Q4 2020 Investors Real Estate Trust Earnings Call
Good day and welcome to the center space fourth quarter earnings Conference call, all participants will be in a listen only mode.
Should you need assistance. Please signal our conference specialist by pressing the star key followed by zero.
After todays presentation, there will be and opportunity to ask questions. We're asking the question you May press. The Star then one please.
Please note that this event is being recorded I would now like to turn the conference over to Mark Decker Chief Executive Officer. Please go ahead Sir.
Thank you operator.
And good morning, everyone and you May know, we are now doing business as center space and trading on the New York Stock Exchange.
As the U S R.
The form 10-K for the full year 'twenty and 'twenty was filed with the SEC yesterday after the market closed.
Additionally, our earnings release and supplemental disclosure package have been posted on our website at centers based homes Dot com and filed yesterday on form 8-K.
Before we begin our remarks this morning, I need to remind you that during the call. We will discuss our business outlook and will be making certain forward looking statements about future events based on current expectations and assumptions the.
These statements are subject to risks and uncertainties discussed and a release and form 10-K, and another recent filings with the SEC.
With respect to non-GAAP measures, we use on this call, including pro forma measures. Please refer to our earnings supplement for a reconciliation to GAAP and the reasons management uses these non-GAAP measures and the assumptions used with respect to any pro forma measures and their inherent limitations.
Any forward looking statements made on today's call represent management's current opinions and the company assumes no obligation to update or supplement these statements that become untrue due to subsequent events.
I'm Mark Decker center space of the CEO and with me. This morning is Anne Olson, our Chief operating officer, and John Kirschman, Our Chief Financial Officer.
I'll start with a quick explanation about the name change and lots of people have asked and the rationale with simple we changed our business.
We were a business debt for 50 years of what's called the investors real estate trust or IRT T or Iraq, or I read and we built the heritage that we're proud of.
However, in addition to having the name few can agree on that business was one of the diversified landlord that own departments. Among many other things today.
Today, we are center space and we are taking the 50 years of proud heritage with us.
But we are now of customer and team centric housing company.
In fact, we've been center space for a few years and so the name change was a good opportunity to close the chapter on our transition and rally around our mission with the name we felt passionate about and.
And as of Joe to anyone who'll listen no one needs any coaching on how to say or spell center space.
Simplicity is powerful and on balance we're confident confident this helps us attract talent, which is so important.
We had this name approved and ready and May but held back in light of Covid, social unrest and all of the other pain and difficulty of 'twenty and 'twenty.
As the year came to a close however, it felt great to and with a real positive I know it resonated with our team and a more than earn something fun. After a banner of after a banner year.
We kept our customers and team safe went above and beyond to be flexible and proactive and delivered stellar financial results.
Couldn't be more honored to be of part of this team I'm, especially excited that there are nearly 100 and team members that are new owners of our business. Following last week's inaugural leadership conference and I am sure. If you were on this call and congrats to those fellow owners and partners.
I know the people are eager to talk about the future as I am but I'd like to take a minute to recall some of last year's highlights because 2020 was a year, where our company demonstrated real resilience and continued improvement in.
In 2020 center space was added to the S&P Smallcap 600.
We grew our same store NOI of one 8%, which is among the best of the public apartment companies and we grew our year over year core <unk> per share by one 6%.
We exited some of our oldest and most inefficient assets at excellent prices and added high quality assets, and Minneapolis, and Denver growing Rx.
Back to the exposure to these focused markets for 2021 to over 40% of our net operating income.
We also completed $14 million of value add exceeding our 2020 budget, while hitting our underwriting targets.
And lastly, while it closed in early January the work was done in 2020 to allow us to add another asset Union point, and Longmont, Colorado, bringing us to five assets in Denver, We believe Denver remains well positioned to benefit from shifts and how we all live and work now and in the future.
In connection with Union point, we priced nine and a half year money at two 7% a spread of 170 basis points over the 10 year and among the best execution for a direct private placement across the real estate spectrum, which is the strong endorsement of the progress we continue to make as a corporate credit.
All of this occurred against the backdrop of Covid with the lean team that made sacrifices all year long to make great homes for our residents and investors capital.
Which takes us to the present.
In 2021, we forecast lower revenue growth as the pandemic chose our pricing power through the fall and we returned to normal expense levels.
And this time of transition for the economy from locked down to a return to some normalcy, we are going to invest and position our company for the future.
Most importantly, we're embarking this year on work that will enable us enable us to revamp of our operating systems.
As we build on our capabilities to codify.
The old accountability and consistently deliver a great customer experience as efficiently as possible.
We believe the investments we make now will bear fruit as we continue to grow and as fundamentals improve which we expect to occur this fall and beyond.
We may prove conservative and our view of revenues I hope that's the case, but it's out of our control and of course, the upside scenario is always the easiest one to figure out.
The downside case as the one we need to prepare for.
