American Campus Communities, Inc.
Q3 2013 Earnings Call Transcript

Published: 22 Oct 2013

[Operator:]

Good afternoon, and welcome to the American Campus Communities Third Quarter 2013 Earnings Conference Call [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ryan Dennison. Please go ahead.

[Ryan Dennison:]

Thank you, Amy. Good morning, and thank you for joining the American Campus Communities 2013 Third Quarter Conference Call. The press release is furnished on Form 8-K to provide access to the widest possible audience. In the release, the company has reconciled the non-GAAP financial measures to those directly comparable GAAP measures in accordance with the Reg G requirements. If you do not have a copy of the release, it's available on the company's website at americancampus.com in the Investor Relations section under Press Releases. Also posted on the company website in the Investor Relations section, you'll find a supplemental financial package. We are also hosting a live webcast for today's call, which you can access on the website, with the replay available for 1 month. Our supplemental analyst package and our webcast presentation are one and the same. Webcast slides may be advanced by you to facilitate following along. Management will be making forward-looking statements today, as referenced in the disclosure in the press release, in the supplemental financial package and in SEC filings. Management would like to inform you that certain statements made during this conference call, which are not historical facts, may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. Although the company believes the expectations reflected in any forward-looking statement are based on reasonable assumptions, they are subject to economic risks and uncertainties. The company can provide no assurance that its expectations will be achieved, and actual results may vary. Factors and risks that could cause actual results to differ materially from expectations are detailed in the press release, and from time to time in the company's periodic filings with the SEC. The company undertakes no obligation to advise or update any forward-looking statements to reflect events or circumstances after the date of this release. Having said that, I would now like to turn the call over to Bill Bayless, Chief Executive Officer, for his opening remarks. Bill?

[William C. Bayless:]

Thank you, Ryan. Good afternoon and thank you for joining us as we discuss our Q3 2013 results. Let me first address the format of the presentation. Greg Dowell will address the operational results, touch on new supply and discuss our 2014 rental rates. Jamie Wilhelm will then review our on-campus development activities. William Talbot will address our investment and disposition activities, and John will then discuss our financial results. Daniel and I will then lead the Q&A. As you can see from last night's release, we continued to see increased expenses and financial impacts from integration through the close of the 2012-2013 academic year. The Campus Acquisition and Kayne Anderson properties have now gone through a full cycle of lease-up, turn and move in. We're candidly quite relieved that the third quarter close marks the end of our integration efforts related to these portfolios and the corresponding operational and financial impacts. We now look forward to the immediate task before us. We're focused on internal value creation through a strong start to the 2014 lease-up, while simultaneously implementing an aggressive asset management program to return to our normalized cost structure as expeditiously as possible. On the growth front, beyond completing the one-off acquisitions that we have in our -- that we've had in our pipeline all year, we plan on sitting on the sidelines during this acquisition season, and rather are focused on more accretive development opportunities, which will be funded via additional dispositions as necessary. Bottom line, our main focus for the next year is on internal value creation. With that, I'll turn it over to Greg.

[Greg A. Dowell:]

Thanks, Bill. We've closed out our 2012-2013 academic year with a strong finish to the lease-up and commenced operations for the 2013-2014 academic year. If you turn to Page 5 of the supplemental package, you will see that our third quarter same-store NOI increased by 0.5% over Q3 of 2012. This was the result of a 1.8% increase in revenue and an increase in operating expenses of 2.8%. You will also see that on a year-to-date basis, our same-store NOI grew by 0.7%. As you can see on Page 8 of the supplemental, September 30, 2013, occupancy at our same-store wholly-owned properties was 96.7% compared to 96.8% for the same date in the prior year. This, coupled with our increase in average rental rate of 1.1%, should yield an increase in same-store rental revenue for the next 4 quarters of approximately 1%. As of September 30, occupancy for our total wholly-owned portfolio was 96.7%. Based on the final fall occupancies and rental rates, we would anticipate same-store NOI growth would be relatively flat for the remainder of the year and moving into 2014, dependent upon our ability to prudently control expenses. We have also completed our market analysis, competitive property assessments and the relevant product positionings for our owned assets, and are in the final stages of determining our pricing strategies for the 2014-2015 leasing season. This included an assessment of new supply in all 80 of our university markets. We are anticipating a total new supply in fall 2014 of 38,500 beds in 41 of the 80 markets. This equates to an average increase of 939 additional beds in markets with new supply. This average is consistent with the prior year average of 929 new beds, based upon 32,500 new beds and 35 markets in fall of 2013. With only 28 of the 41 subject markets confirming fall 2013 enrollment, this supply is partially offset with enrollment growth in excess of 17,400 students. Once again, on a property-by-property basis, we'll be implementing a strategy to maximize revenue through the proper combination of rental rate adjustments and occupancy gains. We are currently targeting rental rate growth of approximately 2% for the 2014-2015 academic year, with an additional rental revenue upside in occupancy increases. We are commencing our budget process and will be giving additional insights into targeted occupancies on our next call. And now I will turn the call over to Jamie to discuss our ACE investments and on-campus activities.

[James E. Wilhelm:]

Thanks, Greg. During the quarter, our on-campus team continued to focus on delivering our current developments, conducting predevelopment activities related to existing transactions, qualifying new on-campus ACE investment opportunities and pursuing new third-party fee development engagements. Beginning with our owned ACE developments, during the quarter, the company developed all of our fall 2013 communities at a fully stabilized weighted average occupancy of 98.4%. The developments at Drexel University, Arizona State University and Prairie View A&M represent approximately 2,013 beds and a total development cost of approximately $164 million. As you can see on Page 15 of the supplemental, our Fall 2014 and 2015 ACE development pipeline remains on schedule. During the quarter, the company commenced construction on new owned projects at Northern Arizona University and Drexel University in Philadelphia, Pennsylvania. Our 323-unit Princeton University faculty and staff community, and our 784-bed project at Texas A&M University in College Station are presently under construction and within budget. The combined total estimated development cost for these assets is $305.8 million. With regard to our proposed 460-bed $49-million ACE investment on the University of Southern California Health Sciences campus, predevelopment activities remain ongoing. The commencement of the project construction and anticipated delivery will be determined later this year and are directly related to the cumbersome City of Los Angeles entitlement process. With regard to our third-party fee developments, our fall 2013 deliveries account for 1,156 beds on the campuses of the City University of New York, College of Staten Island; and Southern Oregon University. Our fall 2014 deliveries account for 1,282 beds and are proceeding in accordance with our expected delivery schedules. These projects include our 715-bed graduate residential community on the campus of Princeton University and our 567-bed apartment community at West Virginia University in Morgantown. The WVU community is structured as an on-campus participating property, where the company and the University share the net distributable cash flow. And finally, subsequent to quarter's end, the company executed an interim services agreement with the University of Toledo for development of an approximately 500-bed modern residence hall that will house the university's honors program. The proposed project is expected to commence construction in the second quarter of 2014 for a fall 2015 delivery. The estimated fees relating to the development are approximately $2.1 million and will be recognized over the project's construction period. We continue to experience strong demand for university public-private partnerships and are optimistic we'll be able to grow our on-campus development pipeline. Having summarized our on-campus activities, I'd like to turn the presentation over to William.

