Q1 2021 Investors Real Estate Trust Earnings Call
Good day and welcome to center spaces first quarter 2021 earnings Conference call.
The day, all participants will be in a listen only mode should you need assistance during todays call. Please signal for a conference specialist by pressing the Starkey followed by zero.
After todays presentation, there will be an opportunity to ask questions.
Please note that today's event is being recorded.
I would now like to turn the conference over to Mr. Mark Decker, President and Chief Executive Officer. Please go ahead Sir.
Thank you, Chris and good morning, everyone centres.
The interfaces form 10-Q for the quarter ended March 31, 2021 with filed with the SEC yesterday after the market closed.
Additionally, our earnings release and supplemental disclosure package have been posted on our website at center space 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 we will be making certain forward looking statements about future events based on current.
Patients and dysfunction.
These statements are subject to risks and uncertainties discussed in our release and form 10-Q and in other 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 of GAAP. The reasons management uses these non-GAAP measures and the assumptions of 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.
With me. This morning is our Chief operating Officer, Anne Olson, and our Chief Financial Officer, John Kirschman will each provide some commentary and then open the call for Q&A.
I'm excited to share our first quarter results for 2021, which reflect our business the strength and resilience enabled by outstanding teamwork and discipline on the part of the center space team.
I continue to Marvel at and Depreciate My colleagues, who are focused on taking care of our customers and each other.
So all of those from center space, who are listening many of whom our fellow owners of the business. Thank you.
It's also noteworthy to point out that on April 12 Center space paid its 200 consecutive quarterly dividend of <unk>.
50 years of focusing on distributable cash flow here is to our investors and another 50 years of dividend may they be paid quarterly and growth.
As we discussed in our last call. It's been a humbling 18 months and the prediction and estimation business and as most listeners here know we raised our guidance significantly a few weeks ago by over 4% at the midpoint and notably taking the bottom end of our guidance above the previous midpoint.
We did this to adjust for the recovery that's happily here sooner than we expected we have based our guidance on two key assumptions.
First we wouldn't experience pricing power until the second half of the year. After most of our leases were signed and second caution around our ability to maintain efficiencies that we gained in 2020 through our proactive innovations during COVID-19.
Our goal with guidance is to be pragmatic and thoughtful the transparently articulate our best estimate of a range of outcomes, but this period has been one of the extreme uncertainty.
Now back to the business as John and Andy will discuss further we had an outstanding first quarter and that strength is carrying into Q2, as we see high traffic and demand buttressed by a white hot housing market moving rents upward.
Our results are a testament to the capital allocation decisions. We've made over the last few years and pay off on the investments, we've made and keep making in our people and technology.
As we often say, it's about positioning the business with the best opportunity set and then capturing that opportunity with a great operating platform that sits atop of flexible balance sheet.
In Q1, we demonstrated good progress as disclosed in our press release, we are under contract and expect to close of this month on the sale of six communities in Rochester for $60 million.
The proceeds which will be all cash will be applied to pay down our line of credit closing out the funding of our January purchase.
Of the Union point on a leverage neutral basis.
This series of transactions exemplify, what we love about our transformation sale.
Sale of older lower margin lower growth assets purchased new higher margin higher growth assets financed with long term unsecured debt.
We've been doing this for four years, what's different and exciting is to see it get to the bottom line on a per share basis. This.
This is the best quarter per share result, we've produced as a team.
We will maintain a significant presence in Rochester, and the sale of does not reflect of lack of confidence in the market.
Like other asset management decisions that result in dispositions the sales allow us to optimize our portfolio in that market and overall.
It has big positives for our team in terms of operating efficiently and it helps us grow distributable cash flow.
We look forward to reporting results in Rochester in the quarters to come but we know this strategy has been effective in Bismarck Grand Forks and might not and you can see it in our same store results today, while we are growing NOI and operating margin well.
Staying on the theme of transactions in the transaction market. We are reviewing opportunities primarily in the twin cities Denver and Nashville.
We announced last June the Nashville was of focused market and we don't own anything there yet and.
And now of that market has gotten a lot of positive attention cap rates are low and competition is high.
The medically this is nothing new the same comments could have been made about Denver before we got into that market, but of course, we didn't have the interruption of COVID-19 in our early time, there and that is a factor.
The reality is the multifamily is of great product and of great business, it's easily financeable and well supported by the federal government through Fannie and Freddie.