We are setting the table for the years ahead, and we're confident that our operations balance sheet and capital allocation discipline will position us well and the investments will be worth it.
We've talked a lot over the years about our north star being the growth of distributable cash flow and.
And while the guidance the John's going to speak to in a moment produces lower year over year core of <unk> at.
And it amounts to roughly flat distributable cash flow per share and positions us for growth and 22 and beyond which we believe is the most important thing.
Lastly, I would like to offer some brief thoughts on the opportunities and our outlook for the investment market.
As you see we expect modest acquisitions funded with capital recycled from dispositions and our ATM.
We certainly like to be more active as possible and as always our motivations are improving our portfolio of quality as measured by geography margins and growth profile of the.
And the rest of the stories that we need to make investments that are accretive to cash flow per share and neutral or better to our balance sheet metrics pricing continues to favor sellers as capital of <unk>, increasing exposure to shed the and beds.
We always have a robust pipeline of opportunities.
And we find it today Nashville is the most aggressively priced with Minneapolis and Denver.
Just behind and then relative parity to one another display.
And this pricing is driven by a combination of factors, most notably market size and liquidity growth assumptions and in all cases less product for sale and larger coastal markets.
Which which puts more marginal dollars and our markets. The cost of debt capital also continues to accommodate long term investors bullishness and apartments nationally remain at historic Wides to the tenure.
I'm happy to discuss more of that and Q&A, but for now I'd like to turn things over to our Chief operating officer and Olson.
Thank you Mark and good morning, like most people our team was happy to put 2020 behind us and as cautiously looking forward to the opportunity as 2021 more Brian <unk>.
And 'twenty was the year that was disrupted by working from home quarantine regulations closures cautious reopening cleaning and more cleaning and the myriad of operational changes from virtual leasing to facilitating rental assistance for our residents financially impacted by the pandemic in.
In spite of that we were able to perform well by focusing on the basics of the business holding occupancy study to optimize our revenue closely monitoring our expenses and focusing on collections.
And the fourth quarter, our weighted average occupancy increased 60 basis points over the third quarter 2020, and 1% over fourth quarter 2019, our weighted average occupancy in 2020 of <unk> 94, 8% was the driver of our two point and 1% revenue increase for 'twenty and 'twenty over 2019, and together with particularly strong revenue performance.
<unk>, and our billings and rapid city markets, as well as and Omaha and across North Dakota.
As we saw and developing over the course of the year. The headline of our portfolio performance was our smaller markets. We saw a significant year over year NOI gains and these markets well.
All of our larger markets like Minneapolis, and Denver, which faced more regulation longer eviction moratoriums and were impacted by higher unemployment rates were able to maintain strong occupancy rental rates decline.
In the fourth quarter, we realized the blended decrease of 70 basis points on new and renewal of leases just 16% of our lease has expired and the fourth quarter, which highlights the large opportunity we have for the 2021 leasing season.
In 2020, we increased our disclosure as we closely monitored collections and bad debt for the fourth quarter, we realized strong collections with 98, 6% of expected residential revenue collected January of collections maintain that trend with 98, 7% of expected residential revenue collected or.
And our fourth quarter bad debt was $1 four per cent of revenue compared to 30 basis points and the same period and 2019.
In 2020, we deferred a total of 301000 of rental revenue and currently 56000 of that deferred amount remains outstanding.
Less than 4% of our portfolio side of assistance or a rent deferment program and 2020 and as the victim eviction moratoriums burnt off across our portfolio. We expect expect to see our bad debt returning to historical norms by the end of 'twenty and 'twenty one.
Despite the negative impact the pandemic had on our revenues we were able to hold our same store NOI margin to a decline of just 20 basis points and 2020 compared to 2019.
While our NOI margin was significantly impacted by our non controllable expenses, particularly of taxes and insurance are gross margin increased year over year by one 4% to 73, 9%.
As we look ahead to 'twenty and 'twenty, one and we're expecting wage pressure higher health care, and increasing insurance cost and negatively affect our expenses coupled.
Coupled with continued uncertainty about revenue growth our outlook reflects the challenges we face, but there are bright spots momentum and our value add strong occupancy increasing traffic levels year over year, and the balance we have and our portfolio across small and large markets and across product types.
We will do all we can to continue our of rise by five of efforts and that have been characterized by revenue optimization expense control and strategic disposition and acquisition activity.
In the fourth quarter, one of our initiatives drove a one time increase and our revenue of 450000 and as we shortened our rubs billing cycle and connection with the conversion to a new <unk> provider.
Our value add common area and unit renovations programs also had a strong fourth quarter with 81 units renovated and significant progress on common area renovations. We are seeing the increase revenue contributed to our positive results and Minneapolis, and Omaha, particularly and Minneapolis. The renovation projects at two of our suburban assets were able to offset the declining rates we.
And our urban portfolio.
Looking ahead to 'twenty and 'twenty, one and we're expecting the renovated approximately 725 units across our portfolio.