[William W. Talbot:]

Thanks, Jamie. During the quarter, we have continued to strengthen our best-in-class portfolio, along with executing on our disposition strategy to fund our investments. Starting with owned development, including both the ACE projects Jamie just discussed, we delivered 7 projects for fall 2013, totaling 3,945 beds. These core pedestrian Class A assets totaled $311.9 million in total development costs, are 98% occupied for this fall and are projected to achieve a stabilized nominal yield of 7%. We are under construction on 5 developments, totaling 3,047 beds and $230 million for a fall 2014 delivery, including the recently announced 328-bed, $19.3 million second phase ACE transaction at Northern Arizona University. The project will be in addition to the highly successful suites project, which is 100% leased for this academic year. We are projecting a stabilized nominal yield of 7% for the 5 2014 developments. In addition, during the quarter, we began construction on the second ACE development on the campus of Drexel University. The project consists of 1,316 beds, 19,000 square feet of retail and a 16,700 square foot dining hall, and we project a 6.75% nominal yield for the urban high-rise development when it is delivered in 2015. Concurrent with the execution of the ground lease, we also entered into an agreement with Drexel to convert our existing 1,016 bed University Crossing asset to an owned ACE asset. Both assets will be included as part of the university sophomore housing requirement. Also during the quarter, we acquired The Plaza Apartments for $10.4 million, a property pedestrian to Florida State University and adjacent to our U Club on Woodward development, delivered at 100% occupancy for this fall. It is our intent to completely demolish and redevelop The Plaza as a 496-bed second phase of U Club, with an expected completion in fall 2015 and a projected year 1 nominal yield of 6.75%. Our 3 2015 deliveries, including the second phase of our Princeton ACE project, now totals 2,191 beds and $250 million in development costs. With regards to mezzanine presale developments, during the quarter, the company closed on the purchase of the 2 previously announced transactions, the Townhomes at Newtown Crossing in Lexington, Kentucky, and Phase II of The Lodges in East Lansing, Michigan, representing a total of 974 beds, are 96.4% leased for this academic year and are targeting a weighted average 6.8% nominal and 6.5% economic yield for the first year. In addition, we executed a presale agreement for University Walk, a 526-bed off-campus development pedestrian to the campus of the University of Tennessee at Knoxville. The project, anticipated to open in fall 2014, will offer highly competitive amenities and floor plans at an affordable rental rate. As part of the presale agreement, ACC provided $8.8 million in mezzanine financing and will manage and lease the project. The $32.3 million presale development is expected to have an initial nominal yield of 6.5%. Turning now to acquisitions. During the quarter, the company closed on the previously announced acquisition of 7th Street Station, serving students of Oregon State University. The Class A core asset, which is pedestrian to core campus, is 100% occupied for the current academic year and is targeting a stabilized pro forma cap rate of 6% nominal and 5% -- 5.8% economic. Subsequent to quarter end, we closed on the acquisition of the $100-million Park Point property that's adjacent to the campus of Rochester Institute of Technology. The property consists of 924 beds and 66,000 square feet of retail, including the University's bookstore, and was the result of 2 years direct negotiation with the seller. The acquisition included the assumption of $70 million loan at 3.05% maturing in 2018. The investment is targeting an initial pro forma cap rate of 6% nominal and 5.7% economic. After accounting for transaction expenses and other accounting adjustments, the 2 acquisitions are not expected to contribute any significant FFOM for 2013, and residual adjustments from acquisition accounting will result in a onetime reduction to FFOM in 2014 of $350,000. At this point, the company has approximately $110 million of core acquisitions remaining that have been in the pipeline for most of the year. Beyond these transactions, we intend to focus on internal operational initiatives and our higher-yielding development in mezzanine presale pipeline. We will also focus efforts on our dispositions program, as we look to fund the development pipeline through capital recycling. During last few months, the company has closed on the sale of 5 assets, totaling 3,598 beds for $169.7 million. The assets averaged over 17 years of age and 0.7 miles to campus, and were sold at a weighted average economic cap rate of 6.5% on trailing 12 financials. We currently have 2 additional assets under contract for sale totaling 965 beds and $31.8 million that are expected to be sold during the fourth quarter, subject to financing. Upon completion of the remaining sales under contract, our 2013 dispositions will total $201.4 million. We are also in the midst of our annual disposition process and expect to ultimately execute on an additional $150 million to $250 million in dispositions during 2014 to fund the development in presale pipeline. We will update the market as we make progress in these areas. With that, I'll now turn it over to Jon to discuss our financial results.

[Jonathan A. Graf:]

