Q4 2019 Earnings Call
[noise], good morning, ladies and gentlemen, and welcome to the Avalonbay communities fourth quarter.
2019 earnings conference call.
So I'm all participants are in listen only mode. Following remarks by the company will conduct a question answer session. You answered a question about your Q anytime during this call by pressing star one.
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Sorry, if.
If you are using a speakerphone. Please lift I had said before asking your question I say your refrain from typing and How's your cell phones turned off during the question answer session. Today's conference is being recorded your hosts for today's conference call is Mr., Jason Riley Vice President Investor Relations.
Mr. Riley you may begin your conference.
Thank you Gotta Ya and welcome to have one day communities fourth quarter 2019 earnings conference call before we begin. Please note that forward looking statements may be made during this discussion there a variety of risk and uncertainties associated with.
Oh and actual results way serially.
There's a discussion of these risks and uncertainties and yesterday afternoon's press release as wells in the company's form 10-K takes you probably have to be seen as usual. This press release doesn't keeping attached to the definitions and reconciliations of non-GAAP financial measures another term, which maybe use them. Today's discussion you attachment is also available on our website at.
W.W. about Avalonbay Dot Com Ford flush earnings and we encourage you to refer to this information during her your property results in financial result.
That'll turn the call because a lot more chairman and CEO of Avalonbay communities.
Well, thank you, Jason and welcome to our fourth quarter call with me today are kept <unk>.
Sean Breslin and Matt Sheerin bomb.
Kevin I'll provide some comments on the slides and press last night and that all this will be available for keeping afterwards.
Comments will focus on providing a summary of Q4 and a full year results.
And that discussion of our outlook for 2020.
[noise].
Starting on slide four.
Oh itself for a quarter. The year include a core FFO growth of 5.2% in Q4 at 3.8% for the full year.
Same store revenue growth came in at the 2.5% sort of quarter.
2.8% when you include redevelopment.
For your same store revenue growth came in at 2.9% or 3.1, including redevelopment.
Typically or 345 million of new development, a Q4 and 665 main because a year.
Six and a half yield and started just under 800 million last year.
And lastly, we raised 1.3 billion external capital.
A year or the mix of asset sales or new debt net of redemptions common equity at an average initial costs of 4.3%.
The next few slides will provide a little more detailed 2000 lighting for formats and.
I've talked to explore are quite 20 outlook.
Turning first to slide five.
During the year, we saw the east coast surpass the West Coast dead rent growth for the first time in eight years.
For the east South east to west by over 100 basis points.
Led by Boston, and the DC Metro area.
Well, we experienced some softening condition of the California [noise].
Turning now to slide six.
Development start container depict contributor to energy growth in 2000 nights me.
With all the completions of 6000 65 million created.
Approximately three it certainly had an incremental value.
And at 30%.
Margins margins remain very healthy 10 years into the expansion [noise].
Moving now to slide seven and eight we made good progress in southeast, Florida, and Denver over the last year or expansion markets.
Today, we committed roughly 600 million each market through accommodation.
Oh, the acquisitions development and partnering with local developers.
These portfolios are comprised of new assets as you can see from the map on slide seven and eight are spread across a broad geography within the markets.
Turning now to slide nine.
We believe taught me a great company.
Are we need to take the multi stakeholder approach to our business.
We can only delivered strong financial results over sustained period of time by having engaged associates satisfied customers and this portable local communities like taking of active leadership role in addressing important environmental and social challenges.
Well, we always.
I tried to be better we've been recognized for doing a good job and many of these areas over the past year [noise].
Starting with our associates.
As engagement scores were in the top desktop and we were named glass doors list of top 100, Best places to work for the second consecutive year 2019.
Well with our customers.
As we ranked number one nationally among apartment Reits frontline reputation for the fourth consecutive year [noise].
And then lastly, with our communities, where our efforts on the U.S.G. for I've been recognized by several organizations.
Including the grass be recognized a abbey.
As the U.S. and global leader in the residential.
We'll sector.
By the carbon disclosure project were CDP.
International organization that great companies on the carbon emission disclosure practices.
Across all industries, and we recently awarded the 80 degree the B minus one to four reaching the only apartment property. We just received such a great.
Oh by the.
Space targets initiative.
Reviewed and approved baby so little for targeted reductions in carbon emissions by twice 30.
There are one up 11 real estate companies globally in one of five Reed said have completed this process.
And lastly, I buy CR magazine.
He writes a if you do the top 100 corporate.
Globally for the second consecutive year out of the universe of over a thousand it's happening.
Turning now to slide 10.
No its calendar it's turned the 2020, we thought it makes sense to look back on our performance over the last decade.
Sure, it's a great decade and cycle for.
Sector after Avalonbay [noise].
Oh boy quite strong demand fundamentals at attractive capital marketing to conditions, we've seen healthy growth earnings.
And in 80 cents 20, Chad.
Operator, <unk> core FFO growth is average 10%.
Compound annual basis since that's why.
What about 200 basis points above the sector.
Yeah, absolutely level of growth and good fueled by both strong internal growth I think so revenue growth is average over 4%.
And it's going to seen on slide 11, that's strong external growth.
And we think contributions to the development as we consistently delivered.
Your development at initial yields well above the marginal cost of capital roughly 200 basis points above prevailing cap rates.
As you can see on the right hand side of the slight development deliveries.
Since 2010 of just over 8 billion a generated more than 3 billion initial value creation.
Well roughly $26 per.
Yeah.
Turning now to our outlook for 2020 on slide 12.
Oh, we're projecting core AFFO growth there just over 5% this year.
Only from accommodation of same store NOI growth of 3%.
And from say watching development, which is expected to generate.
More than 60 million, an ally and 20 Twond.
Turning to slide 13, and double click on this a bit.
The stabilized portfolio is expected to contribute roughly three and a half percentage of total for propel growth and 2020.
External growth or NOI from.
New investment net of capital cost is expected to contribute 2.7%.
And overhead growth in losses, J.D. and funds income.
Actually provide a drag of about 110 basis points to grow.
With about one third of that have been Saturdays points coming from a loss of JV.
And frankly.
The income about a third from a normal overhead growth in our base business and the remaining third coming from expenses overhead that represents investment and innovation or other overhead that is projected to generate future ROI some of which we will benefit from in 2020.
At 5.1% the level of course.
FFO growth is expected to be 130, bips higher than 2019.
The biggest driver because this is a stronger external growth of roughly 200 basis points that basis, driven by higher levels of deliveries.
2019 and 2020.
As well as.
Lower cost of capital raise last year.
This is offset in part by the headwind for the loss of JV and project.
While these vehicles down.
Turning to slide 14.
Oh. This slide provides a summary of the key economic factors driving much of our outlook I won't go through everything here.
But simply say, while the GDP and job growth is expected to moderate from 2019.
