Q1 2021 Mid-America Apartment Communities Inc Earnings Call
The audio system, starting today's program. Please press the star zero.
[music].
Good morning, ladies and gentlemen, and welcome to the and I E first quarter 2021 earnings conference call.
The presentation, all participants will be in a listen only mode.
Afterwards, the company will conduct a question and answer session.
As a reminder, this conference call is being recorded today April 29th 2021 and.
I will now turn the call over to Tim Argo Senior Vice President of Finance and M&A and I E for opening comments. Please go ahead.
Thank you Christine and good morning, everyone. This is Tim Argo Senior Vice President of Finance for MAA with me are Eric Bolton, Our CEO Al Campbell, our CFO, Rob Delpriore, Our general Counsel, Tom Grimes, our CFO and Bryan Hill, our head of transactions.
Before we begin with our prepared comments. This morning, I would like to point out that as part of the discussion company management will be making forward looking statements actual results may differ materially from our projections and we encourage you to refer to the forward looking statements section in yesterday's earnings release, and our 34 Act filings with the SEC.
And which describe risk factors that may impact future results. These reports along with the copy of todays prepared comments and an audio copy of this morning's call will be available on our website. During this call. We will also discuss certain non-GAAP financial measures of presentation of the most directly comparable GAAP financial measures.
As well as reconciliations of the differences between non-GAAP and comparable GAAP measures can be found in our earnings release and supplemental financial data, which are available on the for investors page of our website at www Dot and AAC Dot Com I will now turn the call over to Eric.
Thanks, Tim and good morning.
We are encouraged with the solid start to the year as core <unk> results were well ahead of our expectations.
The recovery and rent growth is clearly getting started.
Our overall blended rents on a lease over lease basis are running slightly ahead of last year and our forecast for continued improvement.
The combination of the recovery within the Sunbelt economies that is just starting to build coupled with the continued migration of employers and jobs to this region are driving higher levels of demand across our portfolio.
We like the trends that we're seeing as we head into the important summer leasing season.
Our teams are off to a strong start this year with our unit interior redevelopment program and the rollout of our smart home technology platform as well as several new projects aimed at full repositioning of communities to higher price points.
We're excited about the upside of and rent growth to capture from all three of these programs. It was about this time last year when we hit the pause button on these projects in order to protect residents and staff during the initial months of COVID-19 and we expect to make solid progress this year.
Our new development platform continues to expand and we're excited to have closed the smart on our first opportunity and the Salt Lake City market.
And we see continued strong job growth and positive migration trends to this market and look forward to expanding our presence there.
Supported by our strong balance sheet and growing demand for apartment housing across our sunbelt markets. We believe we are poised to capture increasing earnings contribution from our development pipeline over the next few years.
As the Sun belt market economies begin to reopen it seems clear that based on the trends that we're seeing that the worst of the pressures associated with COVID-19 are behind us.
And as unique approach to diversifying across the Sunbelt has clearly work to soften some of the pressures surrounding the recession and the slowdown and leasing over the past few quarters.
However, we're frankly more excited about the prospects for outperformance over the coming recovery cycle.
The growing appeal of the sunbelt markets the upside that we have to capture and redevelopment within our existing portfolio higher efficiencies. We expect of harvest from several new technology initiatives and finally, a growing impact from our external growth pipeline, all combined to put MAA and a solid position for the coming recovery side.
Cool.
In closing I want to thank our team of associates for their hard work and efforts to serve our residents this past quarter with the special non Char team and Texas. It worked through the winter storm and freezing temperatures in February.
And your commitment to our mission of serving those who depend on our company is much appreciated.
Tom Thank.
Thank you Eric and good morning, everyone. The recovery continued across the portfolio through the first quarter leasing volume for the quarter was up 16%.
The blended pricing and achieved during the quarter up two 7%.
This is even with the very strong start we had and the first quarter of 2020 and up 200 basis points from the fourth quarter.
In addition, we were able to maintain strong average daily occupancy of 95 seven.
And all in place rents are effective rent growth on a year over year basis improved to one 3% and the first quarter.
Collections during the quarter was strong and we collected 99, 1% build and rent from the first corner, we've worked diligently to identify and support the who need help because of COVID-19. The number of those seeking assistance has dropped over time and April of last year. We had 5600 residents on relief plans.
The number of participants is to decrease to just $3 25 for the April of this year and all assistance plan. This represents only 20 basis points of April billed rent.
