Q4 2019 Earnings Call
[music] good morning, make essentially domain and welcome to departure for fiscal year 2018 Independence Realty Trust earnings.
This conference call I guess I'm, all participants I never say Oh anymore.
He they'll become data question and answer session and instructions will follow at the time.
No one should be classified assets during the conference be sports bar I didn't see well I'm not catch on telephone.
As a reminder, disgust lets call is being recorded.
I can try to go I think so but your hello.
Yes, I can't go you may begin.
Thank you and good morning, everyone. Thank you for going after a few independence Realty Trust fourth quarter and full year 2019 financial results.
On the call with me today, I've got shape up assay.
Jim Sebra actually Chief financial Officer, and barrel Anda President <unk>.
Today's call is being webcast on our website at <unk> T living dot com.
There will be a replay of the cold available via webcast on our Investor Relations website and Telephonically beginning at approximately 12 P.M. eastern today.
Before I turn the call over to Scott I'd like to remind everyone that there maybe forward looking statements made in their coal.
These forward looking statements reflect <unk> current views with respect to future events and financial performance.
Actual results could differ substantially and materially from what our T. has projected.
Such statements I made in good faith, because she went to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Please refer to <unk> press release supplemental information and filings with the FCC the factors that could affect the accuracy of our expectation <unk> future results to differ materially from those expectations.
I just didn't may discuss non-GAAP financial measures during this call.
A copy of I add he's press release and supplemental information containing financial information.
Out of statistical information and a reconciliation of non-GAAP financial measures.
To the most directly comparable GAAP financial measure is attached to add <unk>. Most recent Congress <unk> on the form 8-K available at <unk> He's website under investor relation.
I asked he's other FCC filings are also available through this link.
I T does not make does not undertake to update forward looking statements in this call well with respect to matters described herein, except as may be required by law.
With that it's my pleasure to kinda coal or that's just got shape.
Thank you Eric Thank you all for joining us this morning.
2019 was a year of acceleration priority, our organic growth initiatives and in particular, our value add program. We're in full swing and delivered very strong result, with a dedicated team in place to manage renovation projects in each market, we were able to execute more seamlessly and manage the Lisa process more proactively building upon the lessons learned.
And the momentum gained during the first year of this initiative.
Our organic growth was further underscored by the backdrop of the strong economy, which has supported household formation and growing wages, which in turn how facilitated rent increases within our communities.
As highlighted on our yearend call for 2018 research from a leading apartment rental service and research company sound that young adults are renting and running longer and that trend to remain unchanged throughout 2019.
The demand for quality apartments in amenity rich communities within our markets has not subsided underscored by the fact that and Hawaii increased in all of our 18 markets. In 2019, we expect macro fundamentals remain supportive as we moved into 2020.
Focusing briefly on our reported results, which for our own Jim will expand upon later on this call Q4, and full year 2019 pretty some of our highest same store metrics to date without a why growth of 9.6% for the quarter and 7.7 per cent for the year I'm pleased to report that we delivered on our goal to cover the dividends during the fourth quarter point in <unk>.
FFO basis.
Diving a bit deeper into the value add programs since its inception, we have completed renovations in 2715 units achieving a weighted average return on investment of 18.5% interior renovation cost.
As of year end, we have a total of 23 projects in the pipeline. We're underway representing 7136 units on average we are seeing an 18.3% rent premium on renovated units, which is up from 15.8% last year. As you you will recall, we began work on our phase three communities in the third quarter of 2019.
During the year, we also executed upon our capital recycling program, which involves continuously evaluating our markets and communities to ensure we scale one m. essays, where we see long term growth and Conversely, reevaluate those markets that are difficult to scale or may not prove to be attractive long term investments during the year, we acquired three properties.
One each in Atlanta, Raleigh, Tampa and sold for existing.
Exiting the Austin little rock and suburban Chicago market.
As we move into next year, we will continue to prudently evaluate the portfolio for attractive opportunities to sell communities that no longer fit within our four material and reinvesting communities that allow us to expand our presence in key markets.
