I think you guys have been doing an amazing job just with managing OpEx growth. And your guidance seems to imply that, that's going to continue for the rest of the year. But are there any potential kind of headwinds there that could make that number go up in the back half of the year?
Tayo, this is Al. We don't see any significant headwinds, and we feel pretty confident in our current guidance on expenses for the back half of the year. As mentioned, we would expect a lot of that's attributable to the favorable performance from achieving the Post synergies or opportunities, those scale and processes we talked about. So I think as we move into 2019, the repair and maintenance and some of those lines may moderate to a more normal level. And as we mentioned, I think we expect the revenue part of the synergies to pick up stronger at that point as well.
Okay. And then just the last one for me, what's the latest kind of with the DC portfolio? How are trends for the quarter? How you're just kind of feeling about that portfolio since it's an outlier relative to your typical regional exposure?
No, I mean, DC has been steady for us. Blended lease-over-lease rate rents for that group were 2 7. We continue to be pleased with the teams there and the redevelopment opportunity. And it is steady as it goes in DC for us.
We'll move now to John Pawlowski with Green Street.
On the revamped portfolio, the incremental 4,000 units to be done the rest of this year, are those costs bought out or is there any construction cost risk?
Those costs are not bought out, John. I mean, we have tagged them, but we're working with -- I won't call, bought out, but fairly fixed pricing. And we have not seen the volatility in dealing with renovate upgrades there that we have -- that I think the industry has experienced on construction costs. It's just -- It has not been a factor or a risk of our return.
On the broader pipeline, the 22,000 to 25,000, I guess, how is it completely new? You said labor shortages, so -- and material inflation outpacing rent growth. So if the current environment persists, how do the economics trend on the broader pipeline in the next couple of years if construction costs broadly are outpacing inflation by a wide margin?
Yes. I mean, I would tell you we don't have lumber in that number, we don't have concrete in that number and we don't have steel in that number. It's really appliances; in some cases, a countertop. And in sort of reskinning it... [Audio Gap] And I think that's probably why it's different. I understand your point. It's well made. We just don't have a history of those costs trending in line with construction costs.
Okay. Makes sense. And the comments on supply being down nearly 20% next year, could you give us the 1-minute overview of how you identify what's competitive new supply and what's not competitive? Because candidly, when you roll up the market level permitting, which I know it's not great, but it does provide a directional proxy for supply growth, it doesn't paint the picture for anything near a 20% drop in supply in '19. And 2020 looks pretty painful as well.
Yes. I mean, what we're doing there is looking at the AXIO data over our broad markets, and then adding all of those markets up and comparing them. So this is not a asset-by-asset buildup, but it is our market buildup using that data.
I mean, we check it for reasonableness by -- I mean, we know what's happening obviously in our submarkets and our properties know what's under construction. I think it's pretty easy to get a pretty good sense of what's going to happen 12 months out or so, because if it's not under construction now, it's not going to deliver next year and we know that. I do share your opinion that as you start to look at what's happening with permitting, it starts to suggest that 2020, maybe 2021, we might see a reacceleration of deliveries. But when you look at just -- if it's not under construction now, it's not going to deliver next year. So we do think that '19 is shaping up to be a better year in terms of supply pressure. But I think beyond next year, I think it starts to get a little bit more questionable.
[Operator Instructions] We'll take our next question from Wes Golladay with RBC Capital Markets.
Just want to go back to the revenue guidance for the year, looking at the blended rent change. Assuming you're tracking a little bit above last year, you get to the high teens in 3Q. You probably need about 1.5% blended rent growth, if my math is correct, in 4Q. And it sounds like that will all be driven by a little bit better new leasing; last year you were flat for the blend, and you highlighted to some degree that there's a lot of disruptive supply in 4Q in the select markets. It sounds like the supply will not be as disruptive this year, but do you think you can get a materially better new lease growth in 4Q?
Wes, one thing I'll mention as you talk about your math and doing that is keep in mind, though, that the second quarter, there were a lot of leases that were signed in the second quarter. So simple average won't quite get you there. I think it's a little bit a better picture or a lower picture for the fourth quarter if you consider the weighted average because there were like a number of leases in the third quarter. But in general, I think you outlined it correctly.
Okay. And then, I guess, last year, do you have a sense of how much the markets such as uptown, I think maybe the other markets hit you. How much does that bring the overall new lease down? Was it a few percent just in those few markets alone for the overall portfolio impact?
Those markets stung. I don't have the exact breakdown. But particularly, the way the Dallas supply hit last year was impactful.
And I am showing no -- we have no further questions at this time. I'll turn the call back today for any closing or additional remarks.
Well, thanks, everyone. We appreciate you joining the call this morning. Any follow-up questions, just feel free to reach out to us. Thanks and we'll talk with everyone later. Thank you.
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