Thanks, William. For the third quarter of 2013, we reported total FFOM of $41.5 million or $0.39 per fully diluted share. This compares to FFOM of $29.4 million or $0.32 per fully diluted share for the comparable quarter in 2012, which included $4.7 million or $0.06 of acquisition expenses. Property results for this quarter continued to be impacted by the close out of integration from our major acquisitions, with greater-than-anticipated marketing expenses, corporate travel-related integration and increased maintenance. As compared to the third quarter of 2012, the 2013 third quarter results benefited from the opening of 18 owned developments during this fall and the fall of 2012. As a result of the timing of the 4 dispositions this quarter, FFOM contribution from these properties was $2.4 million less this quarter as compared to the third quarter of last year. Additionally, the weighted average share count reflects the impact of the 2 equity offerings completed in association with the 2 portfolio acquisitions in 2012. It should be noted that the third quarter is historically seasonal in nature as compared with the other quarters, as we experience the impact of higher operating costs associated with the annual turn. Total third-party fees, which included our cash contribution from our WVU project, were $3.4 million for the third quarter of 2013 as compared to $3.2 million for the third quarter of last year. Third-party fees met internal expectations for the quarter, as we completed 3 third-party development projects during the quarter and commenced our WVU project. Corporate G&A for the quarter was $3.9 million as compared to $3.8 million in the prior year, which excludes $3.8 million of acquisition expenses related to the Campus Acquisitions transaction in 2012. It should be noted that for portfolio acquisitions, the company records acquisition expenses in G&A, and for individual property acquisitions, such costs are classified within wholly-owned property operating expenses. As of September 30, 2013, the company's debt-to-total asset value was 40.5% and the net debt-to-run-rate EBITDA was 6.8x. During the quarter, we paid off $38 million of maturing fixed-rate debt and have only $12 million of remaining 2013 fixed-rate debt maturities. Management believes the remaining capacity on our revolver, along with cash generated from operations and property dispositions, provide ample capital for our wholly-owned development projects being delivered in 2014. As of September 30, we had approximately $3.3 billion in unencumbered asset value, which was about 56% of the company's total asset value. Total interest expense for the quarter, excluding $1.4 million from the on-campus participating properties, was $18.5 million compared to $12.1 million in the third quarter of 2012, and the company's cash interest coverage ratio for the last 12 months was 3.5x. Interest expense for the current quarter includes a net increase of $5 million related to debt assumed from 2012 acquisitions, and $3.8 million from our unsecured notes issued in early 2013. Additionally, interest expense is net of approximately $3.4 million in debt premium amortization and $2.8 million in capitalized interest related to owned projects in development. Taking into consideration our final 2013-2014 lease-up, the financial results achieved through the third quarter of fiscal 2013 and approximately $30 million of additional dispositions anticipated through year end, we believe that we are trending to the lower half of our current FFOM guidance range of $2.20 to $2.26 per fully diluted share. The status of some of the major guidance assumptions are as follows

[William C. Bayless:]

Thank you, John. As I mentioned in my opening remarks, we are disappointed in this quarter's results in that we saw the expense pressures continue through Q3, and we are relieved and look forward in moving forward now that we have the full integration and a complete cycle of both Kayne and Campus Acquisitions behind us. With that, we'll go ahead and open it up to Q&A.

[Operator:]

[Operator Instructions] Our first question is from Karin Ford with Keybanc.

[Karin A. Ford:]

My first question is just on the expense side. You mentioned that you're still feeling pressure in third quarter. I think you had previously discussed spending an additional $1 million in Q4 to try to get the leasing effort off to a good start. Is that still the plan? Or is that number changed at all?

[William C. Bayless:]

That number hasn't changed in terms of the target. And certainly, our goal will be to spend hopefully less than that. I mean, we've instructed the team as prudently as we possibly can from an expense perspective, let's get a good start on velocity. And so we are comfortable with that Q4 target that we put out there. And candidly, we will hope to beat it a little bit.

[Karin A. Ford:]

Okay. And you talked about aggressive asset-management to try to bounce back expense levels back to more normalized levels. Can you just talk about how you see that process playing out over the course of 2014?

[William C. Bayless:]

Absolutely. One of the things we've done is made a significant commitment in human resources to it. We have -- yesterday, we announced internally, and actually we'll be putting out a press release later today or tomorrow, that internally, we have promoted Jennifer Beese, who is our -- had been our SVP of Leasing Administration and Training, to the position of Executive Vice President of Operations. And all of our owned property operations will now be reporting up through Jennifer to Greg, and that will free Greg up to focus the great deal of his efforts to building a world-class asset management team. We have some internal resources that we're reallocating to that, but we are going to bring all the resources of the organization to bear, with Greg personally spearheading that asset-management function and Jennifer spearheading the implementation of the day-to-day operations. So we believe that will have an immediate impact, and also with all the folks involved, our long-term ACC folks will understand this organization from the inside out.

[Karin A. Ford:]

Do you think it's possible to get margins back to the 53% level that's more normalized?

[William C. Bayless:]

How quickly we're going to be able to return it is certainly, I think, what everybody's going to be looking for in 2014. We can bring in -- the 1 good thing about our business is it does operate on a very unique cycle. And so you have the opportunity to start fresh in each cycle in terms of how you approach it. Certainly, our goal will be return to the normalized margin in 1 year. Whether or not we're able to achieve that, though, is yet to be seen, if you can move the dial that quickly.

[Operator:]

Our next question is from Alexander Goldfarb with Sandler O'Neill.

[Alexander David Goldfarb:]

Just following up from Karin, I know you guys haven't given '14 guidance. But as we all sit here, what should be some of the things that we should be thinking about? I mean, clearly there's $3.5 million of revenue recognition that is going to be a positive next year. But the year-over-year comps, like doing the margin by the quarters, is messed up because of the increased spend that occurred in '13. So what are some of the things that we should be thinking about as we go through our numbers for next year? How should we be thinking about that $6.5 million of additional marketing spend? Because I think some of the frustration is there are a lot of moving pieces that are out there, but it gets washed away because there have been a number of things going on. So I guess the point is trying to get ahead of some of these surprises as we all think about next year.

[Daniel Perry:]

Yes, Alex, this is Daniel. That certainly is something that we will be going through with you guys in detail as we go into guidance. At the moment, we are going through the budgeting process and figuring out what we truly believe we'll be able to eliminate from the expense increase this year. Our initial thoughts are that we should be able to make some good cuts into those, as we talked about with you in the past, we expect as much as 50%. Those increases could come down in 2014 and then we could get to more normalized levels beyond that. But we still need to go through the full budgeting process for guidance, and we'll be able to give you more detailed direction on that as we go into 2014.

[Alexander David Goldfarb:]

And even Danny, I mean even 1% revenue, and you guys were talking about sort of flattish NOI, it almost seems like NOI could be negative next year, I mean, especially if expenses is the key, and this year you guys didn't have a handle on expenses. What gives this comfort that NOI wouldn't be negative next year?

[Daniel Perry:]

For the first couple of quarters of the year, it's certainly possible that we could have slightly negative NOI. It's always -- it's completely going to depend on our ability to control expenses and bring down some of those overages in the first and second quarter. With 1% revenue growth, if you have 2% or over in expense growth, you're going to have negative NOI growth. So certainly, that's something that we could experience during the first couple of quarters. And then as we move into 3Q and 4Q, it's going to depend on the ultimate rental revenue growth that results from the lease-up between rental rate and occupancy changes.