For a variety of reasons that had been accelerated by the pandemic markets like ours.
I have seen an uptick in demand from the consumer side and an attendant uptick in interest from investors as marginal dollars flow from coastal markets.
These are not secrets, but we know how to compete we are focused creative and brings strong operating skills and an excellent cost of capital capital to any competitive situation.
And we have been and will remain disciplined never forgetting who we work for our mission and how we measure of success.
With that and can you please.
Take us through the first quarter and your outlook on operations.
Thank you Mark and good morning.
When we last talked in February of the weather was hovering around freezing across the Midwest in the United States had less than 15% of of the population vaccinated against COVID-19, as Mark mentioned there is much uncertainty as we sit today as the snow is gone the Sun is out and we're approaching 50% vaccination rates the app.
Optimism for our economy and for the resolution of the pandemic is palpable and our confidence in our business has also improved as we have more clarity around leasing rates and expense projections, both of which were favorable for our first quarter of 2021.
Occupancy across our portfolio is holding steady and we realized 40 basis points of increased revenue compared to Q1 2020 strong leasing trends coupled with the 90 basis point decrease in expenses resulted in a one 4% increase in NOI for the first quarter compared to the same quarter of 2020.
Our average monthly revenue per occupied home increased 80 basis points in the first quarter over Q1, 2020, and our overall revenue per unit increased from 1100 19 in Q1 2022 of 11 133 for Q1 2021.
Our renewal retention remains strong and our first quarter collections were 99, 1% of expected residential revenue, which compares to the pre pandemic Q1 2020 of 99, 8%.
We continue to see strong revenue performance in our secondary markets, where they were last COVID-19 impacts of the economy and there continues to be very little if any supply revenues and billings rapid city Omaha and across our North Dakota markets all increased between three and six 5% over Q1 2020.
If we bifurcated our portfolio into secondary markets, coupled with suburban assets in our core markets of Minneapolis, and Denver and compare them to our five urban assets that were harder hit by COVID-19 impacts and where there continues to be supply pressures, we would see positive trends in both our five urban assets located in Minneapolis, and Denver, which contribute approximately 14.
Percent of our overall NOI showed improvement in lease over lease rates for the quarter, starting January of negative seven 9% and improving to negative three 6% in March.
Those assets also experienced flat renewal rates and.
In comparison, our secondary markets combined with suburban assets showed the potential of increased rates with an average lease over lease increase for Q1 of two 6%. The marked showed lease over lease rate increases of five 9% of.
Our non urban portfolio realized first quarter renewal increases of four 6% in the first quarter, we achieved renewal increases of over 5% on average in St Cloud Rochester Grand Forks, Bismarck and billings.
This demonstrates the strength of our suburban portfolio and the balance that are secondary markets have brought to our results.
Our preliminary April results show, a continuation of the trend with our same store of replacement rent changes continuing to increase over March and renewal rates remaining strong. This is great news as we're heading into our heavy leasing season with 32% of our portfolio of leases expiring in the second quarter.
Last quarter, we discussed our desire to leverage operating efficiencies and changes that were made during 2020 that helped us reduce costs.
Our 2021 first quarter controllable expenses decreased 2% compared to first quarter 2020, we are capturing operating efficiencies from residents self service and other measures put into place during 2020.
Our rise by five initiatives for 2020, one are well underway as we expect to see continued benefits from the changeover of our revenue provider and as we gain momentum on our technology implementations. During the first quarter, we deployed several new collaborative tools and enhancements to our service and knowledge centers the costs associated with our technology implementations were 430.
10000 in the first quarter and we expect to invest approximately $1 1 million in 2021, as we change over our base property management software systems to enhance efficiencies and reporting.
We are right on track with our value add renovation program through the first quarter and we'll see a significant uptick in the number of homes renovated during the second and third quarters. We completed 90 homes at an average premium of 187 per month.
We anticipate renovating approximately 725 homes in 2021 and between unit renovations and commentary enhancements anticipate our full year investment to be between 15% and $20 million.
With warming weather and positive financial results across our portfolio. We are looking forward to leveraging our success into the summer and having a little more fun.
Than this time last year, our business is about people our residents our team and our investors and I know our teams are looking forward the opportunities to connect as our nation reopens now I'll ask John to discuss our overall financial results.
Yes.