We're going to leverage what we learned in 'twenty and 'twenty as we seek to maintain and expand the efficiencies that we've found we're going to live our mantra of better every day is by striving for constant improvement and through the the little things, we do each day that enhance the lives of our residents and fellow team members are new normal is going to be better every day and while our economic forecast contains of.
A lot of uncertainty we have demonstrated that we will control what we can for the best possible outcome, given the circumstances, we face and continually inspired by and grateful for our teams across our regions and and our support offices and then I'll ask John to discuss our overall financial results.
Thank you I am last night, we reported core <unk> for the 12 month period, ending December 32020 of $3 78 per diluted share and increase of six tenths of one 6% from the prior year.
For the quarter ended December 31, 2020 core of <unk> was $1 and <unk> per diluted share and increase of six <unk> or six 3% from the prior year.
The increase and full year core <unk> is primarily due to lower interest G&A and property management expenses, partially offset by lower NOI due to dispositions as well as the impact of COVID-19 financial recession, reducing the same store NOI growth.
Looking at general and administrative expenses total G&A was $13 $4 million for the year of.
The 7% decrease from the prior year. The decrease was primarily from the $720000 of lower compensation costs driven by open positions left on the field $280000 from legal costs related to our successful pursuit of of construction defect claim and the prior year.
Sure.
And a $620000 reduction and travel consulting and other costs due to the COVID-19 pandemic.
Offsetting these decreases was an increase of $400000 from nonrecurring costs related to our December 2020, rebranding that center space.
Property management expense was $5 $8 million for the full year, a decrease of six 2%, primarily driven by lower compensation costs due to unfilled positions and the reduction in travel and advertising.
Moving to capital expenditures as presented on page S 15 of our supplemental.
Full year same store Capex was $10 7 million and increase of $2 $2 million from the year ended December 31 2019.
Full year same store Capex was the $1008 per unit the increase in Capex was primarily due to $750000 for replacement of the roof damage by hail and the acceleration of capital costs related to assets undergoing value add renovation.
Looking at value add capital, which is also presented on page S. 15 of the supplemental we increased value add capital spend $8 9 million to $13 9 million for 2020, reflecting our continued expansion of the value add program since its 2018 and reboot.
Turning to our balance sheet as of December 31, 2020, we had $97 $5 million of total liquidity, including $97 $1 million available on our line of credit.
During 2020, we disposed of four apartment communities and Grand Forks, North Dakota, one commercial property and one parcel of unimproved land for a total sales price of $44 million.
Proceeds from these sales were used to fund the acquisition of Park House apartments.
During the 12 month period ended December 31, 2020, we repurchased and retired approximately 237000 series C preferred shares for an aggregate cost of $5 $6 million.
The yield to call on the shares was 10%.
We also issued 829000 common shares under the ATM program and 2020 at a net average price of $71 and 39 per share for total proceeds of approximately $59 million.
In January of 2021, we amended and expanded our note purchase of private shelf agreement with Prudential to increase the aggregate amount of available from $150 million to $225 million and issued $50 million and unsecured senior notes due June six 2030.
At a rate of two 7%.
Under the amended shelf agreement, we have $50 million of capacity remaining.
We believe the expansion of this shelf facility and pricing of the January note further demonstrates our ability to access all forms of capital, including the investment grade pricing on new financings.
And looking towards 2021 financial outlook as detailed on S. 16 of our supplemental we expect same store NOI decreased by 0.5 to three 5% and 2021.
The decrease in NOI.
Reflects expected 2021 same store revenue to come in between the 0.5% decrease.
And a 3.0% increase with same store operating expenses, increasing between four and seven and 5%.
We expect revenue increases to come from rent growth and other income initiatives offset by lower occupancy.
Impacting same store expense growth is an estimated increase and non controllable expenses.
From increased real estate taxes, and continued pressure on insurance costs with 2021 premiums increasing 15% over 2020.
We continue to see pressure on insurance premiums as carriers exit the market, though we expect the market to stabilize somewhat and time for our 2022 policy renewals.
On the controllable side of operating expenses, we are projecting net expenses will return to pre pandemic levels.
This forecast is impacted by the belief, we will not see widespread lockdowns and including the shutdown of common area of facilities and our markets during 2021.
As a result, we are expecting of $1 million increase and common area repair and maintenance costs. In addition, though we have institutional life some of the lessons and cost savings from the pandemic, we see pressures on the compensation, including healthcare and other benefits and PPE costs.
For operating our community safely and compensation costs, we see increasing wage pressure and our markets. Despite the recession and we expect that to continue with 2021 same store compensation costs, increasing nearly 4% as we respond to wage inflation and experience higher <unk>.
<unk> cost as you to utilization levels returned to pre pandemic levels now looking towards general and administrative and property management expenses, we are expecting the combined cost of increased 14% to 23% for 2021.