[Alexander David Goldfarb:]

Okay. And then the second question is on developments. One, if we compare second quarter to third quarter, you guys went over budget by about 2%. There were 7 deliveries, 2 were under budget, 3 were over budget, 2 were in line, but net in total it was $6,000 -- I mean, $6 million over budget. So, one, if you can just provide some color on why there was a sudden increase in over budget between second quarter results and now. And then, two, as we think about a 6.75% development yield or even 7% that you guys quoted, if cap rates are 6%, is that really enough of a cushion, just given that this year's went over budget?

[William C. Bayless:]

Yes, Alex, and our standard process has always been to true up the final construction budget at the end of the jobs in the last quarter. That 2%, as William talked about in his script, did not impact the yield. We still have, as he quoted, the 7% yield going in there. As it relates to the current 6% versus 7%, I would first say that private market valuations, if you went to the NMAC conference, still continue to be, for core Class A pedestrian assets, low- to mid-5s. And certainly, everything that we're delivering in that pipeline that you see at a 7%, many of those are ACE transactions, which are core of core. And so they represent excellent yields related to fair market value of those assets. So I would say yes, the 7% is acceptable.

[Operator:]

Our next question is from Paula Poskon with Robert W. Baird.

[Paula J. Poskon:]

As I was looking through the leasing detail, the property-by-property listing that you provided in the supplement, I looked at the same-store pull. And of a 100-and-so, 104-ish, there are probably rate cuts at about 1/3 of those. Can you walk us through, Bill, in which of those you think you lost the early-renewal capture that you've talked about for the last several months, versus which ones were just a new supply impact or something else?

[William C. Bayless:]

Yes. And where you see it -- Paula is your question is related to those properties that had negative rate growth or those properties which had expense changes downward -- I'm sorry, rental rate changes downward?

[Paula J. Poskon:]

Rental rate changes downward.

[William C. Bayless:]

Okay. As it relates to -- and this is part of what we did talk about in Investor Day. You can have a tick down from the initial rental rate for a large variety of reasons, some of which are very large[ph] . For example, typically, we target 30% renewal at a property that maybe at a discounted rate. So -- and that's our original rental rate projection is 30% of your students renewing at a discounted rate, and then 70% at that open market. If as you begin to lease, you hold that rental rate, and let's say you end up 35% or 38% returning resident, you'll see an expense -- a rental rate reduction just based on that average rent being lower. And so it is not always that you actually had to lower rates, but where you see nominal increases, it could just be a higher percentage of returners at a discounted rate. So it's not always that you do lose pricing power. Where I think that we fell more across-the-board this year that is unique, and we do set rates typically earlier than any of our predecessors or other competitive companies, in that when we came into January, when you look at when we lost the majority of that pricing power, was between the month of January and May, when we had to adjust rates downward because we did not get the strong velocity in Q4 and through early January. As Greg mentioned in his comments, our initial rental rates setting, which he mentioned the 2%, we have price to build velocity, which -- what our hope is that we then, as we come into the end of January, have excellent velocity, where we're able to either maintain and/or push rates at that time, and have the opposite impact. And so again, not to beat a dead horse, but I think that's completely related to the original slowdown in velocity that we had, the ground that we had to make up in adjusting after January. So we talked about that many properties, that's the largest statement to it.

[Paula J. Poskon:]

And then secondly, how did the ultimate final fall occupancies and rate changes, in both the Campus Acquisitions portfolio and the Kayne Anderson portfolio, compare to how you underwrote those portfolios?

[William C. Bayless:]

Yes. When you look at Kayne, it's pretty straightforward in terms of where it ended up. It's pretty consistent, slightly below. The one thing that we footnoted that makes Campus Acquisitions look worse than it is just in terms of a same-store performance to where it was previously, is the Castillion, which is the full-service 1960's freshman residents hall we talked about here in Austin. We actually underwrote that property to be at 75%. It ended up at 71%, I believe, so just a little shy. And we underwrote it at that level because we did expect the new beds we were bringing online with Callaway House to negatively impact that. When you add that back into same-store, which we talked about in the footnote there, Kayne -- or Campus Acquisitions actually looks much better. Dan, if you want to talk about the exact correlations in the underwriting, more on quantity...

[Daniel Perry:]

Paula, I believe on both portfolios, we were targeting in the range of 3.5% to 4.5% rental revenue growth for this first lease-up. When you look at Kayne Anderson, 4 percentage point pick up in occupancy, but about 1.1% decline in rental rate, you're looking at a net rental revenue growth of 3%. So just below that targeted rental revenue growth. Obviously, the impacts that Bill talked about on Castillion skews the numbers there a little bit for Campus Acquisitions. But certainly, we think that we came in a little bit below our targeted revenue growth for that portfolio. We still believe, long term, the upsides that we underwrote for revenue growth are fully intact. It's just going to take us an extra cycle or 2 to get there.

[Paula J. Poskon:]

Okay. And on the presale assets, did you guys handle the leasing for those or did the developer handle those?

[William C. Bayless:]

No, we handled the leasing.

[Paula J. Poskon:]

Okay. And then just finally, Bill, I guess, certainly the feedback that I've been getting is a fair amount of frustration that at your Investor Day, so close to the end of the quarter, that there wasn't really a communication around the expense trends. Was there something in particular that surprised you at the end of the quarter versus how the quarter had been trending prior to that?

[William C. Bayless:]

Certainly, we're disappointed and a little surprised at the end result as it related to the 3 areas that Jon talked about in terms of not being able to have more of an impact in Q3. When you look at July -- basically July and the very end of August, when the folks were wrapping it up, we were a little surprised and disappointed by not making as much of an impact as we did.

[Operator:]

Our next question is from Nick Joseph with Citigroup.

[Nicholas Joseph:]

Bill, you talked about how management took it's eye off the ball in terms of the core portfolio during the integration and the acquisitions. And now 3Q results came in below expectations. There's obviously a lot going on in your[ph] time with the company, so where are you focusing your time and energy now and going forward?