Thank you and last night, we reported core <unk> for the quarter ending March 31, 2021 of <unk> 95 per share an increase of five or five 6% from the first quarter of 2020 the.
The increase is attributed primarily to higher NOI offset by increased interest expense and a higher share count.
Looking at our general and administrative expenses total G&A was $3 9 million for the quarter of <unk>.
500000 dollar of 14% increase from the same quarter in 2020.
The increase in G&A is due to nonrecurring technology implementation costs as well as higher long term incentive compensation costs.
Property management expense of $1 $8 million increased 14% or $210000 from the first quarter of 2020.
The increase comes from nonrecurring implementation costs as well as an increase in compensation as a result of filling open positions.
Interest expense of $7 $2 million increased four 6% or $320000 from the same period of the prior year.
While our weighted average interest rates have declined over the year. The increase in expense is attributed to the expansion of our total capital base, which includes higher levels of equity and debt.
Moving to capital expenditures as presented on page S. 13 of our supplemental same store Capex was $1 $5 million for the first quarter of 2021.
Which is in line with the first quarter of 2020.
For the year same store Capex spend is expected to be approximately in line 100 to $1000.
<unk> per unit.
Q1 value AD spend of $2 $6 million increased $600000 from the first quarter of 2020, as we continue to ramp up of our value add activities.
Turning to our balance sheet as of March 31, we had $79 million of total liquidity on our balance sheet, consisting of $68 million available under our line of credit and $11 million in cash and cash equivalents.
During the first quarter, we were able to expand our capital base by issuing 164000 common shares under our ATM program for net proceeds of approximately $12 million.
As mentioned earlier during the second quarter, we expect to close of the disposition of six assets in Rochester for proceeds of approximately $60 million. These proceeds when received will be used to reduce our outstanding line of credit balance and increase liquidity.
In January we amended and expanded our shelf agreement with Prudential to increase the aggregate amount available from $150 million to $225 million and issued $50 million in unsecured senior notes due June <unk> 2000, <unk> at a rate of two 7%.
Under the agreement we of $50 million of remaining capacity.
We believe that this financing demonstrates our ability to access all forms of capital and obtained investment grade pricing levels.
In April we issued a release announcing our revised financial outlook for 2021, which is presented in F. <unk> and F 15 of the supplemental with strong first quarter result acceleration of rent growth and lower than expected expense growth, we increased our full year core <unk>.
<unk> per share midpoint by four 2% to $3 65.
We have started the year with strong Q1 results improving fundamentals and an improved financial outlook for the rest of the year.
It has been a strong start to the year and I would like to thank our dedicated team for their work to make better every day.
With that I will turn it back over to the operator for your questions.
Okay.
We will now begin the question and answer session.
You ask a question you May press Star then one on your Touchtone phone.
If you are using a speakerphone. Please pick up your head handset before pressing the keys if at any time of your question has been addressed and you would like to withdraw. It. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question comes from Gaurav Mehta with National Securities. Please go ahead.
Hey, Thanks, good morning.
Good morning growth.
First question on transactions I was hoping if you could provide more color on why you decided the cell dose.
Fixed assets in Rochester.
How is the buyer pool for those assets and maybe some comments on pricing and cap rates.
Sure. Thanks.
We decided to sell them because we felt like we had opportunities to deploy the capital and better assets better.
The growth markets those.
The Rochester portfolio is we are of great portfolio of there we have of large concentration.
And of very well located submarket that is on the Mayo clinics bus line and had some pretty high rents. The the assets we sold were either.
Considerably older and had in our judgment of lot of Capex.
In front of them and then we also sold from Townhome product that was a little bit. It just was kind of off the beaten path and.
Tougher our staff to really manage manage them efficiently.
And the buyer pool was fantastic we had.
Several.
I don't know how many see as we sign but we had three or four very strong.
The competitors in the end.
We got to kind of best and final.
The assets sold for a sub five cap.
So we felt great about it I think what we saw in terms of Capex based on all of us opportunity I'm sure they'll be.
The right, but we had in our judgment better things to do with the capital.
Okay.
The second question on your same store revenue guidance for 2021 was hoping if you could provide more color on which markets are you seeing largest improvement I know you talked about suburban and secondary markets outperforming urban but I guess in terms of.
Rate of change.
I'm seeing more better improvement in suburbs.
We're seeing improvement in your urban portfolio as well.