Which includes an estimated $1 $1 million for nonrecurring technology implementation cost compensation costs are expected to increase $1 2 million as a result of filling open positions to support our 2021 tech initiatives as well as $850000.
And the higher long term incentive plan costs offsetting these increases is a decrease of $400000 for nonrecurring rebranding costs that were incurred in 2020.
The nonrecurring implementation costs are added back for purposes of core <unk>.
Looking at same store capital expenditures for 2021 cost are expected to range from 912 to $1012 per home, which includes $1 $2 million for roof replacements for assets damaged by wind and hail storm in 2020.
<unk> AD expenditures are expected to be $15 million to $20 million as we continued to develop our value and pipeline.
And the investment front, we assume investments between $145 million to $170 million, which includes the January acquisition of Union point.
Anticipated disposition activity ranges from $55 million to $75 million with the proceeds used to fund the Union point acquisition.
We plan to continue being active with our equity issuances under our ATM with an estimated $50 million to $70 million of net proceeds expected in 2021.
2020 was a challenging year, but we could not be more pleased with the efforts our team made to overcome all of the obstacles and deliver top performing result.
<unk> 2021 is another challenge, but as the team we are focused on delivering.
Strong operating results improving the balance sheet expanding into our target markets, all while investing to create a best in class operating platform.
I'd like to thank our team members, who dared to win over the last year and who work to make better every days for our residents.
With that operator, and ill turn it back over to you for questions.
Thank you and me.
We will now begin the question and answer session.
You're asking the question you May press stores and one on your telephone keypad.
If you're using speakerphone, please pick up your handset before pressing with the keys to it.
Your question. Please press Star then two and it.
At this time, we will pause momentarily to assemble the roster.
And the first question today will come from Gaurav Mehta with National Securities. Please go ahead.
Hey, Thanks, good morning.
Well first question on the expenses I was hoping and she will provide some more color on the technology investments.
And to make this year.
Good morning graph of.
And take that yeah. Good morning.
So the technology investments really range from.
Infrastructure investments into our core operating platforms like our accounting system to moving our our platforms and what we call and modern digital workplace with M. S 365 and use of teams.
So it's a it's a phased approach and the investments will happen over three years, we do expect to gain some good efficiencies and better reporting and data that we can use to make.
More data driven decisions and so we are expecting a good return on that investment over time and this year is just the first steppingstone. We have we have started the implementation and the our first implementation, which is our modern digital workplace and we're moving into our second implementation, which is the deployment of the Yardy stack of.
Of products.
Okay.
The second question on the and watchman guidance for 2021.
And I think in your prepared remarks, you talked about aggressive pricing and Nashville, and Denver and.
And Minneapolis as well, so maybe talk about some of what kind of acquisition opportunities, you're seeing and the market and and.
And in terms of market are you expecting Joe.
The problem more capital and Denmark, given that Nashville and remains aggressive.
Yes, great question I mean, they're real.
And the honest answer is we're not sure we'll have to see what comes our way but.
What we're seeing is that are you.
Generally speaking older assets with lots of capitals are being priced.
Pretty close to newer assets that have less capital needs. So are our debt.
That helps us towards wanting to buy of newer assets with the.
With more modern systems and just less.
Capital right in front of us.
So in general we're looking at newer products wherever we can find at the Union point is of Great example.
That asset was delivered.
About now probably 15 or 16 months ago, and essentially stabilized during COVID-19, so and our mind and opportunity.
And do better when things get better just in the overall economy, but.
But listen if everything is equal.
<unk> be putting capital in Nashville and things.
Arent equal.
And if the Nashville is off the table and everythings equal between the twin cities and Denver, we're probably putting capital in Denver, but.
But we're looking into twin cities as well so.
I wouldn't say that we're a way wide of market. We're just.
When you so it's easy to get behind how these help our portfolio overall.
It's harder to figure how they add value and in the very near term so.
When someone wins one of these.
Assets, we don't think Theyre crazy. They just don't have to report quarterly numbers and.
And so I think they're making a good bet, we think the bed still makes sense on the actual market.
And.
Hopefully, we will find a way to connect on some things that make sense for us kind of on both on both fronts. Good from the portfolio good for the shareholders and the.
And and the measurable medium term.
Okay. Thank you that's all I had.
Thanks, Rob.
And our next question will come from John Kim with BMO capital markets. Please go ahead.
Thank you.
So it looks like you lots of momentum on the blended lease rates and the last couple of months of the quarter.
Can you just share with the new and renewal rates were on that 70 basis point decline of the quarter and also.
And what's the blended lease growth rate was in January.
Yes, good morning, John.
And please. Please go ahead, yes, hi, Jon so our new leases and the fourth quarter were down three 6% our renewals have held strong and they were up two 3%. So that is the blended 70 basis point decline.
And again that was about 16% of our leases expire in the in the fourth quarter. So fairly small samples that even smaller sample as our January of leasing which is the only about 3% of our portfolio.