Looking ahead, we are entering 2020 from a position of strength, our organic growth initiatives have proven successful and we expect to be able to continue to produce above market returns specifically, we have a robust runway evaluate opportunities highlighted by 4400 units you have to be renovated and expect to complete between 500 to 700 units per quarter. This year.
This is further supported by strong macro environment that will drive continued rental demand and favorable economics.
We're also excited about how technology will continue to shape. The apartment landscape. This year, we plan to continue to do to develop and explore technology that will both improved the daily lives of our residents as well as drive further operating efficiencies at our communities Weve already been successful at developing proprietary technology in our value added renovation group and we'll continue to invest in technology and.
Meaningful but for full way.
Lastly, before turning the call tougher only Jim I want to highlight the strides higher T is taking the continue to build upon our sustainability platform. We have formed a cross functional sustainability group, which is led by our head asset manager who has been in lead accredited professional since 2008 specialty an existing buildings.
Additional 2020 initiatives will include improved procurement of are friendly products and identifying opportunities for energy audit overall, our t. will continue to align sustainability with its culture and are excited to bring our employees and residents along the journey with us.
Now I'd like to turn the call over deferral for deep dive into our markets and activity during the quarter for that Scott and good morning, everyone in the fourth quarter and throughout 2019, we accelerated our value at program with the benefit of scale in key markets, providing strong momentum going into 2020.
The fourth quarter same store NOI grew 9.6% an increase in all of our 18 markets with the exception Orlando, where we own a classic community that is adjacent to a new new construction property and we saw.
At this community occupancy decline from 96.8% to 93.7% with revenue remaining flat due to 3.2% rental rate growth.
Looking at Hawaii growth by market, the Atlanta, Raleigh, Durham, Louisville, Columbus, Indianapolis, Myrtle Beach, Wilmington, and Charlotte markets, all exceeded 10% growth for the quarter meeting the broader portfolio.
All strong indicators of the continued demand for amenity rich middle market communities non gateway markets.
Atlanta, Wilmington, Raleigh, Columbus, and Louisville also continue to benefit from our value out initiatives.
Turning now to our largest market Atlanta same store average effective monthly rent grew by 7.3% for the quarter and 7.9% for the full year compared to 2018.
Same store NOI grew by 11.8% for the quarter and 7.9% for the full year.
Significant NFL ICRA, even as we incurred at 12% increase in real estate taxes.
Average occupancy was also up 2.3% from Q4, 2018% to 93.8%.
Well, we are witnessing in it in our Atlanta portfolio is representative trends within the overall Atlanta market. The market has delivered the fourth best records in the nation with most of this this growth occurring in suburban garden style apartments.
Shifting to Charlotte, which is growing organically without the eight of our value that projects.
Charlie saw same store NOI growth of 11.6% for the quarter and 10.1% for the full year fueled by revenue growth of 7.2%.
The South Boulevard, Submarket, where our communities located is extremely desirable area to live as it provides a lower cost option within minutes to Uptown Charlotte.
The Submarket has experienced significant new supply over the past few years with nearly half the inventory now less than four years old.
New construction has abated and inventory growth over the next five years is projected to be 3% annually.
This slowdown in new construction has allowed us to average 96.3% occupancy over the quarter, while at the same time pushing rents 3.9%.
The south and sub market will also benefit from those recently announced construction of a 23 storey technology center that will be completed in late 2021, and we'll bring 2000 jobs the area.
Overall portfolio average occupancy was 92.6% in Q4 60 basis points higher compared to Q4, 2018, and 93.2% for the full year 10 basis points lower compared to 2018.
Excluding the value add same store portfolio average occupancy remained unchanged at 93.7% for the quarter and was 94.3% for the full year.
Sequentially from Q3, 2019 occupancy declined 80 basis points due to the impact to the additional value at communities and the effect of seasonality on leasing volume.