Yes, I'll ask and I made the comment on the Investor call a few weeks ago, the billings as the best apartment market in the World right now.
Which was half of half kidding, but and maybe you could talk about that yeah, I think we're seeing improve.
The improvement in both the urban and suburban portfolio, we're seeing a lot of strength in our secondary markets. So markets like billing in rapid city, which in our supplemental our category of it does kind of the other markets Omaha, Nebraska has been particularly strong across the North Dakota those markets. The hallmark of those markets is really.
No supply they have very little if any supply and that's been a pattern for a couple of years. They also had much less economic impact from the COVID-19 pandemic.
In the secondary markets. So we're seeing really strong results. There we are seeing really great improvement in our urban assets. So you know of.
Downtown Minneapolis downtown Denver.
The lease rates are really improving in kind of rebounding, we feel like we're well past the bottom there concessions are starting to come in a little bit. So those were high highly concession markets and we're seeing that really taper off so we have a lot of optimism across the entire portfolio.
Yes.
Great and maybe lastly, I think on the last call you talked about expectation of maybe 70 basis points of declining occupancy in 2021 of your votes.
The focus on rent growth with the guidance and are you still expecting.
Our focus on the land in lieu of occupant and go into 'twenty one.
Yeah I think.
Our job of our goal in when we look at revenue management is really the optimize the revenue overall, so with the with a large lease exploration kind of hurdle in front of us in Q2, and three and the lease rates the lease over lease rates improving the way. They have been we really will push those lease rates to get to get the highest lease rate and.
And give up some occupancy to do that so we think we will see a little bit of of depth as we see the rising lease rates and that's pretty natural in our portfolio of particularly given that the exploration curve.
Okay. Thank you.
The next question is from Rob Stevenson with Janney.
Yes.
Thank you and good morning.
Does this leave you guys in Rochester in terms of number of assets of number of units going forward.
Great question and I'm going to go off the top of my head and tell you something like 11% to 200 units.
And.
And properties.
It's 200 and what Emily.
Yes, 200 units yes.
Five or six five or six properties, yes.
Yes, that's right.
Okay.
I mean from your standpoint is this a market the youll continue to add to is this basically sort of.
Happy to maintain what you have going what you will wind up having going forward and maybe look to trim. Some of that at some point of some point in the future. How do you think about Rochester to strategically longer term.
Yeah, I mean, we have a fantastic team down there we've got a great regional it is a market that is.
The anchored by one of the most innovative health care providers in the world and I mean, thats not an exaggeration met the Mayo clinics. So.
We like the market because it is a great market to rent.
We have.
We have considerable value add opportunities there in the portfolio that we have remaining there've been some very strong a product additions. So the top of the world. They're in rents was just below two box two or three years ago today.
There are some very compelling new product thats very well located type one construction concrete high rise where rents are into the mid twos. There's even some studios that are in the three bucks a foot range. So.
That's great news for us because that that lifts the market up and we can we can draft behind that so we like Rochester of long term.
<unk>.
I'll always be.
I guess mercenary about our capital allocation, but we're committed to that market, we believe in it and.
And we're we're very happy to own the portfolio as we own it now.
Okay.
It's more efficient I mean, what we've seen Ryan just to expand what you didn't ask me too but.
Anyway, because I have a bet on who can make the call the longest.
What we've seen is when we do these.
The selective dispositions.
What our team tells US afterwards, when we tell them we're doing it they're not happy and then we do it and how it got it yeah that was great because I was spending so much time on that older assets or whatever the case may be and so it really helps us.
US run things better.
Okay, and then I mean from the standpoint of the.
The trying to get into Nashville.
How long do you guys sit here and look at acquisitions versus trying to find some partner and do it development that even if it's somewhere between a normal development return on an acquisition that at least the starts getting you into that market. If you really want to be in that market longer term I mean, how creative.
Do you guys get or is it just need to be for initial entry into Nashville, just needs to be of.
Of fully functioning assets at this point.
I'd say, we're willing to be creative.
There are anywhere else, but I mean.
It's got to be of developer, we have confidence and it's got to be the location, we really like I mean, as we say to the developers were alignment freaks not control freak. So if we can find the good site.
And we can feel good about our counterparty.
We're we're absolutely open minded to that.
Listen I think the other.
Fact is with the beta.
Between COVID-19 and some pretty significant tax.
Changes the market really there has been.