The strength of the consumer should provide a tailwind with tight labor markets rising wages healthy balance sheets, bolstering confidence coffee consumption and household formation.
The businesses.
Sector is expect to provide more cross winds and 2020 versus 29 team as a sluggish business investment should be offset in part by less concern surrounding potential trade war.
And lastly, the government sector should bolster the economy, a 2020 as a as the lack of fiscal constraints and never comedies.
It should provide added support.
To economic growth.
So overall, it's shaping up as a good macro backdrop to support the economy and the housing sector for the year ahead.
I'll now turn it over to Sean will provide more color on our outlook for portfolio.
Okay. Thanks.
Yeah.
Turning to slide 15 discharge represents the actual 2019 and projected 2020 components, but total personal income growth, but for the U.S. and for our markets.
As Tim noted the consensus forecast is for a decelerating job growth throughout 2020 [noise].
In part due.
Continued structural factors constraining growth of Labor force.
Consumers, however are feeling reasonably confident given the low 3% wage growth experienced in 2019 and the outlook for even stronger wage growth in 2020, which supports healthy demand for our business.
Turning to slide 16.
The new supply for our market footprint is projected to be consistent with what we experienced during 2019.
With increases in urban Boston, Northern New Jersey.
Well, its angeles and across the northern California markets being offset by reductions in the mid Atlantic Pacific Northwest and in new.
New York City.
Turning to slide 17, we expect same store revenue growth of 2.7% of a 22 wanting.
On a quarterly basis revenue growth is projected to be strongest in the first quarter of the year due to a number of unique factors, but should be relatively stable throughout the balance of the year.
Oh.
The East Coast, we expect a material improvement in performance in the Boston in the mid Atlantic regions. Both supported by a decline in the pace of new deliveries in our sub markets.
Results in Metro New York in New Jersey, However, we'll continue to be weighed down by the impact of the New York rent regulations adopted in mid 2019.
Shifting to the West Coast, we expect continued healthy performance in the Pacific Northwest.
Job growth exceeded 3% in 2019.
Census expectations reflect your job growth rate, that's roughly one and a half times a national averaging 2020.
Relatively strong demand combined with a modest reduction in the basin they.
Breeze.
She continues if it is greater than 3% revenue growth in the region.
Turning to California, we expect these celebrating performance in both regions.
Other California job growth is projected to decelerate from roughly 2.6% in 2019, good 1% in 2020.
In addition, this supply is projected to increase but roughly 800 units in San Francisco and between 2000 1200 units in each of San Jose and the East Bay.
Weighing on performance throughout the year.
In southern California job growth is projected to fall from 1.6% in 2019 to about 80 basis points in 2020.
On the supply side, while new deliveries are expected to be relatively flat year over year in Orange County in San Diego deliveries in L.A. are projected to increase by roughly 1500 units as compared to 29 team.
From a broader perspective, we continue to expect a headwind from New York regulations that were adopted during mid 20.
19, and the implementation of Assembly about 14 82 in California.
The impact of these two rent regulations on our full year 2020 rental revenue growth rate.
Is estimated to be between 15 to 20 basis points.
Turning to slide 18 or outlet for flex up 2%.
Same store operating expense growth in 2020 I.
The increases in various controllable and non controllable expense categories, partially offset by a reduction in parallel costs.
The reduction of payroll expenses, driven by our innovation efforts, particularly those related to re imagining the leasing experience for our customers.
And associates.
As I mentioned last quarter elements of the redesigned experience and so the use of an AI powered automated agent for lead management purposes, Andy more dynamic demand driven staffing model.
Additional elements that are underway and projected to yield. It benefited 2020 includes more self guided tours.
And then expressed move in process.
Through year end 2019, we've reduced our on site sales and management staff by approximately 75%.
Relative to our baseline staffing I just wanted to 18 and expect to stabilize at roughly 10% to 12% reduction later this year.
Our total increase the same store operating.
Sensors, roughly 60% is related to growth in property taxes and insurance.
Given the timing of tax appeals and supplemental assessments in various markets along with the timing of certain items and various expense categories.
Fixed operating expense growth to be front weighted front weighted in 2020 as noted in the tech.
Alex on slide 18.
Well, that's summary of our markets and outlook for the portfolio I'll turn it over to Kevin to talk about our development activity in the balance sheet.
Thanks, Sean turning to slide 19, since the middle of the last decade, when new development starts averaged $1.4 billion per year, we've reduced starts to about eight.
Hundred million Boes per year.
This shift was driven by both a reduced opportunity set for attractive development and by desire to limit development activity to an amount we could fund on a leverage neutral basis without needing to access the equity market.
The 2020, we expect to started about $900 million redevelopment projects that we.
That will not only improve the quality of our portfolio, but also generate compelling value creation in line with recent completions.
Turning to slide 20 has shown has just outlined we continue to innovate across our operating platform.
Nothing in the initiatives that will allow us to better serve our customer while generating higher returns for shareholders.
Orders.
The 2020, our investment in these initiatives is expected to account for roughly half the increase excess overhead costs adjusted for non core items.
Turning to slide 21, we show a $4.2 billion pipeline with future development opportunities, which are controlled at a very modest cost.
And offer a lot of flexibility as it relates to the tunnel.
The started construction.
About half of our development rights conventional conditional approval as well options to purchase thing with private third party land sellers.
The remaining half split between asset Densification opportunities, where we are pursuing additional density of existing stabilized.
Assets and public private partnerships, which are generally long term development efforts, it's been a number of years.
These types of projects a lot more flexibility to align to started construction is favorable market conditions.
In addition, it's worth noting that into creating this pipeline weve been careful the little financial exposure.
Sure. So that we enjoyed an attractive set of development opportunities at a modest upfront costs.
At the end of the fourth quarter loan held for development was zero, an all time low and pursuit costs represent an additional $70 million.
This allows us to control over $4 billion of future development across.
Based on market for upfront investment of less than 2% projected total capital costs.
Turning to slide 22.
As discussed before another way in which we mitigate risks from development is by substantially match funding development underway with long term capital.
This allows us to lock in development Crockett.
And reduced development exposure to fund future changes in capital costs.
As you can see in the slide we were approximately 85% match funded against the development underway at the ended the fourth quarter 2019.
On slide 23, we show several of our key credit metrics and compare these to the multifamily sector average.
As you can see our credit metrics remained strong in both absolute and relative terms, reflecting our superior financial flexibility.
Specifically at year end net debt to EBITDA was lower at 4.6 times unencumbered NOI was high at 93% and the weighted average years to mature given our debt to total debt outstanding remained high at.
Nine years.
And with that I'll turn it back.
Great. Thanks Devin.
So in summary, Cisco on Slide 24, 2019 played out more or less is expected a good year for the apartment sector, we delivered 3% plus and alike growth.
We did that 665 million over.