The short term effect on occupancy during the renovation process at our value that communities is more than offset by the powerful long term rental rate growth.
Total portfolio average rental rates increased 4.6% year over year, driven by our value at properties.
On a lease over lease basis for the same store portfolio. During Q4, new lease rates increased 2.3% and renewals were up 4.4% you willing a combined lease over lease rental rate increase of 3.3%.
Through the first month of Q1 2020 lease over lease rental rates for the two 2020 same store portfolio, new leases were up 3.7%, while renewed leases are up 3.2% with a blended lease over lease rental rate increase of 3.4%.
We expect us to accelerate as we move into the Q2 in Q3 leasing season.
Turning our attention to our capital recycling on October 1st we purchased a 318 unit community in Raleigh, Our six committee in the market, bringing our total unit count to 1600 90 units nearly 12.5% of our total NOI.
We acquired the property based on an economic cap rate of 5%.
This community was added to our phase three of our value that pipeline and we'll have a 6% cap rate a stabilization.
On December 17th 2019, we completed the sale of a 300 unit community in Austin, Texas for $56 million, recognizing a gain on sale of $20.7 million.
While also has a market with good long term real estate fundamentals given the strong competition in the market. We were limited our ability to grow and build scale and took advantage of selling out of a market and an extremely attractive time.
The sale price represented a 3.9% cap rate on our 2020 budget.
Subsequent to the fourth quarter in February of this year, we closed on the purchase of a 251 unit community and the Mckinney suburb of Dallas.
The community this newly constructed and is adjacent to one of our existing properties built by the same developer.
The properties currently 81% lease and expects to be fully occupied in June and will you had a 5.7% stabilized cap rate and year to.
Our <unk>, our core focus remains to own and operate middle market suburban communities and non gateway markets, but will seize opportunities where appropriate.
This acquisition was attractive to us owning and operating to adjacent communities provide synergies and reduces potential competition.
I'll now turn the call over to Jim.
Thanks, Federal and good morning, everyone today I'd like to review earnings and operating performance for 2019 provide a brief review of our balance sheet in capital structure and and with the discussion of our 2020 guidance.
Beginning with 2019 for the fourth quarter of 2019 net income allocable to common shareholders was $23.8 million up from $14.6 million in the fourth quarter of 2018 for the full year and come out with the common shareholders was $45.9 million up from $26.3 million for the.
Full year 2018.
During Q4 core FFO grew $18.6 million up 12% from $16.6 million in Q4 2018.
Core AFFO per share during Q4 was 20 cents up from 19 cents in Q4 2018 for the full year core AFFO grew to $60.5 million up 5% from $65.1 million in 2018 core AFFO per share was 76 cents for to go.
I was 19 up from 74 cents for the full year 2018.
As promised earlier this year and it's got already mentioned, we did cover our dividend this quarter on an after so basis.
Turning to the same store portfolio for the fourth quarter and Hawaii growth was 9.6% driven primarily by our revenue growth of 6.3% occupancy in our same store communities averaged 92.6% during Q4 60 basis points higher year over year rental rates for the same store communities increased.
Year over year with an average effective multi rent of $1082 this quarter.
4.6% since last year.
While this includes the value add communities, we did see solid rental rate growth at or non value added same store communities with rental rates in Q4, increasing 3.2% over the prior year.
For the full year 2019 same store revenue grew 5.7% almost entirely driven by the 5.1% increase in average rental rates.
On the property operating expense side same store operating expenses grew 1.2% for Q4, 2019, and 2.7% for the full year 2019, controllable operating expenses increased 1.7% for the full year.
Our non controllable operating expenses for real estate taxes, and insurance increased 4.4% for the full year.
As we highlighted earlier this year the timing of real estate tax reassessment is difficult to predict for 2019, we were expecting tax reassessment and guided accordingly as it turns out the increase in real estate taxes for 2019 was lower than expected as several communities for either not reassess or where reassessed the value is lower than we were.
We're expecting we're now factoring these tax reassessment to occur in 2020.