Pretty low volume and we expect there to be more now theres a lot of dollars there so.
That may or may not help, but we expect to see more volume there in the back half of the year than we've seen for the last 12 months.
And so something along the lines of Mezz loan to own.
Transaction would be off the table at this point.
If you got in the idea of send them our way.
Good day.
And then last one from me John.
When do you work on the 2022 that exploration.
And what are you thinking now I mean, thats awfully low rate part of that I guess is the line, but I mean is it.
Not exactly five or 6% yielding debt there what are you thinking the trade off line is up being when you do get that.
Termed out and refinance does it basically sort of flattish rate wise are you actually looking at an increased rate wise.
Yes, So you are right Rob on that.
Primarily the line that you are seeing and we are in the market talking to banks.
And really what we're seeing now are spreads on.
On pricing that are pretty consistent with what we have now so I would not expect.
That debt.
The facility to get refinance that.
Significantly different rate than we have now.
And then what about the other sort of 80 some million dollars of lot of that which is the.
Is swapped from our rates of standpoint.
Yes, so on those term loans.
We have flexibility with.
With those as far as the timing coming up but.
We just price on the private placement market, which is of more attractive market. The net bank debt bank debt.
The term loans are on.
We just price some in January.
And we feel pretty good about about the pricing today of where.
10 year money is from the private placement market.
Relative to that term debt. So we feel good about being able to get some upside from refinancing that now racer.
Can do a lot between now and when we refinance.
Okay. Thanks, guys I appreciate it.
Thanks.
The next question comes from Daniel Santos with Piper Sandler.
Hey, good morning.
Thanks for taking my question. So my first.
First question is kind of going back to the staffing inefficiencies that you talked about earlier.
Could you maybe walk us through some more specifics on what those moves the virtual services have been and do you feel like you're sort of able to take advantage of the staffing efficiencies more than peers would because youre not necessarily in the owner of a product and therefore don't have to offer such high touch service or maybe just offer some thoughts on that.
Yeah, Great Great question.
So a few of the things that we implemented in 2020, which I think industry wide really were.
Adopted where a lot of virtual leasing much more information on our website.
Our office hours.
And therefore more of correspondence with the residents via E mail phone or through self service portals more online payments.
And those things really have evolved into the into 2020 one in a way that that's been great for our staff. So while our offices are now open there is kind of less traffic there and our prospective residents are able to get much further along in the process than.
And then they had been previously with respect to leasing so the time efficiency really comes from the people who come to tour in person if they're interested in the in person tour.
We are very interested in the property.
We have some secondary markets as you know all across North Dakota, It might not have been him comment in the past for someone does still look for an apartment by driving around and pulling up and asking to see apartments, we don't get as many of that as many of those.
People coming any anymore and people who are coming usually now have an appointment have done a lot of work on line have probably have their application and we did a lot of <unk> video is in fact, well before 2020, we had started uploading virtual floor plans that you could move around so about halfway through last year I think we were all the way.
Done with what's called matter of Port videos, which are where you can kind of manipulate the <unk> version of our floor plans online. So we were a little bit ahead, there and really I think from the move towards self service one of the things that we think about with respect to our resident experience is <unk>.
You can't just continue to do the everything the way you had done before and 2021 or 2020 really pushed us to think differently and to meet the resident where they are and our residents are.
Longer generation and also had their own interruptions from the pandemic and their own desires and so we're really trying to find that space, where the resident where we can make it easy of sound the resident and communicate with them and the way that they want to that's much more mobile it's much more internet based.
And they don't want to see people as much as they used to in the past.
I think as we move forward, we're going to try to leverage those capabilities and the efficiencies that we put in place there to the goal is to have overall.
Neither of reductions in the staffing, but really what we're seeing right. Now is just more efficient time, so that we can spend more time on.
Work orders resident communication enhancing the resident experience and focus on our renewals, which.
Help us drive the rates.
Yes, I mean, Daniel just to add to that if you. If you consider a market like Denver, where you have every large institutional owner every merchant builder lots of new way.
It's very hard to differentiate yourself on the technology.
Package.
If you get to some of our smaller markets, we really are frequently the.
Tip of the spear there because we're bringing in those practices.
And Thats been the case with revenue management with the.
Rob's with a bunch of these virtual leasing and things like that and it's not that the people in those markets arent smart are hard working our talented thoughtful.