Predevelopment and we made good progress in growing our presence in our expansion markets.
2020, we expect the economy and apartment Mark Sumeray to remain healthy.
For a b, we're expecting same store NOI growth 3%.
External growth will be stronger than what we experienced in 2000 Nike.
Being due to higher levels of deliveries and lower capital costs.
And lastly, we plan to continue to operate the business as Kevin mentioned than a risk measured way with respect to capital formation and deployment recognizing that we are 10 years into the current expansion.
With that and audio we'll open up the call for questions.
[noise]. Thank you.
I'd like to ask a question once again, please signal by pressing star one on your telephone keypad.
Using his speakerphone. Please make sure your mute function is turned off.
To reach our equipment.
First go with Nick Joseph from Citi. Please go ahead.
Thanks, Sean couple about the innovation efforts.
The total opportunity to be in terms of being around a lot higher margin then how much we realized in 2024 cents future years.
Yes.
Good question.
What I'd point, you back to an epic talk about it further as the.
The comedy.
Hi, guys last quarter, you never worked through several slides can you talk about.
Roughly 50 basis point improvement in margins for each of two primary activities.
On sort of on the what we call it sort of the leasing journeys leasing and moving to process combined and then on the main inside of the.
It's about another 50 basis points related to efficiency opportunities in that bucket as well in terms of what we are going to see in 2020.
I would describe it this way we started this back in late 2018, as we move through 2020 sort of our run rate by the and a.
Morning, 20, which is assisting associated with the leasing side of this which is really what's paying off it's running 20.
We will be somewhere in the range of 78 million.
And then we'll be bleeding in the maintenance activities. Later this year. So you really don't see as much of that benefit until subsequent years and there are additional.
Components of the leasing size of also bleed in subsequent years, so you'll see more as it moves down to 20 122, but as it relates to 20 sort of the the aggregate impact that's flowing through.
Less than two years of activity and a roughly $789 benefit.
Thanks, that's helpful.
But just on same store revenue growth in 2018 years 20 basis points benefit from redevelopment.
Your peers include that in your same store guidance for 2020.
If it could be redevelopment activity.
Yeah on rental.
Got it or we expected to be about 15 basis points. It on in a lie about 20.
Great. Thank you.
Yep.
We'll next go with rich Hightower from Evercore. Please go ahead.
Good good afternoon, guys I'm.
I'm just looking at the the market by market charted for.
<unk> revenue and just its you look at New York.
You know what would it take to get to the high end of the range this year that sort of 3% number.
You know given what we what you're baking and with respect to the rent regs and maybe as an add on to that you can you can maybe.
About what the entity.
Broker fee rules I mean, if anything for your portfolio were just the landscape in New York. Thank you.
Yeah. This is Sean I mean that the fundamental issue. It's just a better overall rent change as you move through the year.
Look at what we're anticipating in the sort of Metro New York New Jersey.
Yeah.
2020 versus 29 team is Ah like term lease rent change coming down around 40 50 basis points.
Depending on what happens with various market conditions, and particularly the suburban markets for us.
What's going to move the needle.
So you know depending on.
Toppings manifest itself with job growth and things are stronger we might see a benefit there, but we're trying to reflect what the macro assumptions are for economic.
Environment, there the constraints imposed by the loss to see if you need to bleed through those are yeah. The trees are known.
So really it's one of the ban side and pushing more rental rate through the suburban portfolio for the most park that would push those numbers up.
Okay and in fact.
Right.
Yeah, and then on the broker fees that sorry, that's really not material for us.
Our portfolio there, we really haven't paid.
Occurs in quite some time.
We have a handful of the JV assets that have paid a few of a we have paid those fees as opposed to pushing them back onto the residents. So from what you're seeing from a total reporting standpoint, it's it's immaterial Franciscan no different for us.
Okay, Yes, that's what I just wanted to confirm.
And then maybe.
Respect to capital sources guidance for the year.
Question for Kevin just I.
I guess outside of condo sales, which are.
You know what should you disclose can you just break down that bucket the 1.4.
Between asset sales and sort of other capital markets, whether a other equity or debt.
I'm just help us understand kind of where the most favorable cost of capital is from that perspective right. Now are you guys think about it.
Sure Relations, Kevin So I, just a few things.
As you saw from a release, we anticipate sourcing external capital of about $1.4 billion in 2020.
And I guess, the first thing to point as we expect to do so in a local leverage neutral basis.
Well it will fall to net debt to EBITDA, where we're at 4.6 turns at the end of 2019, so roughly flat to that in terms of how we bring in the next to capital.
As you know there's three markets, we tend to look at Unsecure debt markets.
The asset sale market and the equity markets here, we do have condo sales happening that are in the next a capital call for $1.4 billion. We don't typically break it down in detail, but you know in your model at all just compare law, we tend to be leveraged neutral and we do not have equity in the plan. It's a combination of.
That mostly unsecured debt.
Oh on dispositions and.
Total sales, which you can see from earnings release, we expect about $240 million caught us off and then this year.
Got it thank you.
Thank you we'll next go with Richard Hill from Morgan Stanley. Please go ahead.
Hi, guys like last on furniture Pal I appreciate your comments on.
Expense guidance, if you could just help US understand you know this is the lowest guidance we've seen in recent history. So I just want to get a sense. It. This is a new runrate are really particular 2020 Odyssey, that's focused on payrolls coming down sequentially, but keeps getting smart color on sort of what we should.
I expect going forward beyond 2020.
Hello, This is Sean.
If I didn't expense guidance or yeah, well. The on 2020 is a speculated that does but I mean, what I would say is that.
The big categories that really think about without giving you start precise answer is in terms.
So what to think about for 2021 and beyond is.
You know property taxes are more a third more than a third of our expense structure and if you look at that I think you know values are growing at a pace, that's yeah, a little bit above inflation, but you don't have the same kind of acceleration and based on the significant run up in.
With that we've seen that cycles things should start to see that level off for us and then in addition.
We don't have really a large portfolio for 21, a assets rather pilot assets that are bleeding. It at a very high rate. So that will help contains the overall expense growth in a in a in.
Already Texas did a big piece is payroll kinda know, what's happening with wage growth and payroll wishes serve into low to mid 3% range, but our job is to try to innovate as best we can to contain that you know minus one and a half is not a sustainable run rate as you push things through but we would expect to contain it.
At.
Something below inflationary levels for wage growth based on innovation that.
We expect over the next few here and then the other ones really kinda I'd like to carve them in some of those things really sort of throw it inflationary levels for the most part so those are kind of the big pieces in the way I think about each one.
Okay. That's helpful and then a follow up I.
And just in the Pacific Northwest I'm, a little bit of a spike there I felt like now in the supplement but any other color you can add on the appeal process there [laughter].
Yeah, that's a change and expenses of Pacific Northwest was driven by a successful appeals actually in the fourth quarter the prior.