We saw steady interest and our product upgrade initiatives are off to a strong start for the year on our interior unit redevelopment program and as well as installation of our smart home technology package and includes mobile control of the lights thermostats security as well as the leak detection, we completed 906.
And for redevelopment units and 13975 smart home packages for the full year of 2021, we expect to complete just over 6000 interior unit upgrades and install of 22000 and smart home packages. We are also and the final stages of completing the repositioning work on our first six.
The full reposition properties net of another eight and will begin this year.
April's collections are in line with the good results, we saw and the first quarter as of April 27th we have collected 98, 7% of rent billed which is at least 10 basis points ahead of each of the comparable numbers for January and February and March of this year.
Leasing activity for April of strong new lease over lease pricing and April is running close to 4% of rent on the prior yet well and prior lease renewal lease pricing and April is running six 5% ahead of the prior lease our resident satisfaction scores remained strong and are actually ahead of last year.
120 basis points, which should support continued strong renewal lease pricing.
We still of a few down units in April as a result of the winter storm and including the impact of those average daily occupancy for the month of April is currently 96.1, which is 100 basis points better than April of last year and <unk>.
<unk>, which is all vacant units plus notices to the 60 day period is just seven 2%. This is the 180 basis points other than the prior year and supports our ability to continue to prioritize our focus on rent growth, we are well positioned as we move into our busy leasing season.
Led by job growth, which is expected to increase four 9% in 2020, one versus the negative 5% and 2020 prior markets, we expect to see the broad recovery and our region of the country continue we expect Phoenix, Tampa, Raleigh, and Jacksonville were our strongest markets and expect.
Houston, Orlando and D C and recover but at a slower rate.
I would like to Echo Eric's comments and thank our teams as well and have shown tremendous adaptability and resilience over the last year I'm proud of them and excited about their strong start to 2021, I'll now turn the call over to Brad.
Thanks, Tom and good morning, everyone.
Bester demand for multifamily product within our region of the country remains strong however of lack of properties for sale is causing a supply demand imbalance that continues to drive already aggressive pricing.
This robust investor demand supported by continued low interest rates has further compressed cap rates, which are frequently and the mid 3% and low 4% range for high quality properties and desirable locations within our markets.
The transaction cap rates from closed the projects that we underwrote were down 25 basis points from last quarter and down 50 basis points from first quarter of 2020.
We remain active and the transaction market and as outlined in our guidance, we are not forecasting executing on any acquisitions of existing communities.
And now and year end.
While the acquiring existing assets is the challenge we continue to make progress on the expansion of our development pipeline and as noted in our release, we closed on two land parcels and April as part of our pre purchase program, where we partner with third party developers.
We expect to start construction on both of these projects and the second quarter.
Our Atlanta project is a five story Midrise development located along the belt line extension and the West Midtown area of Atlanta, less and two miles from Microsoft recently announced the campus. We also closed on a four story surface Park project and the day break Master planned community of Salt Lake City, one of the top five master planned communities in the United States.
And we are excited to expand our footprint and the Salt Lake city of market that shares many of the attributes of that characterize our overall footprint good job growth great migration trends and a highly educated workforce and addition to these two projects we have several other projects our development sites within our footprint owned or under contract that we hope to store.
Construction on later this year and into next year.
We have seen material runoff and construction costs, and specifically lumber, but our construction team as well as our partners have done a good job, helping us to mitigate some of this increase we continue to see some supply chain disruptions on appliances cabinets windows and other items, but on the majority of our projects we've been able to work around these issues.
With minimal impact of our delivery schedules.
We continue to see strong leasing demand and our region of the country and our two lease up properties in Dallas and Fort worth as well as our under construction property and Phoenix, all continue to perform very well with rents and leasing velocity in line with or ahead of our pre COVID-19 expectations.
As part of our planned dispositions for 2021, we took our Jackson, Mississippi properties to market and the first quarter and received very strong investor interest with the strongest betting coming from portfolio of buyers wanting all four properties the.
And the properties, we currently have the.
Properties are currently under contract with our buyers inspection period, ending soon we expect this transaction to close and the third quarter. We are also on track to execute on the remainder of our 2020, one disposition plan and the fourth quarter.
Our view of new supply remains unchanged with the expectation that 2020, one looks very similar to 2020 based on 2000 Twenty's permitting trends, we still expect new deliveries to start trending down late this year and into next year before possibly increasing in 2023, reflecting the recent increase and permitting and starts data.