But they may not have needed to do it and they may not have decided to make those investments in technology. So I mean, it's really on the margin, but I mean this is a game that gets paid on the margin. So.
We think that does help us a little bit be a little bit more tech friendly to those customers and that's that's the benefit.
Got it that is that is very helpful. My next question is.
On the inflation, which seems to be on everyone's mind, both in terms of materials and labor. The team you don't do a ton of ground up development, though it sounds like you might be more open to it in Nashville, but maybe talk a bit about how you see inflation playing out in your markets and how that might impact your strategy.
Yeah, I mean, we're definitely listen we arent developers, but we talked to them a lot because we endeavor to potentially finance them and we are absolutely hearing.
What I think you heard of dramatically on the lift from the same cause I suspect you did I mean for sure there are some real.
Supply chain pressures theres, some real materials cost pressures that are affecting.
That are affecting development so.
Yeah, we got a watchful eye on that I mean, thats one of the reasons, we love the apartment businesses, we've got a chance to reset our rents.
Every year that hasnt been funds for the last 12 months it might become more funds over the next 24 years of 48 months.
And for sure of what we're seeing I mean, I think one of the comments that we've heard a lot is that we have people who are moving out to.
To buy homes.
If anyone knows anyone who has tried to buy a home recently.
You better have your cash in a pretty ribbon escalation clause, because it's really vibrant out there and so that's that's probably keeping people with us.
A little bit longer.
Yes.
Perfect. Thank you and congrats on a great quarter.
Thanks Daniel.
The next question is from Andrew Sweitzer with Baird.
Thanks, Good morning, guys.
Going back to the capital allocation your guidance now assumes lower expected accretion from investments of capital markets activity is that a comment or a reduction on changing cap rate assumptions for your potential buys and sells or is there another variable in there yes.
Yes, good morning, Amanda John Jonathan sure Good morning, Amanda.
That's the reflection of the Union point.
<unk> acquisition sliding into the.
The different side of the ledger, where we've actually executed on it so that NOI from Union point, which would of been in a net accretion line is now in our NOI.
Forecast number so what youre seeing on the net.
Net accretion being negative is really the dilution from the Rochester disposition netting against the other activities we're guiding on.
But that's really the driver as far as flipping that to a negative from a positive as union point coming out.
Rochester being left there alone.
That's helpful and then higher level on capital allocation can you talk more about how youre thinking about your cost of equity today, just relative to the declining cap rates in your markets have you changed your hurdle price for equity issue says it all.
Yes, while we appreciate that teaser in your note Amanda we think I mean, we think about it every day and we think of added on a long term in the short term on a spot basis then of relative basis.
So listen we feel like we've done a lot of things to help.
Engineer of favorable cost of capital and I would say.
When we think about this and considered kind of over the last couple of years.
Our early years of this transformation will really defined by the need to fund things with our own assets. So funding.
Purchases with assets asset sales and I would say that Episodically, we have had access to equity capital that we have.
Like and very occasionally we've had access to equity that we love.
So.
We're.
I guess I'll say my perspective is which I think the team shares is that the investment community is very focused on.
<unk> and <unk> per share and then areas of subject.
The group there that's very focused on the NAV and that frankly is shrinking.
To some extent I mean that was.
One in.
It was <unk> 45 per cent of the World 15 years ago, and it's I think it's 15% of the world today, but we got a we got to be mindful of both so when we sell equity as we did last quarter. It was at $72 50 year.
Given the low Seventy's I mean net.
We do that because we think we can we.
We can take a little bit of NAV dilution and grow our cash flow per share and eventually in long term grow the business and.
In a manner that that meets both needs.
So.
The.
That's a long winded answer probably more detail than you wanted but we're constantly walking the line between what is the great NAV play and what is the good earnings by the two obviously live together over time, but.
If you want to buy something in Nashville at of three and three quarter cap rate that could be of great real estate decision net looks terrible in your <unk> for the next.
Three to six quarters.
And.
Those of the trade offs, we have to make so.
We're just trying to stay very disciplined there we have we have a lot of discipline I think at our own table and I can tell you without.
And the equivocation that we have that discipline at the board level. So.
A constant.
Back and forth funds.
What's the best thing and over time, we've talked about sort of the three things we focus on markets metrics leverage and what are the priorities today.
As has been the case for I would say the last.