[William C. Bayless:]

Yes, absolutely. And I appreciate you asking the question. Me personally, Greg Dowell, our C-level officers and all of the executive staff are focused on internal value creation, first and foremost. And so as an organization, it has our sole-dedicated focus. Slowing down on the growth front, the developments that we have in place have long been in place, and those take a much longer time to push forward. Sitting on the sidelines, drawing this -- what we think would end up being a vibrant acquisition season is purposeful, so that we do maintain that focus on internal growth. And so personally, I will be involved again in marketing calls and have been in terms of looking at the rental rate increases and things of that nature. Greg, as I mentioned previously, is really focused on in drilling down into that asset management. And so the executives of the organization are fully engrossed in the internal value creation. Some of our acquisition folks will be working in asset management and also dispositions. To the extent that we can expand that development pipeline, additional funding through dispositions will be, right now, our preferred means of funding that. And so, we will reallocate the resources based on what the immediate focus of the organization is.

[Nicholas Joseph:]

And then, I -- you missed 3Q Street estimates, but the 4Q street estimate appear to be in line with guidance. So given the seasonality in the business, what are your thoughts on starting to issue quarterly guidance going forward?

[William C. Bayless:]

It's something we certainly will discuss. We have shied away from it in the past. Typically, the seasonality chart that we have provided in the supplemental has been able to give folks a base of knowledge to be able to do it. Unfortunately, given the integration impacts, especially in some of the things that flow through, this is a year where it doesn't provide an easy focus to do that. I don't know that we will make a decision to go fully to quarterly guidance, but I think that we can do a better job, in unique circumstances like this, of providing additional color when we're issuing guidance to how we expect it to flow throughout the quarter or throughout the year.

[Michael Bilerman:]

Bill, it's Michael Bilerman speaking. I just wanted to come back to sort of operating expenses and sort of the margin, when you look at that bucket of expenses, clearly just given the nature of your business, you do have a very high expense base relative to the revenues that you generate. But can you provide a little bit of color surrounding the different areas of expenses and where the focus really is going to be to see what will drive? So, you think about payroll, or is it maintenance? Is it utilities? Is it marketing? Is it insurance? Is it taxes? Is it corporate-allocated overhead? Where are the key areas of focus for the company and where are the main expenses occurring in that almost 50% of margin?

[William C. Bayless:]

Yes, and part of the answer is all of those areas. But drilling down a little further than that, and just in a general sense, Michael -- and this is something we have said previously. For the first 6 to 7 years of the company's history as a public company, the sole focus was extraordinary growth, and we're integrating properties of -- from different developers, different platforms. And so we have always felt that the broader asset-management function is one of the greatest opportunities for the company to begin to mature and create value. We mentioned last year that we had talked about really refining that effort in terms of the original expense underwrite of the budget of only 0.7% increase, which I mentioned in hindsight, with the integration, was ill-timed on my part to think that we could fully implement that in an aggressive fashion. So with the slowdown on the focus on growth and the overall corporate focus, I believe that we'll be able to impact more strategically all of the areas of our operating budget. With specificity, though, certainly, when you look at the marketing cost -- and on the last call, we talked about, with the increase in budget, we'd expect marketing cost this year to be at about $211 per bed. Historically, that number has ramped between $155 and $164. And so we're very focused on getting that returned back to a normalized structure. One of the ways that we're focused on that -- and we've talked a little bit about this in Investor Day in being here in Austin gave you all a little better example. As an organization, we have always ran -- and this is standard for the industry, we have always ran our properties as individual business units. And so, in a market where you had 3 to 5 assets, you had 3 different general managers, 3 different marketing activities, we don't have a single product that you can brand like some of our competitors, so it's a different marketing medium. We're also now very focused on moving toward centralized operations in those markets, where we're marketing more American Campus, studenthousing.com and trying to gain efficiencies. One of the things we're talking about strategically at the human resource level, as looking at hiring higher-caliber people in many of those markets to run those business units versus perhaps, individual GMs. So, as we have growth and vacancies occur, we're looking at filling those positions in that way, which will give us better staffing power on an economical basis in those markets. So, building scale within the markets that we're in, in every fashion of operations, is a big focus. The other battles that we'll have to fight, as all other companies will, certainly, as it relates to what are viewed as more fixed costs, the real estate taxes, the utilities, just being as prudently as we possibly can in those arenas and in fighting the assessment battle, things of that nature, looking for strategic ways to bundle utilities and perhaps, at times, pass them off to residents, we'll focus on those. Also in our industry, the technology and bandwidth management is a big line item and something that we can approach more strategically as we build scale across the country, and also within markets. And I would say, just in general, in every area of where we're doing business, we're going to focus on better, faster, smarter.

[Michael Bilerman:]

Can you share with us the breakdown? So, if you're running about $290 million of expenses for the year, how much of that's payroll? How much of that's maintenance? How much of that's utilities? Break down each of the components so that, a, we can track sort of where they're going, and I think that also gives some highlight to then the success you may have on the other end. I don't feel like we have that data because you lump everything together in one line. How has bad debt trended? Was that an issue this year or not, things like that?

[Daniel Perry:]

Michael, this is Daniel. Without giving -- going through the dollar amounts, I think the easiest way to think about it, because then you can apply across different periods of time, is what percentage those line items represent as a total. Just to give you kind of the main areas, payroll is about 19%; maintenance is about 21%; utilities are about 19.9%, call it 20%; property taxes represent about 16%; and then you have a mix, 4% or 5% amongst marketing, G&A, bad debt and management travel at other line items in there to get you up to the full tax -- or, excuse me, expense amount.

[Operator:]

Our next question is from Ross Nussbaum with UBS.

[Ross T. Nussbaum:]

I'm thinking back a couple of years, when you bought the GMH portfolio and had done such an outstanding job integrating that portfolio. And then, I think back about the struggles that you had over the last year on the acquisition integrations. I'm just curious, from your perspective, what was done differently, if anything, this year versus when you had bought GMH?