Periods.
As you May know early last year I think you know all of its benefited from a reduction in rates throughout the various counties within.
I wish we operate across to greater Seattle Pacific Northwest region.
But we also had the benefit of appeals that were realized in the fourth quarter 2018.
Which put upward pressure on the growth rate in Q4 nine king.
Thanks.
Thank you once again, if you'd like to ask a question signal by pressing star one and if you'd like to be removed from the Q.
Weve signaled by pressing star to we'll next go with Alaska back from Bank of America. Please go ahead.
Hi, guys. Thank you for taking the comp so just a little bit about Seattle further it appeared that channels continue to weaken can we get any extra color. There in terms of the supply impact then when you expect the bulk of it.
The supply coming down next year.
Yeah as it relates to Seattle or some commentary just on our performance there in the fourth quarter or.
A bit of sort of unusual onetime things coming through that depressed our growth rate in the quarter down to two two or actual base rental revenue growth Ray we kind of just thinking about the residential component with her it's about 1%.
But as a result of a number of sort of onetime things and the other rental revenue category.
We lost about 90 basis points.
And that relates to payments, we received for revenue share in prior years or the prior year excuse me as well as a a onetime thing in terms of cancellation fees that didn't come through in December in cancer in January I would say that you overall performance in the Pacific Northwest.
Quite healthy.
It's probably the strongest a in the portfolio right now in terms of rent change January rent change across Seattle was almost 5%.
And a you know revenue growth in January popping back up and should be in about the mid three 3% to 5% range or so so I wouldn't extrapolate.
On the fourth quarter performance into 2020, we still expect because he is very healthy market. This year.
Got it. Thank you kind of and then just a little bit on the supply when or what are you thinking about it Fred domestically here and when do you think most of the supply.
Okay in terms of Seattle, specifically.
Yes.
A few else.
Typically we're expecting to come down in 2020, the pace of deliveries on a quarter by quarter basis is pretty evenly spread.
Yes, you know 1800 to 2000 units a quarter or so.
There's a little bit more Q1, but.
For the most part it's not it's not materially different in terms of the cases delivery throughout the year [noise].
Okay, great. Thank you.
Okay. Thank you we'll next go with John Kim from BMO capital markets.
Yes.
Can you comment on what you're seeing as far as development yields in southeast, Florida Denbury versus your legacy.
Okay.
Sure. John This is Matt I can comment on that a little bit.
It's it's because the I'd say, it's a little bit of an apple in an orange because yeah. We have not obviously doing those markets for the same length of time at the same.
Kind of gets a experience so we do expect going in that.
It does for us any way to yields will be a little bit lower at first.
And that hopefully over time as we establish our position there will be able to post.
Stronger returns so in Florida, we are well really partnering with other developers there. So you know the yield off spinner.
We are not taking the construction that could entitlement risk, we're really just taking the lease up risk on those deals. So we're looking at kind of low fives yield for off on those types of deals.
Where there's a sponsor has taken a significant amount of the of the value spread if you will in Denver, We just started to deal last quarter in.
And right now that is our first ground up development in Denver and that is not with a partner that was a.
By right deal in the city of Denver, So a pretty predictable process in terms of getting on a permits and that's kind of a high five year old and I think that's probably what we're seeing right now there just given a.
Yeah, we as a market we've seen a lot of hard cost pressure. So no I would imagine overtime that both of those markets you know we'd be at a high thoughts that you know maybe even low sixes in certain cases, that's probably more more likely kind of mid to high fives.
And when do you think you get into enough critical mass to bring management in house in those markets.
Hi, Denver, we actually have brought management in house Oh, we brought management in house late last year.
And we do think that overtime that will be an advantage for us.
And Florida were what kind of looking at that now so I think that's in the planned for later this year.
Okay, and then just a follow up on the New York.
Announcement standing broker fees.
I really like maybe not a direct impact you, but I'm wondering if you.
You know what do you think about how this impacts mark and indeed, if you subscribe to the view that this will lead to higher win in New York.
Yeah. This is Sean John.
So to say.
You know, it's really just kind of.
<unk> costs has been there I think it's a question is how does it affect sort of landlord behavior.
What are they continue to engage brokers in the same way or not there a lot of people that do and there are lot of people to down so.
I think it's kinda behavioral at this point in terms of how it's going to impact things up an advantage is the.
Fundamental demand to find a units to occupy the question is is fan of transaction costs or if there is one so I'm sorry to ourselves or whether that's going to come out.
What about market share.
Trends that you you'd better positioned than some of your peers.
I don't know about that.
I think certainly the yeah center of the repairs or in terms of the the sophisticated systems, we have around digital marketing and penetration efforts. There. Another sources of demand are probably more well positioned in the short run in a long run the marketable correct, though to reflect the dynamics of the regulatory environment. So.
And along.
Got it may be apart, but I'd say those with more scale that can push through more digital marketing efforts.
Average margins I should benefit some yes.
Helpful. Thank you.
Okay.
We'll next go with John Gandhi from Stifel. Please go ahead.
Oh, great a very nice.
Our guidance Oh, gosh gentlemen, thank you.
I was looking at the recent CB Ari stats and I think those guys are pretty good.
And over the last.
For years, you've seen.
Patients average about 67000 corridor.
And over the last a two year.
Yris you've seen starts.
About 100000 or more a corridor.
It just seems with those kinda base numbers, it's only a matter of a time before deliveries.
And stuff over 100, a court or is that makes sense to you guys and if you guys factored that into your a medium term.
Banking.
Hey, John it's a it's down here in terms of in terms of our market starts is actually a pretty flat.
National that's I mean, our numbers only closer to have been running more in the mid threes.
And our started has been in Chester EUR 400.
Not just a little bit more than that so I.
No I don't think up quite quite the same as at least the numbers. We we used to detract national National starts, but in our markets I think it's been running in the you know so it's it's 80000 or something like that and it's a pretty it's been pretty flat over the last the last few years plus three years.
Hi.
Great. Thank you.
No.
Go with Nick Yulico from Scotiabank. Please go ahead.
Oh thanks.
In terms of the development starts just hoping to get a feeling for the yield you expect on the new starts this year and also maybe a preview on the type of product in more markets.
It you're focused on.
I was hearing it gets mad [noise].
Our starts basket for this year, obviously things a little bit.
You know based on kind of how we're shakes out, but it's probably a oh.
Yes, I'm kinda somewhere in that six three to four to five range.
And that's really given a lot by the mix of business or one or two deals in long island.
So I think you know one or two deals in northern New Jersey, Hunton aftermarket tend to be higher Youre, a higher development work.
We do everybody's me, though in a in L.A. in downtown the Arts District, we're looking to start.
And.
And probably one deal each in Denver in Florida. So a you know some nice nice mix.