That's all I have and the way of prepared comments, so I'll turn the call over to al.
And thank you, Brian and good morning, everyone core.
Our share performance of $1 64 for the first quarter was five cents per share ahead of the midpoint of our guidance as expected operating trends continue to improve through the quarter producing same store revenue and NOI performance that was slightly ahead of our forecast providing about a penny per share and paper ability for the quarter. We continued to expect stable occupancy and strong pricing trends.
The growing impact of all thank you for and sell the remainder of the year keep in mind and only about 20% of our leases were effective and the first quarter and we still have the majority of our leases to be signed during the summer leasing season, and the second and third quarter.
The remaining favorability came from overhead and interest expense.
Which were both lower than projections from the corner the overhead costs are expected to grow more in line with our original projections as the year progresses, as our travel and other activities moved toward more normalized levels.
Winter storm year impacted of portion of our portfolio during the quarter were unusually cold temperature and electrical outages lands and frozen pipes and damage and a number of our Texas communities. Our operating teams work hard to take care of our residents and effected units back online quickly.
And we incurred some casualty and she losses during the first quarter relate to the storm the established and receivables and the vast majority of the costs, which are expected to be reimbursed the reinsurance coverage and net earnings impact of MAA. During the quarter was the only about 765000 primary related to Dan Yes.
Our balance sheet remains in great shape during the quarter, we paid off the 118 million of secured mortgages and expiring rate of five 1%. We also funded an additional 64 million of cost when the police completion of our development pipeline, which a quarter and included seven communities with total projected costs of $528 million of which $193 million remains to be.
London.
As Brad mentioned, we acquired two land parcels and April our of repurchase development deals.
Should begin construction later this year and as does.
Previously, we expect our development pipeline to grow to around 800 million by year end, which is well within our development of tolerance limits.
As Tom mentioned, we also continue to make good progress during the quarter on our three internal investment programs interior redevelopment and property repositioning projects and smart home installations, we funded the total of $22 7 million towards these programs during the first quarter, which are expected to begin contributing to our growth more strongly and late 2021 and 2022.
We ended the quarter with low leverage debt to EBITDA of only four nine times and with 644 million of combined cash and borrowing capacity under our line of credit.
And finally and I want to reflect the first quarter earnings performance, we increased our full year guidance range of of course.
All five cents to a range of 635 and 665 per share.
Our same store performance trends were essentially in line with our forecast and we expect pricing trends and continue to improve over the remainder of the year with the most favorable prior year revenue comparisons coming and the second quarter due to.
The initial impact of COVID-19, Lash, we plan to revisit guidance after the second quarter. When we'll have more clarity on several key assumptions. So that's all we havent. We are prepared comments. So Christine we will now turn the callback of of your questions.
Christy are you there.
Okay.
At this time, if you have a question. Please press star and one on your Touchtone phone store and one on your Touchtone phone you can always from move yourself from the queue by pressing the pound key.
We will pause a moment to allow questions to queue.
First question is from John Ken and John Kim with BMO capital markets. Please go ahead.
Thank you on your effect of lease rates they were or the.
Hey, Brian and steadily throughout each month, and the first quarter and it sounds like April coming into the 5%.
How does that compared.
To your original projections and what he came up with guidance for the year.
Yes, John This is al I think Tim and I can both of the tag team on this one but I think as we talked about we had expected to have strong pricing trends and our forecast for the year and.
And if you take our pricing expectations are built and our forecast is somewhere around two 5% blended for the full year.
And I think if you take a look of what happened last year.
Which was about 1.3% pricing you add what we expect this year of which would be which would in terms of revenue at about half of that production and you can blend those two together and come up with the 2%.
The point that we have and our overall revenue. So so we're certainly encouraged by the trends that we see in the price of that Tom talked about but remember as we talked about we've only had about 20% of our leases effective now and we've got a lot of the leases to come and the second and third quarter. So a long way to go yet and we will take another look at in the second quarter and we did plan for a return of sort of normal seasonality. So we expected it to.
B accelerating during this time and kind of move call. It January and July to be accelerating and then start to trend back down a little bit with with normal seasonality.
So it is the April data is that coming off of an easier comp from last year.
And you can think of it the trend down or alright.
Alright.
And with seasonality.
Second and third quarter.