We had really strong renewals at three 6% our new leasing remained about steady at negative three 5% blended for of negative one 5% in January.
Yes, so just to tack onto that John and I think when we look at this year.
I hope this is evident and our and our prepared remarks, but we're not forecasting a lot of momentum and this and what is the spring leasing season, where we do a lot of our work. So we're hoping we're conservative about that and if if that if the trends. We just went through held which which year over year felt pretty good both and.
The fourth quarter and January.
It might be in better shape, and we're planning but.
That's the big question.
On that new lease rate, how much of that is concessions versus the the phase III change.
Yes, not much at all so we really try to avoid of concessions and look at the effective.
The effective rent and our system.
Those concessions can kind of skew how you look at comps and and so theres very little concessions and those numbers, okay and mark.
You just mentioned on that and.
And so that youre not.
Projecting a lot of momentum.
And in your prepared remarks you.
You also discussed being prepared for the downside scenario and revenue can you just elaborate on why you are being cautious.
Is this supply risk score the eviction moratoriums and some of your markets or.
And the other factors.
And do you want to start yeah. So.
Data from Costar, and axiom metrics and other advisors.
The kind of help us watch what the trends are and project into the future and most of those resources, particularly through the fall and even into the winter months. When we are doing our budgeting and forecasting for next year, we're projecting flat or declining revenue until the third quarter. So we follow those trends not exactly we took it and.
Extrapolate it onto our experience with our portfolio and how we've outperformed those projections and the past, but that really led us to our conclusion that we were going to be conservative on revenue and start ramping up that revenue once we hit the third quarter.
As we've discussed by the time, we get to the third quarter are the majority of our leasing season and our leases have rolled so that's really what's impacting it is our exposure to those you know the.
And second quarter and the beginning of third quarter is really a pretty strong from them from.
And from an exploration profile standpoint, so if we if we don't get a pickup in the market.
And.
Early in the season, then and then we're going to be lacking and those leases for a year at fairly flat revenue.
Yes, that's.
And what she said.
And what what are you expecting as far as occupancy of $94 eight last year do you expect occupancy to tick up or you're just trying to maintain.
Yes, I think where we're really focused on maintaining the occupancy really and a tight range. This year.
We think that we might see it go down 70 basis points or so during that time that it goes down we would expect that that's our opportunity to be pushing rents up but we'd really like to manage given our conservative view of where revenue might be we're looking to manage our occupancy and a pretty tight bandwidth this year.
Okay and my final question is on the insurance premiums increasing 15%.
I think that's pretty consistent with what your peers have been saying youre not in a lot of locations, which have a lot of natural disaster risk or some of the teams can you just elaborate on that.
The big increase you're expecting and then.
Also like do you expect it to moderate in 2022.
Yeah, So John.
I think theres a couple of things going on number one is that the insurance market. Just generally speaking is is not excited about habitation of insurance right now.
Because of people live their 24 hours and the <unk>.
Smoke cigarettes, and have parties and leak water and do all sorts of things that they don't do and office building. So.
We have seen and step away from that we've also seen of generally.
The tough several years of of real.
Cat losses.
Cross the world and I mean, its like a balloon and there's only so much money and the world for insurance and.
And and.
And then our particular issue you're right, we don't really have a lot of.
Hurricanes or things like that we have Hale Hale is probably our biggest natural.
Thing and hail went from.
Being and all other payroll, meaning it was included in our sort of general policy of having its own rider, which was a pretty.
The big hit.
But we do expect it to moderate and in 2022.
Based on what we're hearing from.
And from that market.
Great. Thank you.
Thanks, John.
And our next question will come from Amanda Sweitzer with Baird. Please go ahead.
Thanks, Good morning all.
Following up on your fundamentals you had a nice uptick in the sequential occupancy and Denver. This quarter have you seen pricing power and throughput at all and the urban areas of that market.
Yeah go ahead and yeah, we haven't.
I think we're kind of holding at the bottom. There are there are some bright points of our renewals are starting to get some pricing power there, but the new leasing is still pretty effective, particularly in the urban area.
We do have some non same store assets and the.
In the suburbs that are looking stronger, but those urban assets are still feeling pressure of supply and social unrest.
Yes, so its rhino and west and Amanda.
And at Rhino, excuse me and West and.
That's helpful and.
And then kind of higher level on capital allocation and you think about portfolio construction and where are you comfortable expanding your exposure to Minneapolis and Denver can you don't find those attractive opportunities of Nashville, and is there a point, where you expand your target market list.
The answer is we're reasonably comfortable with the with a lot of exposure to these markets a lot as defined by.
I mean, I don't know I can imagine and we could go higher from here and each of these markets and if we find good opportunities we will that might.
Push us to expand the list sooner or push us into Nashville, I'd say with greater energy, but.
Okay.
But I think on the one hand, but as we've talked about having three markets was the big big lift for us in terms of opportunity set because we went from two to three.