Type a you know on average more than some of those higher yield markets.
Okay. That's helpful. Thanks, and then I just had a question about you know the condo sales the gross.
Does this year of to 430 to 250 million can you give us a fuel for you know what percentage of the project that is is it you know 40% to 50% I'm just trying to fuel get a feel for how much proceeds are still left to come back as capital. After this year.
Sure This is Matt.
Again, I can speak to that just where we stand out right now today.
We have three units that have actually close the closed in January that represented about 10 million in gross proceeds.
We have 51 or additional executed contract with deposits up that represent about another 150 million.
And I've got a 51 actually we expect 43 to close before the end of Q1 in February March. So you know most of those proceeds should come in in the next couple of months.
And then we actually have a seven additional offers which we've accepted that they're not yet in contract. So you know good amount of that it's spoken for.
But in terms of what's actually in contractor close it would be those fitch before at 160 million now that is not a.
Pro rata share the building it based on which units happened to be selling and settling first so I. You know you can't just take that as a percentage of the unit count.
What's left to sell is probably a little.
More than that pro rata, because there's some high dollar units at the top of building, a that or not and that number but ah. Yes, if you could sense of where we are.
Okay, Yeah, I guess I guess I was just wondering I think in the past you guys have said somewhere around $3 million in unit.
So yeah, yeah, Yeah, I would get too.
All right around say 500 million of total gross proceeds from condos, which means you get half of that this year in half the than 2021 is that the right way to think about it.
Yeah, I mean, we'll see where the market, we'll see where the market goes from here yeah.
I'll say, it could be could be better or faster.
Door slower you know, but.
Like I said, we know that we have a fair amount of that already kind of spoken for.
Okay. Thanks.
Thank you we'll next go with drew Babin from Baird. Please go ahead.
Good afternoon, a this is Alex on for drew a we were hoping if you guys could provide color on January.
Speaking turns in northern California, and he did you guys could just speak to kind of the dynamics, you're seeing and I know your reference kind of a a pretty significant deceleration in mountain deployment girls and it looks like there was you know a another significant deceleration like turn effective rents on the second half of 19. So just any color on that marketing I wasn't trying to endure.
Yeah, Alex it's Sean.
A couple of things I'd say, one is a northern California overall, we expect more supply it's come in this year as I noted in my prepared remarks overall, it's about a 25% increase the cost of free market in terms of deliveries.
Yeah, you know, there's definitely some of that come into play in the first quarter. So one of things that we did just given what we're seeing in San Francisco and probably thinking about a couple other markets as we did try to build occupancy a little bit more than we might otherwise have done.
In the fourth quarter that would pick up late in the.
Or.
And you see that reflected in the rent change that Ah we reported on last night.
So northern California is weak it's a that that carried over into January where blended rent change is about 60 basis points or so.
It is the lowest of the a there.
Regions in terms of rent change for January.
You look at it in terms of kind of where rents are today asking rents relative to last year, they're up about <unk> percent and a half a which is a one of the lowest says the regions at this point in time, so it's a little choppy right now with some deliveries coming in and or expectations for.
It could be a deceleration or employment growth well see how that plays out throughout the balance of the year in terms of overall performance, but we are expecting about an 80 basis point reduction and like term rent change across the region relative to what we actually produced in 2019.
Thanks for calling it a that's really helpful I'm not one.
Question for me on can you speak to Al do what mall development is there a retailer kind of mixed use component is your partner related to them. All in all just kind of curious wondering what went into the underwriting there and if there's more opportunity kind of paired with our retail component or next door.
Sure. This is Matt I'm absolutely.
Well so that deal is a joint venture with Brookfield retail partners, the former GGP loan them all.
Actually the side of the former Sears box and it is part of the Densification play at that malls, there will be week out on the ground for the building that we will not out the Brookfield alone.
So we don't necessarily have any exposure to the retail, but we do think that this is a growing line of business for us we're pretty excited about it.
I had a model that we hope to replicate a in a number of other locations.
This would be the first its planned to be a long term joint venture, where we will only asset together going forward and we will.
We weren't some fees associated with that we do we actually get also start one car. This starts this quarter was a woburn and suburban Boston.
That's one of the lifestyle center not a regional mall deals.
Which is a partnership with Eaton, it's actually the second deal we've done that he was the first was.
We'll take care of Northern Virginia, which is eight or nine years old now seven years old and we actually having a third deal hopefully that even becoming a in the next couple of years as well in central New Jersey. So we do see this as a trend that's growing it's frankly going a little more difficult to get out and maybe it originally thought particularly on.
Them all sites, where all of these sites are encumbered with cross easements and there's a lot of parties at the table, including sometimes multiple anchors at the mall that have some saying that so but we are making good progress we have other deals in the pipeline that hopefully will be similar and we do think it's something that plays to our strength as the.
The advantage for us because typically not.
You know broadly marketed land site its important to the salaries our partner that the quality of the execution and the certainty of execution the balance sheet all the other things we bring to the table.
Matter just as much as just the raw land dog.
That's a really helpful. Thanks for taking the questions.
Thank you we'll next go with Richard skewed more from Goldman Sachs. Please go ahead.
Okay. Good afternoon, I'm just a question on future development Slide 19, as you look at that slide over the next two to three years do you stay in that kind of range do you and what might what.
Might change your view to either go up or down.
Yeah, Tim here you have the 4 billion [noise], we think that that could support about ability to here roughly.
Starts or plus or minus a couple hundred million.
As Kevin mentioned in his remarks, we have been.
<unk> 800 million range.
Originally expected start around 900 million this year.
You can't you can't.
You know.
Bring that up to quickly just because of the gestation period. Some of these deals this off in two or three years. So it would take a plus a really materially.
Increased starts you know three years from now we've got to be starting today in effect and the reality is just the other that make it the mixed use opportunity that Matt mentioned, you know the opportunity set isn't as compelling 10 years into cycles. It was a you know our six years ago.
Thank you and then just a follow up on in terms of the future development.
Looks like about 50% of the future development rights or are in the Metro New York, New Jersey area <unk>, maybe talk a little bit about how you're thinking about New York, New Jersey, given the regulations and other things and and is that how we should think about the.
<unk> as you go for it'll be focused a bit more on New York New Jersey.
No not necessarily.
That.
If you look at where our starts of actually then the last couple of years I think the you know that it's probably more representative of what's likely to be the starting next over the next couple of years, where you know mentioned in New York is then.
I don't think we start anything in that your New York last year. It was 20% of I started and 18.
40% of I started to this year average that over three years and you know maybe 2020, 5% of our start volume. It is a disproportionate share of our development rife pipeline. Some of that is because some of those deals are long investigating a entitlements slaves were not all of them and make it through.
And we don't necessarily have to invest a whole lot to see if they're going to make it through and in some markets in in New Jersey or long Island for example.