More on 2020 guidance shortly.
As guiding them previously discussed the year over year, increasing Gina expenses on a quarterly and full year basis was driven by our strategic investment in our platform and management team during 2019 with a focus on people and technology as demonstrated by our strong in Hawaii growth. These investments are already paying off enabling us to deliver growth.
Portfolio.
Turning towards the balance sheet, we closed 2019, 57 properties and total gross assets of approximately 1.8 billion.
For Q4 normalized net debt to adjusted EBITDA was 8.9 times at year end, our debt is 91% fixed rate or hedged through 2024 with no significant maturities until 2023.
As of the ended the year based on gross assets, 51% of our assets are unencumbered that is an increase from 44% unencumbered since Q4 2018.
Looking ahead to 2020, our guidance for EPS is a range of eight cents to 11 cents per share and for core FFO is a range of 79 cents to 82 cents per share.
We expect NOI at or same store communities to grow between 4% and 5.5% following a very strong 2019.
This reflects expected revenue growth of between 4% and 6% our projected growth in operating expenses of 4.25% and 6.25% is the result of our expectation that we will see further real estate tax reassessment.
As you know the timing and extend of which is difficult to predict as well as increases in payroll expenses and some newly implemented incremental revenue programs to further explain we rolled out a number of incremental revenue programs across our communities, where we are required to gross up both revenue and operating expenses. These programs are primarily related to.
Cable arrangements and valley trash services.
These programs are profitable for us, but has the impact of displaying a larger than actually increasing expenses because of the gross up for 2020, the increase coffees and silly programs accounts for about 35 basis points of our increase in total operating expenses or about 55 basis points of our increasing controllable operating.
Operating expenses.
Lastly, we provided guidance around transaction volume expectations, we are projecting an acquisition volume between 50 million at 100 million for the full year 2020, as well as a disposition volume of up to 100 million in the year.
While we provide acquisition and disposition volume guidance. It is important to note that our core FFO guidance does not assume any transactions aside from the one property acquired in Dallas, Texas. This month for $51.2 million. The ranges are meant to be indicative of the potential magnitude as we kind of who's here with that I'll turn the call back over to Scott.
Scott.
Thank you. Thank you Jim in closing I am very pleased with our performance in the progress made during the quarter to further our organic growth initiatives. We're confident that we have the right team and processes in place to continue to execute on our planned initiatives.
From a macro level, we believe 2020 will be another strong year for real estate fundamentals across our core markets and we'll look for opportunities to enhance our portfolio through capital recycling initiatives.
We thank you for joining us today and look forward to seeing many of you at the city conference in Florida, and a few weeks operator, I would now like to open the call for questions.
Thank you ladies and gentlemen, if we have a question at this time the spreads the bar and then the number one key on your touched on telephone. If your question ethylene I'm sorry are you wish to move yourself from acute please press the Bankey again, ladies and gentlemen, if we have question at this time. Please press Star then number one.
On your Touchtone telephone. Your first question comes from the line of Joe David from Baird. You May ask your question.
Hey, good morning.
Hi, Andrew a question on capital recycling guidance, obviously, the low end of the acquisition range already incorporates yes, correct ranch or the beginning acquisition I guess my question is what are the odds of achieving higher end of the disposition guidance.
Correct Ranch turns out to beauty only acquisition made this year, obviously understanding minutes earlier in the year and this is just kind of guidance.
You know what are the up hitting the high end at this time.
Hi into the description range.
Well the basis of the recycling program drew is two to match the sales with the purchases. So if if we're only going to purchase the one Dallas property for the year, then it's unlikely that we would be disposing of $100 million of assets and more likely would be disclosing for somewhere in the 50 million dollar range.
So that were match on the by itself.
Okay, and you mentioned the decent most likely be kind of non core underperforming properties are you willing to talk about what markets does maybe and kind of how pricing has trended in those markets relative to maybe a year ago, a couple of years ago.
Well I'll answer the second part of that question first which is pricing has.