But at this time, we're holding there I mean I think we're always.
Watchful for opportunities that are and other markets that are.
And somewhat transformational, but but we're not those are hard to connect on and we and they would have to be and markets. We really like so we've done a lot of market work we have.
The top 10 market list.
But for now, we're really focused and Nashville, and and if we continue to Miss and if then then we'll reevaluate, but it's only been less than a year.
Fair enough and thanks for the time.
Thanks Ananda.
And our next question will come from Rob Stevenson with Janney. Please go ahead.
Good morning, guys.
John did you say, how much youre expecting property taxes to be up.
Excuse me I don't think I gave that on there.
But they are going to be up nearly 4%.
So okay.
Less than what they went up for 2020.
But still a big increase.
Okay, and does that certain markets or is that across the board for you guys.
Yes, it's really across the board I mean, it definitely hits for example, we got a couple of properties.
And going from non same store of the same store and Denver.
The shift from timing wise or just now getting hit with.
The adjustment for the purchase price we paid for them. So.
We do have some of those kind of Denver will be hit hard this year, but really it.
It's getting to where we underwrote. It so it will just look but generally speaking outside of that no.
Pretty much across the markets and you'll recall last last year, we had a really big hit and Rochester. This year is much more kind of even.
Okay and John you were just addressing my next question Amit.
How substantial is the additions to the same store portfolio as you roll forward here and is that primarily concentrated in Denver.
Yes, we have two assets coming on from Denver.
And one and Minneapolis, So a total of three assets and now they are larger assets. So that will make a bigger impact, but really youll ceded and Denver.
And is that one of the reason is that one of the drivers of the low end of the same store revenue.
Range is the addition of those assets and at the same store portfolio.
The driver of the low and revenue range.
Negative 50 basis points for same store revenue growth in 2021, if those three assets. We're still excluded from the same store portfolio with the low end of the same store revenue growth range be flat or plus 50 basis points instead of negative 50 basis points without those I assume that goes under more pressure.
Sure than your than your upper Midwest assets.
So said another way are those new assets, bringing down our revenue growth is that what youre asking yes.
Yeah, I don't think so.
I don't have that in front of me, but.
But I don't think so and Denver.
Suburban market.
And then we also have.
Our suburban and we actually of two assets coming in from Minneapolis, One is a smaller urban asset which to your point.
Might bring it down but one is a suburban asset that should lift it up so I think all it's going to be and that's the other thing we have 2020 of the baseline of those assets. So you know to the extent they were urban asset been added the same store and 2021 I mean their comp for <unk>.
<unk> thousand 20 is not going to be a hard comp to compete against from a revenue growth perspective, yes, and actually just to clarify it's two assets from many not not jr. So the three assets that are coming in our freight yard, which is a small asset that is in the urban core of Minneapolis, South Fork, which is.
Good suburban b that we have been undergoing some value add on and Lugano, which is the suburban Denver.
Okay and.
And then other than the though the the same store revenue growth.
John I mean, when you did the the put together the guidance what's the major places where you were you had the least amount of confidence and whether or not stuff was going to come in at the low end of the high end of your expectations here.
Yes, I think revenue as always.
Especially coming out of a year like 2020, so I think revenue.
It's an area that.
We were getting a lot of data as Ann mentioned Fame.
There would be of recovery in 2021, but it would be the.
Later part of the year.
And if that happens sooner I think that will be very positive for our portfolio for us to get after it.
I think on the expense side so.
There are some uncertainty there because.
We hit a lot lot of Lockdowns and our ops team really responded well there they.
As as there was werent things for them to do at the property.
They were stepping in to do the work that contractors would normally do so trying to thread the needle on how do we bounce back in 2021, assuming properties are opened and the entire year.
What which of those <unk>.
Savings will we be able to capture and make permanent and which will be.
Returning to the norm.
Yes, I mean, Robert as you know it was the humbling year and the prediction business and.
As we've talked about where were work and serve it on revenues and were.
Forecasting or guiding expense I mean, we feel comfortable with our expense guidance and.
We're we're nervously watching on the revenue side now again, our portfolio performed very well in 2020.
But to John's point.
<unk> is open again, and so we're going to have it staffed and we're going to pay for those things things that didn't get done last year of your drive events or whatever are going to get done this year and all kind of doing twice, but we're going to do them and we didn't do them last year.
And then on the human capital side, I mean, we have forecast some reasonable.
Inflation and lots of utilization of health care, where again.
A lot of people didn't go to the Doctor for six months and they might this year and again they are not going to go twice, but theyre going to go. So we sort of have all of those things underwritten too.
The happen.
And we will see.
Okay and then the last one from me and on the sequential same store.
<unk>.
The average monthly rental rate for the fourth quarter was down 10 basis points from the third quarter levels, but revenue per occupied home was up 90 basis points I assume the GAAP like many of your peers is mostly fees, but is there anything else and theyre driving the diversion and can you also talk about what youre seeing fee wise here to cause the sequential jump and that number.