And certainly on new leases. The April was kind of and the first month last year, where we saw the weakness. So we're getting some some good comparability there, but we would expect it to.
<unk>.
Continuing to grow from there and kind of return to the seasonality. So I think to Al's point.
It's certainly encouraging with the trends, we're seeing and we'll see how it plays out over the next quarters.
My second question is on the repurchase development program. What are the initial stabilized cap rate debt do you expect to have on that program and how does it how does that compare to the development yield.
Yes, John this is Brad.
So our pre purchase yields are generally in line with our with our overall development expectations. So theres really no difference and yields between those two two platforms, but I will say.
The deals that we have the seven deals on the books right now those are generally yielding about 6% we have seen some pressure relative to construction cost.
Obviously.
There's a lot of publications about that but we would expect around of 10% to 20%, 29% 20 basis points.
Reduction and costs associated with that but that's that's somewhat offset by if you just look broadly at our footprint and our region of the country rents continue to do very very well. So we expect some of that that increase and cost and the impact there to be offset by what we expect rents to do within our region.
Thank you.
Thanks, John.
Thank you. The next question is from Brad Heffern with RBC capital markets. Please go ahead.
Hey, good morning, everyone.
And just following up on on the April the numbers again.
It's the differential between the renewals and the new leases about what you would expect it to be and sort of a normal market for this time of year or is there still some COVID-19 impact that's hitting those numbers.
Yes, the others, Brad its Tom.
If things were looking pretty normal and we would expect.
To have that gap between new lease and renewal rate at this point and time.
And why this and the winter and then it begins to narrow and tightened in the summer.
Okay got it.
And then sort of philosophically I mean, it's been a long long time since MAA has done any equity issuance I'm curious what the market is sort of implying a lower cost of equity at this point, whether you would ever think of it makes sense to raise money and and maybe accelerate development and or maybe if you found.
Rack of acquisition opportunities or will you continue to sort of.
And just recycle capital and use the cash generated by the business.
Well, Brad this is Eric at the.
At the moment, we believe that the pace under which we're able to find opportunity and deploy capital coupled with the asset sales that we're going to continue to.
Progress on we don't see a need for equity I think it's obviously something we continue to monitor if.
If the acquisition market began to change and some fashion that really yielded a lot more external growth opportunity we'd have to revisit that.
At that point, but.
For the moment, we believe that between the the recycling and the deployment opportunities we have debt and the capacity we have on the balance sheet.
We like where we are and the feel of a need to tap the equity markets.
Okay. Thank you.
And the next question is from Austin and worst Schmidt with Keybanc. Please go ahead.
Hi, good morning, everybody somewhat to the last question I mean, recognizing that competition for assets is really strong and cap rates are low but.
Given some of the growth you're seeing and and.
The strength and sort of the economic recovery here.
Have you considered changing your underwriting and getting a little bit more aggressive and growth.
And you know.
Some of the acquisition deals that you're taking a look at.
Well I mean, we certainly office Zurich County, we.
Constantly challenge, our thinking of bed on our underwriting and make sure that we're being.
As you.
And you know realistic as we can be and and what we expect rent growth to do and.
And so you know.
I think that at the end of the day, we're looking at adding stabilize yields to our portfolio debt.
We will.
The increase the overall earnings potential of the portfolio of long term and and I think that debt.
Right now what we see happening on the acquisition side frankly.
Requires a level of reach and the level of assumption for very long period of time that we just don't.
We have a hard time sort of getting comfortable with how we can make the numbers work on the on both the pre purchase program.
And on the on the New development, certainly is dilution associated with the lease up and the construction process there, but once those assets fully stabilized I mean, the yield is there pretty quick.
On the on the acquisition front I think right now frankly, you would have to be comfortable with.
I believe the level of dilution that is.
As longer frankly than what we're able to do on the on the development of front and pre purchase front. So we.
We think we're pushing it.
In terms of assumptions about as hard as we should and beyond what we're doing right now would require a level of reach that frankly, we're just not comfortable with.
Understood and appreciate the thoughts and then just going back to guidance I mean, we touched on lease rates a bit and given how strong they've been it sounds like occupancy is also continuing to ramp.
And the April so can you just kind of walk through the assumptions there for the back half of the year and how youre thinking that trends.
And how occupancy trends through the balance of the year.
Yes, so sort of arguments and going into the year, we dialed in about a 10 basis point drop in occupancy compared to last year as we focus on pushing pricing.