Increased in all markets across the board.
Whether their core for us or not or were for someone else or not it's just as we all know cap rates have continued to compress everywhere as people look for yield.
It's not so much on our recycling that we're limiting it to two markets, where we think that they might be underperforming, but its markets as well that we may not have the ability to growing for example, the Austin market Austin is a great market. It's just that with our cost of capital we could not acquire.
And acquire creatively so with one property, we decided it was best to just dispose of it in this low cap rate environment.
So it will be both markets and we haven't identified him at this point, but it will be both markets, where where we see the capital being able to to be better invested for future growth that we will then get out of those other markets.
Or where we have a property where for any number of reasons were not able to scale.
In the market.
Make sense and then just a couple of balance sheet questions for Jim.
There's 71 million approximately of unsecured debt maturities and 21 can you talk about what rate those are out in whether anything becomes pre payable this year.
Whether there's any assumptions made in guidance about that.
Yeah those are those.
Those the average interest rate for those maturities is about 3.83, 0.9%.
There is some that become pre payable, but it's in the 20 to 30 $30 million range.
We did factoring some kind of expectations of refinancing some of those that are pre payable in guidance for purposes of ended the year book effect is fairly insignificant.
Okay, and I guess a related question.
Just on leverage I guess as implied by the 20 guidance expectations, where do you see your net debt to EBITDA ratio by year end.
Well it came down about a half a turn in 2019 and we would expect it to have the have the same effect in 2020.
Okay, Great. That's all from me. Thank you.
Thanks, Chris.
Your next question comes from the line of Austin Wurschmidt from Keybanc capital you May ask the question.
Hi, Good morning, just wanted to touch on same store revenue guidance, which.
Implies deceleration versus the for Q4 Q growth rate you achieved.
Given sort of the pickup in Unum <unk> unit renovations in the value add program. The earn in from last year's rental Beijing work I guess can you give us a sense, what you're assuming for lease rate growth for non renovated units as well as.
Occupancy for 2020.
Hey, Austin this is Jim for.
Occupancy for 2020 for the non value added communities, we pretty much held that kind of flat in that mid 94% range.
For rent growth, we've assumed you know depending on newer new and renewal bout that blended 3% to 3.5%.
Rental rate growth.
I appreciate the detail there and then with the acquisition you made in Dallas earlier this year.
A bit of a different elk or not necessarily the class b product that you've been acquiring the last couple of years. So I'm curious how we should think about the composition of future acquisitions between class a and class b.
We're still focused on.
Wiring and operating a class B port predominantly excuse me class B portfolio. This Dallas acquisition for Us, which just an opportunity in that it is directly adjacent to an existing community that we own built by the same builder actually phase three of this is a cold and master development and we feel.
So that that it was best for us to acquire notwithstanding the fact that its new construction just because we'll get.
Great synergies out of operating two properties together, but also because it will reduce as Carl mentioned will reduce the competition and we'd rather not have someone else owning a brand new property across the street from us.
So thats why but we are still focus to be to be an owner and operator predominantly b class assets.
And what do you see in terms of pricing differential between value add assets and and the class a assets that are in lease up today.
That's all since barrel I mean, we've seen it.
Shrunk considerably as you can see but the cap rate that that was.
Represented on our Austin deal, we have no idea, obviously, what the seller was underwriting in their value add.
But we're definitely seeing compression between the class a and classic class B cavernous across all markets.
Thank you.
Austin, Let me let me just.
Just address one other comment at the beginning of your question regarding the deceleration.
Last year, we guided 4% to 6% revenue growth to beginning of the year and then we increased it later in the year and ended up I think at 5.7%.
This year, we're guiding 4.6% again at this time.
It's early in the year, we want to be prudent.
And just make sure that we're delivering and executing on the value add but didnt want to get to too far ahead of the of.
No ourselves relative to guidance.
No I appreciate the comment and the level of potential conservatism in there as it is early in the here. So thank you.
Thank you.