And then there's a couple of very large deal there that you know Ah.
May or may not come to fruition in this particular cycle you know that we've talked about on some fire calls. So there's a couple of very large high rise deals in there that Ah you didn't really do kind of move that and you know sent a fair amount of that to believe.
Thank you.
Thank you will next go with Derek Johnson from del Shebang. Please go ahead.
To begin we see the Boston Metro area.
Revenue growth this year.
Supplies expected to actually paper and 2020, some exercise pointing forward.
Rating right grows as well.
Your team views.
Okay.
Yeah, Okay. We didn't hear the first part of the question would you mind restating. The question clearly please tell me if you're very thanks. Thanks. Thanks.
<unk>.
Oh, sorry, I'm looking at the Boston Metro area, we see there's some solid mental and revenue growth and supplies supposed to <unk> paper and 2020 and some of the next year to actually pointing towards decelerating rancorous kind of you see what does your t. views. If you just some marckesano to there.
Yeah, No got yeah. So is that mentioning my prepared a more if we are expecting delivers increase in urban Boston.
If you look at sort of you know passe downtown in sort of a giant submarkets I think it's it's an additional 12 1300 units coming into that's a market, but if you look at a suburban set markets overall supply is relatively stable.
So our portfolio, primarily suburb and we think will continue to benefit and that's why we see.
<unk> rental revenant or 10, 2020 as compared to what we produce 2019.
Awesome. Thank you and then looking over at the expense forecast for the Noncontrollable items.
Really looks quite some limit 2019, but I don't need.
Upcoming items.
Yeah.
Notable I don't think there's anything notable per se.
In terms of the Noncontrollable components.
That represents about 60% of our project at all tax increase in 2020.
Yeah.
Taxes were expecting <unk> three per cent growth, maybe it's the benefits there because there were a substantial increases and assessments Andrei.
New England and the fourth quarter that we're not anticipated that obviously, we had to book. So we expect some appeals to work their way through the system and you know benefit us potentially and 2020 or 2021 so.
Taxes as I mentioned, a little bit earlier in response to question to think or should be relatively.
The stable in terms of the growth rate in the noise, you're going to see from quarter quarter quarter to quarter, you and you're always going to be more around the timing supplemental assessments are appeals to things of that sort and so it's just to relatives over that's going to come out this year.
Got it.
Uh-huh. Thank you well next go with John Polasky from Greenstreet Advisors. Please go ahead.
<unk> shot I was hoping you could elaborate more in your comments around the Choppiness in San Francisco as January unfolded and I know there's lots apply are you seen anything on that ground that suggests demanded eating just any comments on confession trends as yeah fourth quarter past and wearing.
Point 20, now how that ferrying one way or the other.
Yeah, I see it it's probably a little too early to tell I think ourselves in in maybe a couple other sort of anticipated what was coming online and took a slightly more defensive posture.
Sort of late November December in particular, and that's what ends up some live ends in January.
In fact could generate rent change.
There are concessions in the market you know what do you want to call. It just reduction in the rents are concession. There's some softness there not it's hard to parse out if there's a big shifted in demand for not necessarily seen that.
Well, we pull the marketing lever as we get more demand questions with how much would pull on.
So I think it's a little directly to tell us it's purely 'cause supply demand, but my senses is more supply probably on a better sense, but I saw him to get some export.
Okay, understood and I want to matter or can Oh, it had back T.V.
Okay, I, New Jersey comments, and the market $5 an hour decelerating from already pretty restrain levels developed pipeline just naturally increases your exposure to Jersey in suburban New York.
Hanging on the ground today that get you a bit more enthused about the demand backdrop with X. three five years in these markets are you going to let that exposure drip higher.
<unk> well to be some disposition activity pair that development exposure.
Saint John's Man I I don't know that are you on the you know kind of fundamental about those market has has changed in particular.
What we have done and what we will continue to do is try and make sure that our portfolio.
His balance in so that does sometimes lead to position activities are certainly then if you look back over the last five six years a lot more of our differences connectivity has been concentrated in the New York Metro area and until we get the J.V. and later.
Oh that was in the suburbs, we hadn't sold anything in the city. So you know a lot of that we just don't matter in Connecticut the close in January.
We have an asset.
So here in Central Jersey that that May closing the in the second quarter or late in the first quarter. So you know that's the way we're thinking about it the those investments.
Have been among the best investments in our entire portfolio. When you look at the total I.R.R. on those investments they tend to start out at a very high development you know.
In some of it usually they actually grow pretty well for the first couple of years is that kind of find they're putting in the stock market.
It's not the most dynamic market among our footprints, obviously doesn't necessarily have the same long term growth profile and so that's how we try and balance that out is through.
<unk>, particularly from the older Yeah, Yeah, John just maybe to add to that agrees everything that said.
The 2.2 billion <unk>, New York, New Jersey, I think Matt mentioned earlier actually a little over half of it. It's just too deals one of which is on a is identification play on our site and the other is a public private deal that is not likely to happen anytime soon.
Given.
It's sort of caught up in politics moment. So it's really about it's closer to a billion in that in the in the veteran New York, New Jersey, when it's when you kind of crap supposed to which is about a third of kind of what remains.
Which isn't too far off her.
Yeah, so allocation to the pretty much or and is not mentioned as you see in the disposition focus has really been in the northeast is we recycle brought back into development as well as acquisition so in other markets, particularly expansion.
Okay actually.
Thank you well next go with West Golladay from the bank of kind of that please go ahead.
I just esteem for less.
Just a question about costs capital and insights development for the next couple of years, if we stay in in in a low yield environment, you're looking at pretty low cost capital going forward.
And you can have sort of looking at her own rates for your next year's neat gears followings development pipelines start taking I guess, what would be lower compared to your story.
Mm.
Yes. It we have this is Matt we actually do you have a I'd probably get returned matrix. It does dairy with our costs of Capitol. So there is kind of an automatic systematic ah.
Coming in our system as our cost of capital goes up our target returns go up and vice versa and so it actually if you look at it today our target return on investment are probably as long as they've been in certainly this entire cycle and that is a reflection of kind of work off the capitalist today, but having said that.
You know, it's not a simple you know gosh, you know now we'll pay 50 basis points lower on the development, Although an acquisition yeah. Yeah. We're also looking a total daycares. We're also looking at.
You know kind of what the risks associated with that are so it's not simple formula, but it does definitely bear on our I thinking a bed and yeah. We see that when you look at some of the more recent stars.
Mm.
I'm perfect that's all I got.
Thank you well next go with which I understand from S.N.B.C. Please go ahead.
Thanks, a good morning.
Good afternoon.
So when I was looking back at this time last year in your your guide in one item stuck out it may not was your <unk> your supply while you're so you're deliveries estimate it for 2019 were 2.3% of stock and they ended the year at 1.8 and that's your that's your estimate for this coming year. So it doesn't.