And we're around 90 595, six or so.
So kind of given where Q1 was and where we stand right now we feel good about that so we'd expect that to be pretty steady and again focus given this environment. That's a little more I'm pushing rents, where we can and kind of hold occupancy where it is.
Got it I appreciate it thanks guys.
The next question is from a bandwidth sweitzer with Baird. Please go ahead.
Thanks, Good morning.
The revenue growth recently and then.
The advice some of your smaller markets are there any differences between rent to income metrics and those markets relative to the larger markets or anything else that would impact your ability to continue push he knows large rent increases going forward.
No Amanda the rent income ratios and our small market as Ryan of small right.
And all markets is in line with those larger markets. So we.
We feel like the opportunity is.
We'll continue they're not worried about that at all.
Okay, and then it's relatively small dollars, but you had another double digit increase of marketing expenses this quarter that being caused by competitive new supply or driven by any single bank markets and <unk>.
From a rate of increase going forward.
And I think you know unexpected for the year, we will see this theres a little bit of variability and prior year.
Comparisons, but for the full year marketing will be.
At or below 3% and it's the combination of things. It is both our lead generating activities and some of the.
Some of the of pressure. This are some of the expense and this quarter was bringing online and some new tools as it relates to.
Online lead nurturing and our call Center solutions, which are helping keep our of which will help keep our personnel costs flat for the year.
Okay. Thanks, I appreciate the time.
You bet. Thank you.
Next question from Alex Commerce, with Zelman and Associates. Please go ahead.
Hi, good morning.
Looking at moving from out of state of what does that percentage look.
Look like and the first quarter and and how is that trending versus history I believe of quarter was 12 point too.
Is that the highest rates so curious how that's trending.
Yes, that's continued on and sure its right at the same percentage and that trend is of fraud.
We've been tracking that for a couple of years low point was in.
Q1 of 19, where it was nine point too. So it's about so about a 290 basis point increase or so.
And that trend is continuing.
And I would add Alex this is Eric debt.
And that sort of portfolio of level and so some of our.
The secondary markets it tends to be a little bit below that average, whereas he start to look at some of the markets like.
Austin Phoenix Raleigh.
Some of the markets that are are more likely to be benefiting from some of the migration out of California and places like that it tends to be a little bit higher as example, and the first quarter our move ins from out of state and Phoenix were double that number over 24% of our move ins and Phoenix and the first quarter came from <unk>.
Out of state.
Got it thank you for the color and.
Another question on the development.
And so the yield of around 6%.
And what is the spread versus a traditional cap rate on the acquisitions today and.
Is that similar spread of historic or is that spread gotten tighter or expanded because of the.
What we're seeing in the acquisition market.
Yeah, Alex I would say the spread is 100 150 basis points on average.
And given just the amount of capital that's looking for acquisitions right now and how that has driven down the.
And the cap rates and yields on acquisitions, and certainly development has been impacted a little bit by construction costs, but I would say and as I said in my opening comments cap rates are down 50 basis points of year over year. So I would say the spread has probably got a little bit bigger.
And given how much of the yields on an existing acquisitions.
And have compressed.
Great. Thank you.
And the next question is from Neil Malkin with capital One Securities. Please go ahead.
Hello, everyone. Good morning.
And whatnot.
Okay.
First question bigger picture question, Eric maybe for you.
And you think about your the sunbelt.
The markets and how quickly you guys are going and get a bigger portion of the pie because of the thing and then take care of employees with all of the corporate relocation et cetera, and you look at your multiple growth drivers lower balance sheet.
And where cap rates are trading and the market I mean is it fair to say that you guys are undervalued even at current level, then and you know.
And there should be a re rating, particularly the across Sun belt markets and in the portfolio like yours.
Well the needle I.
And I do think that.
And at least from what we see the debt.
The dynamics that are sort of driving.
Job growth and and ultimately our ability to drive rent growth.
And as compared to the non sunbelt markets I think that overall sort of dynamic is clearly the gun to shift and that shift was underway certainly somewhat prior to COVID-19.
And as much as been reported on and I think COVID-19 accelerated a lot of those trends and.
And so.
And that's one factor that would suggest to me that the the.
The demand dynamics and the driver of rent growth dynamics.
Core sunbelt versus non Sunbelt I think it's the new day and in that regard. The second thing I would tell you is debt.
And that I think cap rates have begun to adjust a bit in terms of how real estate is being price and gateway versus sunbelt markets and I think for many many years.