Your next question comes from your line of John Guinee of Stifel. You asked a question.
Great. Thank you.
Just one just curiosity question looks like you paid about 200000, a unit for a Dallas, Texas.
200 204000 units.
What's it okay I.
I am I got the answer.
Hey, Scott you guys are trading at a four eight implied cap 15 Bucks to look stuffs like a four eight implied cap.
People up obviously like the strategy.
And youre delivering stabilized acquisitions at a five and a half to us six.
Why not.
Turbo charge this.
Investment strategy as opposed to doing 50 or 100 million a year.
Well, it's one assets are there in high demand today.
Again, we've we've been patient.
And as I've stated before you know I do want to grow just for the sake of growth I want to do it when we can do it accretive lead and where we're building out a portfolio that it makes sense for the long term.
I hear you, but at the same time, we were laser focused as we mentioned before of of covering the dividend. The end of last year and continue to have a covered this year and to grow into a more normalized.
Payout ratio.
So we're going to.
Opportunistically acquire assets that makes sense for us, but only do it when we can do would accretively and at the same time have.
We continue to correct the leverage ratio and bring that down.
And then the.
Next question is.
CBR Reed, who seems to be pretty good at this.
Just.
Change their expected delivery number and 2020.
About 270000 units about 340000 units a huge uptick where do you where do you see new product getting built and what are they building building.
Still building up.
Surface Park at 180000 up a unit are earned in your markets are they building a Texas doughnuts are podiums that at a much higher number.
It's mostly obviously the rents you need to build.
Have to be pretty significant now, especially with the cost of lever.
So we're seeing most of it and urban centers I mean dunkin around there's still some suburban sites like the one that we bought but you know in Atlanta, It's mostly Midtown Buckhead, where you can achieve the rents you need to justify the cost the construction.
Great. Thank you.
Thanks, John Thanks, John right.
Your next question comes from your line of Nick Joseph from City, you May ask your question.
Hey, this is Michael Gryphon, Hong for Nick just curious.
You mentioned the valley trash earlier, what other ancillary revenue opportunities, if any still exists and out of the portfolio today.
Yeah, we're always looking at options were which as Scott mentioned, we're exploring smart home technology, which.
A lot of people have been talking about we're launching a.
And the ability for our residents to report their rent payments to create better credit.
So we're constantly looking for avenues to generate additional revenue.
Thanks, and I noticed the nurse up here you have three mark or sorry, six markets, where you have.
One asset does it make sense in any of those to sell in those markets and would you look to recycle it into current markets within your portfolio or are there any new markets the might be attractive.
Lots of Digest there. So we're always looking at the portfolio and as Scott uses were prune, where we think that the specific markets may not have the long term fundamentals, we look at or we need and we also look to add like Huntsville is a market, where we are actively looking to add because of the population and job growth and the media supply is generating really really good.
Fundamentals.
Right now, we're really focused on building out the markets that we're in.
In the future will probably we will look to expand into additional markets, but right now really focused on on the markets over it but but let me let me add to that for example, Orlando we have one asset in Orlando is a very attractive market, but we have four assets in Tampa, which is very very close. So we can really run them almost as a region and it's the same.
Thing with Charlotte, where we have one asset, but we have many other assets in and around North Carolina did again make that more of a region and not so much of a one off market.
Got you sounds good that's it for me thanks.
Thank you.
Your next question comes from deadline of Neil Malkin from capital One Securities you May ask your question.
Hey, guys good morning.
Just wanted to.
Diving, a little bit more to the operating expenses.
Do you.
Bake in any successful appealed.
In real estate taxing our taxes during the year.
Yes. So this is Jim thanks for the question, we do get obviously, we do have tax consultant that help us kind of look at tax assessments and what's going to happen in the in the 2020, we do look at the ability to appeal and the ability to be successful upon appeal and we do factored that into guidance.
Okay great.
Just wondering what was what's the current cap rate are you know our yield on that on the Mckinney leased up that youve the bottom.