[William C. Bayless:]

Ross -- and we have had that internal conversation quite a bit ourselves. I think, the first thing that we talk to is that GMH, like everything else that we bought, was integrating from 1 operating platform to our operating platform. And when you look at Kayne and Campus Acquisition collectively, and the fact that Kayne had 6 different third-party managers, we were integrating off of 7 different operating platforms onto that 1. And so the extensive coordination and implementation of that transition, and adopting one standard way of doing business off of many, and staffs that were trained to do things in 7 different ways versus 1, that was really the unique aspect of this, that caused so much additional functional corporate support, that caused the disruption in the overall execution of the broader business. So, more than anything, we believe it was that. And the big lesson learned for us in that regard is too much of me making that statement to you was hindsight in understanding that impacts versus foresight. And so looking at these integrations much differently now going in, and that they're not all equal, and it's not always off of 1 platform, so first and foremost that. The other thing, candidly, also that we've attempted to have real honest assessments of, and one of the things, to give you the depth we're looking down into this, we went all the way back down to analyzing our student hiring practices that we had in place 5 years ago to now, and the caliber of community assistance, which is always the growth within the organization, and making sure that inside track in that program, which has always been the internal growth factor, we believe, candidly, moves a little drop-off in that in the last 5 years. That's part of what Jennifer coming in, in her new role is ascertaining to make sure that we hold those standards in place so we have the depth of human resource. For years, when you all would ask me the question, "What keeps you up at night?" It was always the human resource. Because when you are a growth company like we are, you are only as good as your people. And so making sure that the going-forward focus is on making sure that we're fully cultivating and developing that field talent, so that as these growth opportunities present themselves, we have experienced people to plug-in, in the field at every level that aren't as reliant upon that functional corporate support.

[Ross T. Nussbaum:]

Okay, that's helpful. I think, Nick Ulica [ph] has a question as well.

[Unknown Analyst:]

Yes. For the development start in the quarter, the yield was 6.75%, not the 7% you guys have been delivering. Why is the -- why are the yields coming down on the new projects?

[William C. Bayless:]

On those -- and when you look at, for example, the Drexel deal, the Drexel transaction, that is Phase 2 of an on-campus ACE deal, and that facility at Lancaster is being built under the university sophomore housing requirement. So, your risk factor on that transaction, based on a built-in captive audience that is required to live there, is significantly different. So on those ACE transactions, when you have those unique aspects, and that's actually a 2015 deal, when we talk about our 2014s, we're still on track for 7% yields in those transactions.

[Unknown Analyst:]

But, I think The Plaza on University, you're also saying it's going to be a little bit below 7%?

[William W. Talbot:]

This is William. That one we look at - it's the second phase of a project. We were 100% leased very early in the year, lower risk as a second phase. And again, as Bill alluded to earlier, it is a pedestrian asset to a Tier 1 -- pedestrian asset Tier 1 university that commands more of that 5% to 5.5%. So, we thought the spread was appropriate, given the risk relative to the second phase.

[Unknown Analyst:]

So I mean, understandably, relative to the cap rates, the spread might be attractive, but how do you guys think about accepting lower development yields based on where you guys see your cost of capital today, where your stock's trading, the fact that you now have to sell more assets instead of raise equity to do development?

[William C. Bayless:]

And this is where, when you look at the continued success that you saw through this fall, not only are we able to put those developments in service with a stabilized occupancy of 98%, but what we've also talked about is that built-for-the-mass price point, and that those are the assets we're placing into service, where we see the ability to have much higher growth rates than on the existing portfolio, and certainly those that we're disposing of to reinvest into those. So as you look at future net asset value creation, those are really the future engine to drive, that, that growth rate easily justifies that spread even to our current stock price.

[Unknown Analyst:]

Okay. Just one last final one on development. How should we think about how big your pipeline's going to be in the future? It seems to be slowing down. You talked about, maybe, consciously slowing it down. I mean, how do we think about the next batch, besides the $560 million that's underweighted A? I mean, how are you guys thinking about starting new projects next year?

[William C. Bayless:]

Yes. And the development pipeline has a lot longer purview in terms of coming into play. And as I mentioned in my comments, right now, the expansion of that development pipeline will be based upon match funding with dispositions, and being aggressive on the disposition front to make sure we always have the capacity to execute on the developments. Certainly, we are -- continue to be heavily focused on ACE opportunities on campus, mezzanine transactions that could give us yields in the upper 6% that are core pedestrian, and that wherever we can look at refining the quality of the portfolio and selling lower, older, lower-growth-rate assets and reinvesting at those development yields, we will continue to step up the disposition program to whatever level we need to as those opportunities present themselves -- development opportunities.

[Operator:]

David Bragg with Green Street Advisors.

[David Bragg:]

So, Bill, you're saying that you're on the sidelines as it relates to acquisitions. But looking forward, how would you think about when and why to get back in the game?

[William C. Bayless:]

Well, first and foremost, again, we're going to focus on a strong start, as I said, for this leasing season and putting that asset management function in place. Certainly, we're going to look at our capacity and cost of capital as a means of what are the opportunities out there for investment. And so in the current climate and the stock price where it is, acquisitions is not something that makes the most sense for us in terms of pursuit. Down the road, if our cost of capital comes back more into play and we see those opportunities, we certainly -- and the one thing I don't want to -- we believe this company does know how to grow through acquisitions and integrate, and that we have proven that for 9 years, certainly on a smaller one-off basis as it relates to the opportunities that are out there. And so we want to be good stewards of our balance sheet, we want to be good allocators of our capital, and we'll certainly appropriately monitor and restrain our activity based upon the circumstances that we're in.

[David Bragg:]

That's helpful. And then, back to development. On your pipeline and your land listed in the footnote below the pipeline, if you were to start construction on this group of projects today, at today's rents, what development yield would you achieve?

[William C. Bayless:]

Anything that's in that pipeline, we put in there targeting a 7%.

[David Bragg:]

Roughly a 7% for that group, okay. And then on dispositions, do you think that ACC has a unique ability, given your platform to acquire portfolios, rehab assets, reposition them in the market and create value, and then identify those that have inferior growth prospects and sell them? On the assets that you've sold so far this year, what IRRs have you achieved?

[William W. Talbot:]

Dave, this is William. We've looked at a blend between kind of the 8s to the lower-double digits, depending on the asset. Some of those were within the GMH portfolio, it gets a little bit dirty. But that's where we've seen some of those dispos.

[William C. Bayless:]

Can you clarify for -- William, that's on an unlevered return?

[William W. Talbot:]

Correct, I'm sorry.

[David Bragg:]

What range, William?

[William W. Talbot:]

8% to 10% on an unlevered -- I'm sorry, low-double digits.

[Operator:]

The next question is from Vincent Chao with Deutsche Bank.

[Vincent Chao:]

Just a follow-up on the acquisition side of things, I mean, as you sort of sit out this season in terms of the pipeline that's out there, given your cost of capital and that kind of thing, how do you utilize those resources that were focused on acquisitions going forward, or for this year? And how do you sort of protect that strategic advantage, maybe prevent them from going elsewhere, where maybe there's a little bit more activity going on?