Debt a lot of investor demand.
And really drove cap.
Cap rates down and a lot of these gateway markets, particularly a lot of international capital that frankly was just more familiar with and more knowledgeable of some of these bigger gateway markets. I think again the last few years, particularly of the past year has begun to I think open eyes and the investment community of <unk>.
Net about the shifts that are going on and the U S regarding job growth and population trends and taxes and all of the other sort of factors that continue to favor the sunbelt and I think international capitals is also paying attention to that and I think as the consequence of that I think the historic the delta between cap rates.
For gateway versus non gateway markets I think that those cap rates have compressed certainly today and I think they will remain more compressed or that GAAP will be more narrow than it has been historically so I think there is some logic to what you're saying.
For both of those reasons and I think the next few years will tell a lot about how how these these companies are able to perform the platform soluble form and how investor appetite continues to evolve and I do think that there are some some logic to.
What you used to think about five or six years ago in terms of pricing of real estate and sunbelt markets versus where he should be pricing and today on a relative basis to non non sunbelt, it's a different day.
Yeah, I totally agree that the.
Great day.
Next question is about the operating side.
And a lot of I think recent conversations about the technology and how that shaping kind of the new wave of.
Sort of institutional.
Asset management property management.
Can you just kind of talk about.
What technology looks like for you guys and how you think about it and say over the next.
Three years in terms of implementing enhancements to the revenue process revenue maximization and I mean, and then on the expense side and from you know just like with how you think leasing is going to be property level.
Head count.
Anything along those lines would be would be really interesting and I think I mean.
And we need to be on the on the lookout for of the next couple of years.
And Neil I'll kind of give you a high level overview of and you're correct I mean, there's sort of transformation underway and.
And our business currently what we have rolling as and expanded.
The call center solution and.
And then allowed us to make some staffing Chad count reduction changes.
And how leasing and phone calls are handled onsite of also deployed our lead nurturing and software, which is automated prospect engagement technology sort of interaction with the prospects earlier and the sales process and automates the follow ups, we've upgraded the virtual touring we've implemented.
Mobile inspections.
And Im really makes it a lot clearer to the resident the condition of their narrow apartment when they move in and then clearly document the deficiencies if they move out and that's helped us.
And with speed of of inspection as well as clarity on billing and resident satisfaction, we're midway through deploying our mobile maintenance solution, which will give us some of efficiency.
And that's out of the business. We're also.
And what's coming next is improved and we've got self touring but automating that process. We've got some tests ongoing with improved multilocation sales support covering one property from another one and.
I would expect the the things we have underway right now.
Built into the 2021 budget is.
<unk> 30 30.
And 30 positions or about 3% of our office staff.
This will be handled through attrition and then I would expect through attrition and automation, we see another 30 to 50 head count reduction and 22.
Okay, and 30, this year and and three to 50 next year.
Yes at this point and so and evolving process.
Sure sure.
And I appreciate that thank you.
Thank you. Our next question is from John Pawlowski with Green Street. Please go ahead.
Thanks, Brad one follow up on your comments on the yield compression on development of the 20 basis points of yield compression.
Projects that you already started or about the start or is that on and of new new land use and currently sourcing.
That's all new John So the projects that we have under construction right now the those are intact no no impact on on construction costs or anything like that those are locked in when we start construction of those returns and rents and lease up as I made the point in my comments are all on schedule so that.
As of intact. So my reference really was was to the impact of costs related to new starts that we would have today and new underwritings that we have today on the development side.
Okay.
All of these construction cost pressures continue and improve more structural and less transient and you have.
The.
Supply chain bottlenecks continuing.
And he says that it'll be binary of loss.
The fever out of the starts.
Parking and this time next year, probably not given the spread of the cap rate.
John This is Eric.
And certainly hope so.
But I don't know I'm skeptical that.
Certainly that the pressures that we've seen thus far are sufficient to have any meaningful impact to slowing the interest level on development at the moment because of the fact that we are seeing the demand growth and the rent growth opportunity continue to.
Improve and get stronger and I think that's fueling of.
The level of tolerance and optimism on the on the underwriting side and the ability to withstand some level of cost increase.
I think that debt you could say debt.
And the other thing I would also add as long as cap rates continue to remain as low as they are providing the the developer of the opportunities exited and today's cap rate environment, and I think that again that debt that supports.