<unk> of that magnitude.
Yeah, I think in the fourth quarter, we had a unique the onetime.
Revenue of the Jamba of 450000 related to of pulling forward and shortening the billing cycle on our rubs as we converted two of new provider. So that that's really the driver of that revenue and the fourth quarter. So that's.
And one time.
And I do think of.
We are constantly assessing all of the fee is this and rubs initiatives as part of our rise by five we think will allow us to collect more of the rubs and increase revenue over time, but that $4 50 years of is the onetime driver and the fourth quarter and.
And what percentage of the portfolio is on Rob's first rather than individual billing for utilities.
Oh, I mean, almost all of it.
And even the newer stuff in the day.
Yeah Yeah.
Yeah.
Okay. Thanks, guys.
Okay.
Thanks, Rob.
And once again, if you'd like to ask the question. Please press Star then one and.
Our next question will come from Buck Horne with Raymond James. Please go ahead.
Hey, Thank you good morning, I'm, just kind of ask one of the amandas question just for a slightly different market, but just if you're seeing any difference in pricing or performance recently and and Minneapolis St. Paul in terms of urban core performance relative to the suburban or just any characterization of.
On the on how the different property locations are performing and the Minneapolis area.
Yeah. Good morning, Bob Thanks, Thanks for that the the.
<unk>.
The there's no question the urban core is.
A much tougher much tougher sledding from a pricing power and operational perspective, so we really have three assets.
That are affected.
And of head on and one is called the OXXO, which is right in the urban core and St. Barbara bought from the XL Center, which normally is a very vibrant place I mean, you know.
And we're getting close to.
The heart of state hockey finals normally that place would be booked solid for two five weeks and all of the bars and restaurants will be going and.
Ecolab is right there Theres 8500 hospital jobs right. There I mean, there's just a whole bunch of things that are make that submarket really awesome and most of them are not operational right now so.
If you're the executive from Ecolab, who lives and our apartment and as Ben and Viki and weekends at your.
Cabin, which we have several of those they don't need and department this year and they didn't need it and they didn't need it when the rental came up.
The.
The two bars that are in our space there.
And.
One is closed one is is doing their best.
But really struggling because.
When it's not hockey week, and it's the wild or it's the music or whatever so.
Similar dynamic and Minneapolis, we have two assets read 20, and freight yard, which are both also and the urban core and just benefit from what is great about cities, which is food music people sports et cetera, Adjacencies to the office all of those things are just.
And are on hold right now so we're seeing I think last quarter, we talked about this and I don't have the specific and may be able to add but we were seeing at least on lease down 15%. There. We are holding occupancy and I would say if you looked at where we are and those three assets versus the sub markets, where more occupied kind of three to five or six points more occupied than market.
But.
But look until it's fun to be back and the city again.
I think those assets are going to continue to suffer.
And the suburbs it is really a totally different story.
Our our product there thats more of that I would call of <unk> product is somewhat supply tested but again, we're staying full.
Seeing flat to modest positive or modest negative brands.
And then and of suburban B.
Where.
We're really seeing some pricing power and we've continued to execute on value add so.
And I guess hopefully that answers the question of if not please and please keep yeah got it. Thank you that's great transparency. Thank you for all of that color. Thank you very much.
Switch over to the just the thoughts on the ATM issuance of the equity issuance throughout the year. Just how are you thinking about potential timing of that you anticipate of more ratable kind of.
Just issuance over the course of the year is it going to be structured the.
Coincide with transactions as they come up how should we processed are you thinking about the ATM part of the capital raised this year.
Yeah, I mean listen we're we're price sensitive so.
That I get I guess, we'd lead with that but we're going to be fundamentally kind of.
Thinking about it on a ratable basis and then we have.
We are we enjoy right now access to that.
Private placement market and that's something we really want to keep so we have to watch our leverage ratios there.
And with with the Union point, you might see us either raise the ATM equity or dispose of assets to kind of put ourselves back in line there from a leverage perspective, but.
Listen we have lots of opportunities.
We usually have a lot more opportunities than capital.
And.
And so that's.
And that's the other governor so it's priced its opportunity.
And it's kind of managing our overall balance sheet exposure.
But I mean.
If I went from if you are asking a modeling question John jump in and if you think I've got this or I would just model it ratably over four quarters.
They don't let me answer the modeling questions of John do you want.
I will confirm that.
Great. Thanks, guys that's great.
Thank you Bob.
And our next question will come from Daniel Santos with Piper Sandler. Please go ahead.
Hey, good morning, Thanks for taking my questions. My first question was on I was wondering if you could maybe talk a little bit about cash flow and dividend payout just given the lower than expected guidance. It seems like the payout might be a little tighter than we would've anticipated.
Yes.