12 to 18 months, it's really markets metrics and leverage so people say well how do you feel about your leverage we feel fine about it I mean.
We're really focused on trying to expand that market presence and do it in a way that would help where we can continue to grow our per share metrics, which is one of the reasons I'm So happy about.
About this quarter because this is our best per share first quarter as the team.
Please I will just add there that the ATM is we view that as a very efficient way to get off small capital of the cost is very low on there. So.
If we're selling.
Selling on the ATM, a little below NAV, we're doing it very efficiently for a great cost as opposed to you now.
Relative to an overnight.
Going off at our NAV, but then having to take a much larger commission as well as a discount to move it yes, that's an excellent thought and that's right on so the way we think about it is if the ATM is a point in the half of friction.
And no discount of fully marketed equity deal or the forward with options and all of that sort of stuff is going to be kind of somewhere in the 6% to 8% all in cost range.
So.
That's how we get our minds around it Amanda.
Are we on the direction that you're asking about or.
Yeah, no that makes perfect sense of night I appreciate all your thoughts and you clearly have a lot that go into that goes into it.
The last one from me just have you seen an increase in permits and some of the stronger secondary markets. Following that strength are there any regulatory constraints either from the local municipality perspective, that's driving some of that lower supply.
Yes, I think we havent seen anything thats, particularly notable Amanda I think the.
What is true nationally is true in the Submarkets, which is.
Uh huh.
Permits haven't dropped a ton.
We'll see what happens with materials costs and rents.
But.
Markets like Nashville have a lot of supply of Denver has a lot of supply many of us coming off of a couple of years of of reasonably record supply.
It's been the most since the.
I think 1986.
<unk>.
Nothing Theres nothing dramatic in any of those markets that is.
New or different or not well understood and with respect to the secondary markets.
We haven't seen any increase in permitting there and there isn't any there are no kind of physical barriers of entry, where maybe billings, which is bordered by a large river and the mountains has some physical barriers there, but we have seen a really big increase kind of across the country, which won't surprise anybody of interested buyer.
So we do we do get calls on those the secondary market.
Portfolios and and as Mark indicated the Rochester portfolio had a very deep and strong bidding pool. So we haven't seen any increase in permits in the secondary market as of yet but.
More people looking to buy there.
It may lead to that.
Got it thanks I appreciate all the time.
Again, if you again, if you do have a question. Please press Star then one on your Touchtone phone.
The next question comes from Buck Horne, with Raymond James and Associates.
Okay.
Hey, good morning, guys.
Quick one in terms of technology costs.
Looking at the guidance here it looks like you're expecting another.
At six or $700000 to be spent in terms of just kind of I guess onetime technology, how should we think about the quarterly distribution of those those costs will it still be more front end loaded or how does that go forward.
The rest of the quarters of the year.
Yes, I do think it's more of a front end loaded. So we are really in the implementation right now and I would say by the third quarter, it will or by the fourth quarter. It will really be tapering off. So I would my estimate is that we will have spent most of that money in the next couple of quarters with very little left in the fourth.
Got it that's helpful. Thank you.
And second question.
Just given how competitive the market is in Nashville, and in some other places and I'm just wondering if you've thought about some other potential growth market is just the emergence of new.
Kind of new technology hubs and mountain west areas like Boise of Salt Lake the those types of markets become more appealing.
On your radar screen at this point.
Yeah, I mean, we like those markets.
All I can particularly I saw MAA went there in their earnings call, which I think is really smart.
For us to get critical mass there, it's four to six assets in our judgment and.
<unk>.
You have to capture a lot of what comes for sale. So the development would be ideal the answer to your bigger question of do we look at other markets. Yes, we consider other markets I would say we are opportunistically.
Interested in other markets there is a list of.
10 markets that go that start with Nashville, and then have nine other names on them and we are opportunistic with respect to those markets but.
But for now we're going to stay focused.
In Nashville for for all of the reasons that led US there in the first place and.
If something changes.
You'll be one of the personnel.
Great. Thank you.
Thanks, Bob.
Okay.
At this time, we're showing no further questioners in the queue and this concludes the question and answer session I would now like to turn the conference back over to Mark Decker for any closing remarks.
Thanks, Chris I think from our perspective.
We're happy for everyone's interest in <unk>.
We look forward to talking to you next quarter and will be at NAREIT, taking meetings, if anyone wants to talk to us there.
Thanks, very much everybody.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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