At some level the ability to withstand some increase and cost one of the things, though that we're beginning to see increasing inc.
Creasing the effect of.
Develop a more of anything other than land cost is just is just the permitting and zoning processes are getting increasingly difficult and and I think debt.
As we continue to see some of the sunbelt markets.
You know facing.
Much.
The population growth and demand growth and some of these infrastructure start to get under a little pressure I think you may see a little bit more stringent.
Behavior out of some of the lower.
The governments and zoning and permitting folks to to be a little bit more restrictive than they have been in the past and I think that probably as much as anything else may start to moderate things.
I'm comfortable that with all of the things that I just went through that it's likely that supply is not likely to materially increase from the levels that we see happening right. Now I think the pipelines are full of and it's just too much pressure at this point to see any material increase and supply pressure, but I think.
We're a ways away from seeing the material decline and pressure.
Understood the follow up.
A question of the law.
And the the down and units in Texas can you give us a sense for.
Just kind of the revenue impact in the coming months or quarters.
Yeah from the technology.
Acknowledging it's small and the guidance.
Yes.
I'll just start from that and I think Tom can answer and then I think what we'd say is the teams as we talked about the comments teams worked very hard to get the vast majority of zoom just online quickly and assay as we get through the end of April we have a very few only a handful of units that are down. So so overall and you've seen that the what I would.
<unk> talked about and my comments the impact you're seeing the majority of that impact and the first quarter already John a little bit will trail, but the most of that has been handled on the Thompson.
No John I mean, where the total of $2 51 down as a result of the freeze of 107 of those are already back up.
And the remainder will be up.
Shortly we had a lot more with damage, but the teams were able to service those units without generating turnover and it so they didn't go the downstairs.
Okay. Thank you.
And our next question comes from Nick <unk> with Scotiabank. Please go ahead.
Hi, Good morning, everyone. Two questions first on the concession impact your portfolio. Currently I don't think you break that out that's I missed it can you just give us a feel for.
Concessions, what how much theyre impacting.
Your effective rents right now and kind of your assumption about how and if you get a benefit from removing those concessions how that helps.
Rental pricing later this year, how youre thinking about that.
Yes, Nick I'll give you a quick overview and as you know of we price on a net effect of basis. So concessions are really only used one of the immediate comps and the submarket are using them.
And our concessions are in the lease over lease rates that we share with you.
But.
And we're doing and concessions for the same store group Pizza and the third quarter of this year at one 2% of net potential.
And it's dropped to just 80 basis points of net potential for the first quarter of this year, So and it's just sort of following this general trend of and improved pricing power.
And our same store revenue results, the waiver reported and clients those being spread over the life of the lease.
Okay, great. Thank you just my other question was on.
And migration to your markets you have side of this in the past you gave some data I don't think and gave an update today, but in terms of moving benefit from sort of outside of your markets people coming to your portfolio from coastal areas et cetera that you also gave some stats and the past about searches for rentals and the city.
The Atlanta, So I guess I'm just wondering if you have and update on that and also whether that let's say the has changed at all because obviously, we're starting to see some improvement in occupancy and coastal markets. So just trying to understand how that's impacting your portfolio. Thanks.
The trend is of the trend has continued and it was in 2019. It was nine 2% of our move ins from our out of market and it's moved up to 12, one and the first quarter, that's about where it was for the fourth quarter.
And then we're still seeing the.
The man of search rates and as Eric pointed out earlier.
And that's at a portfolio level read and some of our secondary markets get a little less of that and migration and place for exemption to places like Phoenix and it was double that rate of and migration from out of area. So very much.
And that trend is very much alive and well.
A big part of the bright future of the Sunbelt.
Great. Thank you everyone.
And our next question is from Nick Joseph with Citi. Please go ahead.
Thanks, how are you thinking about the further build out of Salt Lake City, and how large could that market to come.
Hey, Nick this is Brad.
And as we said when we first started looking at Salt Lake for operational efficiencies, we'd like to get that market to call. It six to eight.
Projects and the first stage for us given the just the dynamics of Salt Lake City has.
To go in there and partner with a developer who has a presence there and and ability to to quickly add through development of two or three or four projects and then the next phase will be.
Trying to buy through acquisitions with the final step being our development team, perhaps coming in there and building from the ground up so we're well underway with that with the new project that we announced there we go.
As I said, we have developed.
The development partner that we're partnered with there that has a.