[William C. Bayless:]

Yes. No, and certainly, when you look at our development group, it is fully engaged and we've got a big pipeline intact and those folks are out there nurturing those opportunities. So they remain pretty much unaffected. When you look at our asset management folks, they are also the same group that does dispositions. And actually, for example, Chris Kelly, our VP of Acquisitions, came from the asset management group. So to the extent he has any time on his hands, he'll be assisting in that area. And so we do not see this as an opportunity where we need to disband the growth infrastructure that we have, and certainly, can put it to use in terms of continuing to create value in the core portfolio. But in no way do we look at it as this is a restructuring of our growth resources in any form or fashion.

[William W. Talbot:]

Bill, just to clarify, that you said our asset management folks. You're talking about our acquisition...

[William C. Bayless:]

I'm sorry, acquisition folks.

[Vincent Chao:]

Okay. And then just going back to the expenses being a little bit higher this quarter, or maybe I missed it from an earlier question, but just if the July and August numbers or results were a little disappointing, just curious, as of 9/19, whenever the Investor Day was, is there just a lag in the reporting, where the marketing expense overruns maybe weren't showing up at that point? Or just trying to get a little bit more clarity there. And then just at the field level, how much leeway do the guys in the field have to sort of ramp up the marketing expense if they are seeing that, maybe, it's not getting the traction that they thought it would, versus having to roll that up through more of a corporate-centralized group?

[William C. Bayless:]

Through the summer -- I'll answer the first question and turn it over to Dan. Through the summer, they had more leeway than they typically have, and certainly more than they have going forward, as we're reigning all that stuff in. Daniel, if you want to talk about it.

[Daniel Perry:]

Yes, when you look at the July and August numbers, certainly we saw, as we do with any month, we saw some areas where we were up, some areas where we were down. All in all, we didn't think that it was something that's going to move our results materially. Honestly, September came in surprisingly off in terms of expenses. We did look at the July and August numbers prior to the Investor Day to see if there was any kind of update we needed to communicate at the Investor Day.

[William C. Bayless:]

And that was our statement of trending near the midpoint, which was about...

[Daniel Perry:]

Right, which was -- you may remember when we gave our leasing update, we included a comment in there that we were trending towards the midpoint of our guidance. But as September came in, we really saw some areas of expense overrun there that, in all honesty, took us by surprise, that we did not anticipate. And so that's why we weren't in a position to be able to give better direction at the Investor Day.

[Vincent Chao:]

Okay. But, I mean, those surprise expenses really flowed in sort of the last 10 days of the month? Or again, is there sort of a reporting lag that, that contributed to?

[Daniel Perry:]

Sure, there's a reporting lag. Typically, you see the month's financials come in about 10 days into the following month. So we had just gotten August financials just prior to the Investor Day. And we didn't get September financials until into October. I'll comment on that. That's one of the things, certainly as Bill talked about, with the initiatives of the executive team that we're focusing on, is some more realtime expense monitoring as we go through the month, so that we're not waiting until the end of the month to get those numbers and be in a position to communicate on it at days like the Investor Day. So it's another big area of focus for the company and something we realize we need to have a better handle on.

[Vincent Chao:]

Okay. I mean, does that suggest that you need some sort of additional CRM-type of management systems to be implemented? Or is it something simpler than that you think?

[William C. Bayless:]

We're actually rolling out a new expense management system this year. It's in process.

[Vincent Chao:]

Okay. And when is that supposed to -- should it be fully functional by the end of the year?

[William W. Talbot:]

It would be sometime mid-next year.

[Operator:]

Our next question comes from Jeff Spector with Bank of America Merrill Lynch.

[Jana Galan:]

This is Jana on behalf of Jeff. I know we've been discussing expenses on pretty much every question here, just one last follow-up. The details that you gave on the last answer were really helpful. I guess, for the third quarter expenses, were the higher-than-expected marketing expenses just marketing expenses that are spent at the community level for the assets that needed lease-up, and do you feel like they were spent appropriately?

[William C. Bayless:]

Certainly, in the rush throughout the end of the leasing season to get that revenue in place -- and the one thing we will say that we've always said is the additional marketing spend that we talked about for the entire year of $6.5 million was -- the majority of that was spent to put that $30 million of revenue in place. Now, I would never say that in the late surge to put that revenue in place, that every dollar was warranted. There's no doubt in my mind that the key question is, "Could you have spent some portion of those dollars and got there?", I'm absolutely sure the answer is yes, when you were down to the last 90 days of that lease-up and you don't exactly have the ability to strategically monitor that on a realtime basis to make those decisions. Now, on a go-forward basis and as you enter into a more normalized marketing lease-up mode, you absolutely have that opportunity. And everything that you do is much more strategic and prudent on an as-needed basis. And so do I think that there was waste to some degree, as people were doing whatever they needed to, to put the revenue stream in place? Yes, I do. But those are not the normal -- and that's where we see the opportunity, candidly, related to the easy expenses to eliminate on a normal and ordinary basis going forward.

[Jana Galan:]

And, just one last question. It's a follow-up to Dave's earlier question. I guess, part of the ACC story is the position as an industry consolidator. And it's understandable, given this year's leasing, that you're focusing on the internal operations. But can you just describe the decision process just beyond the sidelines? And the second part of this question is, as you're focusing on your internal operations this next 6 to 9 months, what kind of improvements are you making to your systems so that you're setup for future large-scale acquisitions, should you do those in the future? And how can you better integrate those platforms?

[William C. Bayless:]

Yes, absolutely. First of all, we have worked diligently and -- to establish ourselves as the industry consolidator, I think that we certainly have done so, and shown our capability to grow from the $350 million from the time we went public to the more than $6 billion organization we are today, creating value all along the way. At this point in time, we think it's very prudent, until we have clearly demonstrated that we have righted the ship from this integration process, to make sure that our focus is on making sure that everything is in place, to hopefully to be able to return to that role of integration on the long term. But, right now, it's first things first, and we've got to focus on making sure that we have everything in place for the immediate value-creation opportunity before us moving into the next year and positioning the organization to be able to continue to that, should everything come back in line for us and market conditions be so. The thing that we'll focus on as it relates to ensuring that we're scalable in the future, as I mentioned previously, first and foremost is always going to be the human resource. And so making sure that the team is ready and we've got the deep bench ready to go as those opportunities present themselves will be first and foremost. For those that attended our Investor Day here in Austin, we are very adept at the integration process. We talked about the unique aspects of integrating off of those 2 platforms. One of the things that we have done is some of the structuring in the corporate office is to create an operational systems division, separate of the marketing and leasing division, and create some separation of the integration duties as it relates to day-to-day business. And so those will be a little better structured going forward. But this is not something -- and again, we want to focus on what's before us in the immediate future as it relates to the internal value creation. But in no way, shape or form do we think that we are impeded on the long-term play of being able to resume consolidation activities after we've righted the ship, provided market conditions are right.