I suppose everyone, we don't reported and <unk> number and as we've noted the street looks at it.
Differently.
And based on how we count and <unk>, which I think is reasonably conservative we cover the dividend and 'twenty and we'd expect to cover it in.
In 'twenty, one and both cases.
Healthily.
When you look at it on a 12 month basis. So.
And I don't think were at risk of raising the dividend and.
And I.
As one trustee I wouldn't be in favor of cutting it.
Got it that's helpful. And then just I was wondering if you could give us some color on maybe some of those smaller markets and it performed really well like the North Dakota, and South Dakota, and just like what's your sort of outlook.
Those markets given their strength and 2020.
Yeah, I guess I'll start by saying.
A lot of what we've done on the pruning assets, there or what we call pruning assets as helps where we've we've left ourself with the portfolio that is generally speaking younger generally speaking higher rent and more efficient from kind of of human capital basis. So.
It's kind of started there, but then and maybe you could talk specifically about the the operations.
Yeah, I think on the in the in the smaller markets. We have the advantage of not having the supply that we have that we see and some of our larger markets and some of those smaller markets, particularly the rapid city and billings have benefited from in migration. So accelerated population growth that wasn't expected in 2020 and.
That may continue into 'twenty and 'twenty, one we have been somewhat conservative in forecasting out what we think will happen across north Dakota, and and billings and rapid city, given our given the historical slower growth of those markets.
I think we did see a good good increase this last year that we saw more people moving around.
And we're able to push lease rents in those markets.
And those have been kind of bright spots and the portfolio even in the fourth quarter and in January.
But I don't I don't know that we think theyre going to outperform the suburban market, particularly the suburban markets as Minneapolis, and Denver, We think are going to perform just as strong or stronger than the small.
Yeah, and it's interesting I mean, there's a there's a very strong broker we work with who is based out of Bismarck and she would say hey, listen we're open.
I mean.
Which you know setting judgment aside I mean, it's just.
Easier to live and do business and a place where.
You can do things and I think that has been.
A powerful catalyst as well.
Got it that all makes sense I appreciate the detail and congrats on the strong quarter.
Thank you. Thank you.
And our next question will come from John Kim with BMO capital markets. Please go ahead.
Hey, Thanks and just.
Follow up question is on your guidance.
You guys mentioned that you expect bad debt to improve during the year is that contemplated in your same store revenue.
Guidance for the year.
Yes, I think.
For the year, our year over year, it's almost flat because if you remember we didn't we had our normal of round of bad debt and Q1, and I think Ams comments youre talking about where we're going to be by the end of the year, but.
Yes.
That improvement is contemplated but on a year over year basis, It really works out to be flat.
Okay, and your disposition guidance of $65 million at the midpoint how realistic is this figure just given.
The potential repositioning efforts.
I'd say, it's pretty realistic.
I mean.
I think this is our first year, giving acquisition and disposition guidance.
So, yes, I mean.
And we're serious about it.
As was just pointed out kind of at the beginning of the last.
The question I mean.
We do like the portfolio's debt, we have and the Dakota is now a lot better than what we had before because they are more efficient because they are generally speaking higher rent.
And sometimes younger and so have less capital and so.
<unk> that lens.
It's something that we think really does make a difference we were very pleased to get off.
And the sales that we got last fall, the $44 million and Grand Forks and.
And.
When we're out on the road and we talk to the teams and we said when you when you talk of the teams before that happens there all of nervous and upset because youre going to sell of the thing that they work at it and they don't like that then.
And then you do it and and we have the ability often to keep a lot of our all of our best people and.
And they're like Oh. This is great. We were spending it's the 80 20 rule, where we're spending all of this time on these little things.
Debt have more problems. So I mean, we believe and that it's certainly.
Certainly we have a track record for trying to make the portfolio of more efficient and and we're going to continue to do that so really long winded way to say we mean it.
So your other markets of 10% of of your same store NOI.
And you sell 65 million and where does that other market six months ago day.
Oh Wow.
We're not going to comment on which market where the selling from.
We have opportunities to improve the portfolio of probably in every market, John and I'm not trying to be flip with you.
But that doesn't necessarily mean, it's coming out of that other market.
Okay.
And then you had rebranding cost of 400000.
That all youre going to have or is there more and 2021 and as all of our all of those costs going to be at the back to clarify zone.
Yes, that's it for the expenses I mean now it's just we'll sort of slowly be.
Uniforms of the uniform so everything else is just kind of and the budget but.
Yeah, and there won't be future add backs that that was the total.
And where some of those costs and G&A or and.
And the NOI and the fourth quarter.
And they were all and G&A.
Okay.
Great. Thank you.
Thanks, John.
And this will conclude our question and answer session I'd like to turn the conference back over each of the management for any closing remarks.
Thanks, very much and everybody. We appreciate your time and interest and and center space and we will talk to you and I and a couple of months.
Thanks very much.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
Yeah.
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And.
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