Our partner in the market, so theyre actively looking and evaluating new sites and we're hopeful that we can quickly add to our presence there.
Are there any other deals currently and the pipeline.
Not for Salt Lake City now Theres, one land site that is currently under LOI, but theres not one that's imminent at the moment.
Thanks, and then are there any other new market entries are expected in the near term.
Nick This Eric.
Nothing specific and we continue to.
Look at opportunities and some other markets but.
At the moment.
And beyond what Brad just mentioned we're working.
And some land sites and the Tampa we have.
And we're controlling of land site in the research triangle and the Raleigh Durham area at the moment, we've got another another couple of sites and Denver that were working.
But.
And it's still all within our same footprint at the moment.
Thank you.
The next question's from Rob Stevenson with Janney. Please go ahead.
Hey, good morning, guys, just a follow up I mean, how many projects other than the two that you guys.
But the on the land deals do you expect to start in 2020. One this year from a development standpoint.
Hey, Rob this is Brad.
We have two that we're hopeful we can start this year, but again those are in due diligence. So obviously anything can happen at any point in time with those but.
And that's at this point, what we're what we're working toward.
As we mentioned, we do have other sites under control and under contract, but those are more likely 2022 starts we've got it and we've got the 27 acre site in Denver.
And Eric all sorts of park each of the deals slip from the airport area that we are currently doing pre development on and we would hope to be able to start that late this year of the phase one it'll be a three phased projects and there'll be a big project force.
So we're hopeful we can get that one started late this year and addition to Brad mentioned and <unk>.
Salt Lake and then.
The new and in Atlanta and.
What's the rough construction costs expected on the two that you are about the start here.
So.
Got it.
Yes, Salt Lake City.
The project is.
I think it's 94 million.
Alright.
And right around 90.
Okay.
Salt Lake City, and 94 for West Midtown.
Okay, and so you're going to have the Arizona of project delivery here and so that'll come out you will replace that with two other projects and so at least temporarily until you get the back half of the year and you start to deliver more of the other ones your pipeline and I'll go up to somewhere in the neighborhood of about $600 million.
This is the way to think about it.
And we talked about.
And all of that math, how you got there, but what I will say is as I talked about a bit and the call. We would expect once we start. These the deals that are talked about and a couple of that are possible and we kind of put in a couple of potential starts as Eric talked about and the rest of the year beyond what Brad talked about and we could see easily our pipeline and getting to what's what's committed projects and a total of cost was under way of being about 800000 or so.
And kind of year end.
Excuse me million Big day.
And Sir.
So that's a couple of the numbers, there, but the $800 million or so and and Thats certainly well within the tolerance range that we've talked about and so that's what we're expecting.
And then al what's the ongoing costs from the high speed ball cable package, you guys noted and the release of its 80 basis points hit the same store expense growth, meaning how does how far into the future does that continue when does that start to really sort of burned down or run off et cetera.
I'll, let Tim give you the details on that and get pretty close to the and Nora.
And for the full year are expected and as the call. It 70 basis points of expense impact in 2021, and certainly we're getting revenue impact of online as well and it'll have a little bit of outsized impact and next year, but not to the level of 70, and then I think as we get to 2023 and it becomes a sort of a normal.
Normal line item and be well.
Okay, and then last one from me, Tom any markets stronger or weaker than you guys had expected.
Thus far in 2020 one.
Yes, I would.
I mean on the straw and the stronger Sud.
I would put Orlando and that bucket they were on.
The.
A little bit of a laggard list and as far as the shift and blended pricing from Q1 two.
Two are from Q4 to Q1, there and also like 430 basis points on a blended pricing basis.
It is good to see Orlando catch catch its gear again.
Hospitality the theme of Disney opened narrow.
And to theme parks, maybe Oh, it was a month ago and.
Really the feedback we're getting is that's probably the hospitality back and restaurant is back and and as.
And is moving along again very encouraging to see the improvement and Orlando.
And anything weaker than you expected thus far.
No the.
And the push forward has been pretty positive I mean, we are still worried about D C and Houston are recovering, but at a slower pace.
Okay. Thanks, guys you bet.
Net.
And it appears we have no further questions and I'll return the floor to our presenter for any closing remarks.
Okay, well, thanks, everyone for joining us this morning, and obviously if you have any follow up questions feel free to reach out to us anytime. Thank you.
And this will conclude today's program. Thanks for your participation you may now disconnect and have a great day.
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