Pure like the decline from two three at this time last year to the actual that you're seeing today at 1.8.
Was a function of slippage. So can you can you explain what the decline came from if if if there's anything meaningful there.
Yeah.
But I'd say is.
Yeah just.
20 number to reflect our history.
So the margin of error on delivery schedules. So if you looked at it sort of on a gross basis.
Based on what yeah, basically what people would tell you. This is what we plan to deliver it and when we plan to deliver it we basically hair cut it to reflect sort of.
Ability weighted has given our history so.
That's really what the effect of end of what you're seeing there in terms of the 1818.
Right way closer to the people are so.
Yes, right well, yeah, what happened to the to what happened to the two three to one eight you know over the course of year to those products project just go.
<unk> turn off or what at what happened.
No they believe in.
It'd be bleeding into 2020 for that would've been reflected in the.
Less dissipated deliveries in 2020 that there are other whoever's behind those deals that have now been push into a subsequent period.
Hey, wrenches the same I I think this cycle, there's been a more of a shortage of skilled labor than we've seen in cycles and we just have experience with some of math was kind of these kind of delays.
<unk> I'm talking about the market in general and you know spirit column to your products being delayed once they start construction by six to 12 months by the time they they finish it and it's just so it really is a labor labor issues I think it finished for the country, but it's certainly issue farkas for industry.
Okay, Hey, it's still I would think than the one eight would be a higher number that my trend down over the course of the year because of that slippage, but but yeah I I understand yeah, Yeah, M- M- may maybe the the shortages are a little less acute today than they were your data as well.
Okay fair enough on the still on development for you guys over 60 million or so assumed development in Hawaiian 2020, that's a fairly equivalent number to what you produced in 2017 and 2018, you had a little bit of a hiccup downward and 2019 is this is this range 60 million is sort of like what we should.
Expect on a go forward basis for you with the 2019, maybe just being.
An aberration and the reason why ask is because what you guys have historically done as a company is produced a certain level same store growth, but also or <unk> you know a number at the F. a line that's much larger than that and and part of that is a function of capital allocation, but also amount of development that comes on line. So I'm just.
I get a sense of the cadence going forward because I hate it when I see same store grove being AD for greater than F. progress.
Yeah Rich 10 here you know seven much in his remarks. It was just starting about eight to 900 million a year recently at an average and we've been stabilizing in the you know low 6% rain. So I think it's just man you know they'd probably get your closer to 50 million a low fifties going forward rather than six.
A million 65 million, which is we're we're kind of towards Midcycle and we're starting north of about a billionaire.
Okay last question for me. This time again last year you you predicted.
Same store number and you and you nailed it pretty much on the nodes terms of the actual results.
The <unk> the prediction the guidance actually was later than what you actually produced by that 80 or 100 basis points. So when you think about the potential to <unk> do better as over the course of this year or do you think it comes from development or does it go 10, it still come from internal sources.
Resistance cat and in terms of guidance. This time last year for caught up with so we wouldn't know 30.
Forced and beat by four cents, we need <unk> points below so unless you're here.
When I mean classification, but that's those are the functions of course so.
Okay, I, maybe I Miss Miss all that but I'll, let it go thanks very much.
Thank you well next go with Austin Wurschmidt from Keybank capital markets. Please go ahead.
Hi, good afternoon.
In your presentation, you you highlight it'd be above average compound annual growth enough of that you've generated versus peers. This cycle, but as you shrink the size of the development pipeline.
Entity extent that maybe same store depending on definition lagging peers, you know at face today, how do you generate above average F.F.. So gross you know versus the sector in the coming years.
Yeah and a good question the first of all the the level of out for.
Higher for the first five years event decades in the last five.
I think speaks directly to the point, where we have we've had a little bit less external broke.
In the last couple of years last two or three years. When we did in enterprise I'm using the same store I just would really costs you know on that one.
There's also.
Contracts is really distorting numbers for the industry right. Now so you really have to look closely revenue event enhancing or you know financing.
But that everyone is spending <unk> I think when you sort of cuts where you're going to find that there's not there's not a big outlier there, particularly we're not a big outlier I can tell you that so I think and then when you look at sort of the market overlap.
You know seven large incumbents here, there's a lot of overlap we're all kind of similar exposure does not.
There's not a lot of alpha from what I can tell.
So the alpha generally come from external investment activities and virtually all <unk> you know that's cool 200 based ones has come from.
From raising and deploying that capital and what we believe is the most creative way, which is largely been through development to lesser extent, that's what it wants to read a room.
I appreciate that I mean, I I know you're below your target leverage today, but would you be willing to operate at higher leverage given the reduced funding risks associated with development.
Shrinking pipeline.
Yeah. This is Kevin here I mean, I I you know we are like general range for Leveler's is kind of five or six turns on that that that you get a basis for the mentioned before and you're alluding to 4.6 times at the end of the fourth quarter I think I'll view is probably 10 years into it cycle being toward the low end of the father.
Six range is probably about whether we should do and then you know.
Getting through to move it off so I think given wherever you are at 4.6 pounds, while a capital poll tunnel folds kind of being more or less luggage neutral throughout the year you know for the white opportunities I think yeah, we have to financial flexibility to I've seen can slow, there's a little bit, but I think probably.
Yeah, the upper body that would be in a little five five times range.
Thanks, I'm just last one for me in any kind of touching a little bit on what you just mentioned to him, but I you know what drove your decision to change the definition of stabilized operations for 2020 and could you quantify the impact that is having on the 2020 shameful revenue guidance and.
Contemplating any additional changes related to you know redevelopment or revenue Hansen count backs in the future.
Yeah. This is the cat I'll start here and shall name on a channel nine yeah. What we really did there was just you know adjusting to the same so I can see threshold data, 90% from 95%.
So optimum threshold is not consistent what's the threshold use about five or six peer so part of the rationale we'll just to conform our our practice to the wrong process within the apartment, we sat there and and the other benefit long is that by virtue of doing that.
More assets from other stabilizing we didn't have them into all seems store pool and reducing the size of those other buckets, where we don't <unk> gardens to some of the results more of a <unk> in a you know offsets are going to be bought within kind of the end of the last names for a bottle of soda.
Awful lot easier to to model them forward.
Yeah. That's it ends in terms of the impact on 2020 guidance. They got incidents previously, but collapsing the buckets together.
About a 15 basis point live in a revenue growth for 20 something.
And then anything on the any additional changes you're planning on on revenue enhancing or redevelopment.
I mean, we have a I think you're going to see our revenue enhancing cap extra stuff, a little bit, but still be sort of well below sea across appears to me to give you. Some perspective, you know last through your average for US we've invested about 350 at home.
You feel 10th 17 through 19 kind of on average.
Period or appear as I think that number is closer to Oh, I'm, so more than to have times.