[Operator:]

Our next question is a follow-up from Karin Ford with KeyBanc.

[Karin A. Ford:]

I have a quick balance sheet question to follow-up with. Net debt-to-EBITDA stands at 6.8x today. As you mentioned, dispositions and debt capacity are going to be your primary funding for the developments going forward. Can you just talk about what your upper limit is for leverage on that metric?

[Daniel Perry:]

Karin, this is Daniel. In terms of leverage, we look at a couple of different metrics. We certainly look at our net debt-to-EBITDA. This is -- the 6.8x is coming down a little bit as we bring those development properties online, and now we have the EBITDA flowing off of those with -- associated with the debt that we had taken on to build them out. You'll see that come back up a little bit as we build out the development pipeline. And we're taking on the debt to fund that and the properties aren't yet producing EBITDA. The main goal is to always keep that, even during those development periods, in the mid- to low-7s. Long term, we prefer to see that down in the low-6s as the development pipeline is built out. On the leverage side, traditionally, we prefer to be in the mid-30s in terms of debt-to-asset value. As you know, we're just over 40% this quarter. If we look at the build out of the development pipeline that we have in hand, the purchase of the mezz dils[ph] and the remaining acquisitions, and funding that solely off of our balance sheet through debt, and in conjunction with about $200 million of additional dispositions anticipated in 2014, we would be at about 44% leverage. That certainly is a little higher than we would typically prefer to be at. Every couple of hundred million of dispositions that we can complete will bring that down by a couple of percentage points. And so, that's why Bill talked about that one of the main areas of focus for our acquisitions team is going to be on that dispositions process and identifying assets that we think it's appropriate to harvest value now and recycle that capital. So that's one way, in the immediate term, that we can certainly help manage that leverage level.

[Operator:]

[Operator Instructions] And our next question is from Anthony Paolone with JP Morgan.

[Anthony Paolone:]

So, on the dispositions that you were just talking about, along those lines, what is the magnitude of dispositions? I don't know if I recall that number. Like is this a $200 million to $300 million a year type number that's commensurate with your development pipeline? Or is it something else?

[William C. Bayless:]

Tony, we've talked about $150 million to $250 million a year is an ongoing run rate. I will say, though, that if development opportunities present themselves that would substantially increase the current development pipeline, then we would look at ramping that up to a much greater level.

[Anthony Paolone:]

Okay. I mean, why -- I guess, why approach it that way? I mean, you're going through a lot of efforts to kind of retool the organization and focus in. And is there not just a level of the portfolio or a cut of the portfolio that you just step back and say, "Look, these assets aren't worth keeping?"

[William C. Bayless:]

That is the ongoing pruning that is the $150 million to $250 million. If you get down the road -- and let give me give you the hypothetical that would lead me to justify the statement that I made. Let's say we get down the road and you've got a great development deal but it's at a 7% yield, and you're able to enter the market at a rental rate that gives you an NOI growth profile of more 5% rev growth, 3% expense and accelerating growth rate. Well, we would look at what is an asset that typically you may want to keep as a longer-term hold, but if it has the lowest growth rate in our portfolio beyond what you're nurturing, then it would make sense to accretively reinvest that money. And so at that point, you're improving on the margin as it relates to what's in the portfolio versus what you can add to it. But we're always looking at honing what -- your statement in terms of where are the properties that may be stagnant or going to decline. At that point, we're trading a great growth rate for what may be a marginal growth rate.

[Anthony Paolone:]

Right. But in terms of improving leverage, on the last question, then that $150 million at $250 million of sort of baseline dispositions against your development spend over the next couple of years, that wouldn't seem to really do much for leverage. It wouldn't seem to have to come almost implicitly through sort of the development profit, I guess. Is that fair?

[Daniel Perry:]

Actually, if you fund the additional growth through disposition, you're not taking on any additional debt. And typically, you're creating more value with those developments. So, that's going to result, naturally, in a reduction in your leverage.

[Anthony Paolone:]

And then you mentioned building the world class asset management function. Does that do anything to the G&A going forward?

[William C. Bayless:]

No. A lot of it, Tony, is repositioning internal value -- internal human resources that have the experience and expertise to do that. And so the question about re-harnessing some of the focus of the senior level of the organization as it relates to internal value creation versus external, we're going to be able to tap some internal resources and reposition them into an asset management function. And again, Greg is the COO. This is going to be his primary strategic focus. He's having Jennifer focus more on the day-to-day operations and leading that charge, while he's focused on the asset management function as the COO.

[Daniel Perry:]

Tony, just to follow-up on your deleveraging question through dispositions, I apologize, I was thinking about it in terms of an NAV or market value, asset value in the denominator of your question. If you're thinking of our debt-to-gross asset value, obviously, if you're match funding your developments, you're staying steady there. But we are in the position now that we're producing more AFFO than our dividends. In other words, we're sitting at about 70% dividend coverage right now. And so we have excess cash flow that we can use typically to fund the developments, but when you have dispositions, you're able to reduce your debt levels with those cash flows or reduce the debt levels with the dispositions, either/or is fungible. But that's really how, when we look at our financial plans, we see the leverage coming down.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Bill Bayless for any closing remarks.

[William C. Bayless:]

Folks, we would like to thank you very much for joining us today. As we said, obviously, we're disappointed in the Q3 operations results and we are, again, candidly, completely relieved that 1 full year of turn, move in and lease-up is behind us related to the growth properties. We know what we have to do immediately ahead of us as it relates to internal value creation. We're focused on it. And the next time we talk with you in February, we'll have a whole lot more color as we've made it through Q4, in January, as it relates to the initial lease-up and provides you a great deal of color as to where we're going in terms of the future value creation. We thank you for the last year and your patience as we have worked through the integration, and we look forward to chatting with you on much more positive things in the future. Thank you much.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. Please disconnect your lines.