Imagine it'd be dilutive near term right.
I'm not quite at probably break even I think it's a five one currently.
Okay.
Awesome.
And then last from me would be how you think about.
I guess revenue management from the the leasing angle.
What do you think youre, a stabilized occupancy would be.
Just for for example, the non.
Value add portfolio.
Can you get a 95 96 like it seems like where the rest of the.
Right peers are going.
Are you still trying to optimize lease expirations.
Any color or insight into into how you're thinking about that'd be great.
We.
Yes to answer your question yes.
We are we're always looking to optimize revenue.
Through both occupancy and rent growth, so and thats the benefit of of the.
The L.R.O. process that that we havent place.
You know our non our non of value add portfolio last year was was 94.
Mid 94 range of occupancy for the year.
I've always been a believer of 95% being full occupancy you'll hear other people say, 96%.
But we've also been pushing rents.
Healthy amount. So the fact that we were at 94 and a half I attribute that to the fact that we had been pushing rents so much.
But I think what it does is it gives us some comfort that there is room in the occupancy to grow going forward, especially as a number of these.
Phase one value at property.
Renovations are completed.
We'll be able to bring them back up to a more normalized 95% give or take occupancy.
Thank you.
Again, ladies and gentlemen, if you would like to ask the questions that Brad Barton a number one on your Cabot telephone keypad.
Your next question comes from the line of Chad Messer Cohen from Ladenburg Thalman, you May ask your question.
Good morning.
Let me John Hi, John just specifically on kind of the real estate tax you mentioned the reassessments.
They were kind of lower than what you were kind of guiding to and I drove the for Q number, but what were the specific markets, where you kind of saw better than expected tax outcomes.
Really the biggest one was this in a in Ohio, we continue to just be.
Pragmatic can be thoughtful about it but that was the one that has a lower than its lower than expected.
Tax increase.
Okay. So just really specifically that one market.
That was the biggest want to top my head of that gave further details.
Alpha.
Off the call turnovers, and then as we kind of think about the.
Redevelopment renovation kind of pipeline.
It potentially maybe I know, it's we're still very early days on phase three so this is a little unfair but.
As we go to face for maybe in your kind of thought process. I mean is that primarily going to be stuff that you need to acquire to kind of create that phase for pipeline I noticed that some of the additions to phase three were recent acquisitions.
Or is this stuff within the existing portfolio that makes sense, then I guess, what drives the timing of waiting on that stuff within the existing portfolio in terms of doing the redevelopment.
We think there are still opportunities within the existing portfolio. So so if there is a phase four.
Much of it will come from properties that we already own.
[music].
As far as some of the phase three being newly acquired it just so happens that we acquired an asset that was.
Perfect for the renovation program in a market, where we already had a renovation team in place. So it just made sense.
To begin those renovation sooner rather than later as part of the phase three.
Process.
And.
One of the things that were very talking cognizant of is the pressure that this renovation process puts on occupancy in the near term. So that's why we're doing the phase one phase II phase three and not just rolling it all out at the same time.
Because we're trying to manage the portfolio and continue to grow.
Hawaii overall in core FFO and bring down leverage and do all the things that that were beneficial in the long term.
And just just add John as Scott mentioned, you were decision more market specific so we build out teams and we are self performing all this work so you'll notice.
Yes, we build out teams in Atlanta, and Tampa in Louisville, So we still have Indianapolis, we still have Dallas.
Yes.
Operating in our portfolio that we can expand into into new markets due to value at.
I will transferable is that kind of expertise from market to market. I know you guys. Obviously picked up a lot of kind of them intellectual capital as you do these projects, but when you think about building. These teams museum that transferable, if you were to say.
Do a whole program and Indianapolis.
It's very transfer of I mean, obviously you need that people at the property level, but the process is the same Andy as it is in in Columbus, and it's really just the people on the ground in the vendors that are different.
Okay. That's it for me thank you very much.
Thanks.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and have a wonderful day you may all disconnect.
[music].