And so he put a 10% to 12% for turn on that kind of back into it you can see what kind of left it gives you. So we're trying to make sure that we're missing pointed out when making good capital allocation decisions for us to development into redevelopment, where we think it the creative and not just decreed of the same store.
You know really value creative so that's why we think about it we're looking for those opportunities in the market to do that it's been existing assets, where we think it makes sense.
Appreciate the fungus thank you.
Well next go with hard to go out from.
She it's just go ahead.
Hey, guys. Thanks to take my question and a lot of the questions about about.
But I just wanted to take a step back.
Okay.
Yeah.
Hum you guys over the last decade or so.
We have a lot of data now on those you know on down south phone quit his mouth.
Seem sondra swarm all the other markets quite significantly I know, Tim you're talking to pass about how in the long time.
You know D.C.N. on California might have similar groceries.
It's a function of volatility in the downtown but it seems like over the last time.
Good good long from period.
I just wonder if nothing apart.
In general are missing the picture with the over allocation will be seat.
Because of the lack of supply constraints in the market.
Yeah, Yeah, we see that's another markets to by the way that it's that sort of the bad decade, if you will.
Certainly is true of Boston when the two thousands of button is great in the nineties was good in Alaska, Glascock gay, but not so good in the two thousands <unk> try to be a multiple.
If you can't always predict what's going to what's good I have the best decade, you know Seattle, certainly out perform but we had expected it to do.
Okay, we can expect it to to be able to absorb particular level supply. It is probably we support less supply constrained than a than D.C. Oh, My God had a had a great at a at a great run yeah. We we don't think there's really been a secular changed with respect to D.C.. We think in some ways you know the Amazon.
H.T. search was kind of informative when you think of <unk>. What are they landed it is a great knowledge centre that happens to be on the east coast, you're seeing more and more a tech companies sort of diversify their employment base to include D.C. and New York.
And so yeah, we want to be over allocated overindexed knowledge economy, and those are largely the markets were in on some of the expansion markets.
It's going into markets, we've we've gone into it yeah, perhaps you a couple.
Cut down the road that we've we've kind of talked about so really sort of focus person demand side recognizing.
Supply more you know more or less it catches up a little more quickly and places like Seattle and D.C. When it says in New York, and and I'm in California, but it it tends to catch up ultimately.
With with with the band and it's really kind of the income and job growth that ultimately sort of a big driver.
Performance. So we're we're we're good with D.C., if anything were probably we're probably more more bullish on it today than we were say three or four years ago in terms of investing in the marginal dollar.
Oh God, that's really helpful. That's all for me.
Thank you. Thank you.
Again, if you'd like to ask a question. Please.
Pressing star one on your telephone keypad well next go with Daniel Santas from Piper. Please go ahead.
Oh, Hey, a good afternoon, it's actually Alex <unk>.
Two questions first Tim can you just talk about you know same store and how developments contribute to that so meaning like you guys are 3%. This year, which is yesterday industry standard and we think that you know new development. Once it's part of the same store pool would have faster growth or maybe.
It does and I said agers until it develops to price point below that the stuff. That's delivered after soaked through once again have pricing power. So maybe you can just talk about how the development Interplays with same story to why gross.
Oh, Yeah, Alex Sean that could take a stab at that one and tell them that they want to jump in as well, but I mean, one thing to keep in mind here is.
Given the size and scale the portfolios today, Yeah development condemns the needle, but it's not limited materially I would say an average here based on the number deliveries that actually occur.
Development stabilizes that it fits in our other stabilized bucket for here and then it comes in the same store. So we typically see modest benefit from those communities when they come into the same store.
You actually tend to perform well the first two or three years.
After they stabilized because the price thing you know whether it's rents are a net effective rents after concessions.
Trying to least up the entire communities typically within 12 months as opposed to the turnover wishes closer to half the community. So.
Tend to do well and it typically give us a very modest lift.
Given the size of portfolio today as it moves into the same store, it's not it's not chooses a serial unless we happen to have one here, where there's a very very large slug of deliveries.
Therefore, when it comes in the same story, it's a abnormally large.
Okay.
And the second question is you guys talk you been talking for some time about reducing development Ah you have some sovereign sits in your numbers, they're sure I think it separates last year can you just give a sense of of two things where you think your development program will ultimately shake out and then the second is how much closs, how do you <unk> meeting inaccurate.
How much have you reduced and as you reduce the development does that does that mean, you had to increase cost and the P.N.L. or all the reduction as are purely cost there were formerly capitalized and that will not end up being becoming a <unk> send the P.N.L.
Yeah, Alex them I can I can start and we have a we have cut back in terms of the capitalize overhead for sure as we've as we are reduced third development volume you know running I think just a little under three per cent in terms of development overhead relative to.
Annual as dominant remember had relative to start.
That you know that includes People's long term compensation, you sorta compare that to the private world. The private <unk>. They tend to get 3% anomalies. If you will and that doesn't include sort of they're promoting their their long term cops are still pretty efficient efficient model, but we are very.
Smokers honestly the business.
That's because the way they're incentivize is based upon production unprofitability relative basically F.D.R. overhead overhead expenses. So there's something that sorta tends to sort of self regularly.
And it's not exactly linear, but it's a directional you kind of I kind of kind of works in terms of whether any of it actually.
Does it on the the P. and now I think it I think it's just been sort of level.
San Francisco, and then unlimited certain certain situations, where they'd be starting up in regions and you don't yet have new deals to count by somebody else or maybe some maybe some expenses for some period of time, but generally on a stable region and you're not you know you're you're not going to have a you're not going to have developments since the sort of being close to the.
You know.
But then came so where do you think <unk> like do you still see yourself, having a few more years are producing development and then in total how much costs in total of you reduced over the past few years as you've done the severance and Ah shrunk they capitalize overhead.
Yeah, I might not get you off line on the on the on the second peace, but no I I think it's we talked about in the last couple of years, we really do for about a billion 3 billion for two about 800, playing eight to 900 million. We wanted to get to a level I think government system is prepared remarks wanted to get to a level, which we so we could.
Without having to be dependent on the on the equity markets between asset sales free cash flow and a and additional debt. So I would say until there's you know some kind of economic contraction.
Expect we're going to be kind of at this rate the development pipeline that we haven't played should allow us to continue to continue to started about 800000 900 million a year.
Thank you, Tim and then I I'm I'm second too. So we'll just get back you off line on it.
Appreciate that.
Yep.
Well next go with handles and just from.
I had.
Hi, My question Spanish Thank you.
There's kind of course today's question and answer session. At this time I'd like to trying to coffins back to the stretching not please go ahead.
Well it like you're not even thanks are running for being on today and record this thing in the in the coming months.
Okay.
This complicities coughing channel for your participation you mean I'll go ahead and disconnect.
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