Q2 2021 Investors Real Estate Trust Earnings Call
Yeah.
Good morning, and welcome to the center space Second quarter 2021 earnings conference call on.
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I would now like to turn on the conference over to Mark Decker Chief Executive Officer. Please go ahead.
Thanks, Good morning, everyone.
Center spaces form 10-Q for the quarter ending June 30th 2021 was filed with the SEC yesterday. After the market closed. Additionally, our earnings release and supplemental disclosure package have been posted to our website at center space homes Dot Com and filed on form 8-K.
During the course of today's call and it's important to note that our remarks will include our business outlook and other forward looking statements that are based on management's current views and assumptions.
As a result, and we cannot guarantee that any forward looking statement will materialize and you are cautioned not to place undue reliance on these forward looking statements. Please refer to our earnings release for reconciliations of any non-GAAP information, which may be discussed on today's call.
With me. This morning is Anne Olson, our Chief operating officer, and John Kirschman, Our Chief Financial Officer.
We're fortunate today to be and the housing business reporting. These results that were unimaginable 12 months ago.
And I want to start by extending my thanks, and appreciation to our community and support teams and.
Despite incredible resilience creativity and thoughtfulness since 2020 began.
In addition to being in a housing market that turned on a dime. Our teams have been hard at work as we make considerable investments and our business starting late last year with the renaming and more heavily this year as we move from our legacy property management system to a far more enabling and modernized system that will allow us to get to the last phase of our rise by 5 camp.
Pain.
So in every respect the company that's reporting today is measurably better than the 1 that reported a year ago or even in June.
The second quarter exceeded our own expectations and.
As the recovery outstripped, our forecast leading to better rent growth same store NOI and core F O that.
And the trends are continuing into the third quarter and we are significantly raising our outlook for the balance of the year from the previous midpoint of $3.60, a core F O to $3.86 a 7% increase.
Careful readers will note that the bottom of our range is now $3.78, which was our 2020 core F. L. We now believe we can grow core epithelial per share for the year if.
And if we can deliver and we will grow our same store NOI and core F O and each of 2020 and 'twenty, 1 strong validation of the quality of our business.
And of course, the rental growth that we've captured and the loss to lease that's embedded in our portfolio sets us up well for 2022.
On the investment side, we're nearing our closing with K M S management.
This is the 19 assets 2700 unit portfolio, we announced in June which is planned to occur on September 1.
K M S allows us to efficiently scale, our business and double our portfolio and the twin cities.
And particular in the B or attainable price point, where we have enjoyed a lot of success as we upgrade the customer experience through more efficient operations and disciplined capital allocation.
It leads to a housing products that residents will pay more for.
The fact is this is an exceptional opportunity for our shareholders and the K M. S partners, who will become shareholders through their O P stake.
As capital continues to flow into the sector at a torrid pace pushing pricing and lowering returns we found ourselves close but no cigar on numerous asset purchases over the past 12 months in Nashville and elsewhere.
That being said, assuming the close of Kansas, We will have added over half a billion dollars of apartment homes, 225 million and Denver and $375 million and the twin cities over the past year.
And we'll also have grown our permanent equity base by 25 per cent.
All while continuing to improve operations and quality of earnings and the all important per share outcomes and with that I'd like and to please give us an update on quarter from an ops perspective of course, and thank you Mark and good morning, the trends that we saw in Q1 and accelerated and the second quarter, providing us with great operating results and strong tailwind.
Heading into Q3, our same store portfolio and realized a 1.2 per cent increase and NOI over the second quarter of 2020 driven by a 3.2% increase in revenue over the same period a year to day revenues are up 1.9% over the same period and 2020 driving on 1.7% increase and year to date NOI our revenue performance.
<unk> is all about or at lease rates and our weighted average occupancy and the second quarter was 94, 9% and and stayed consistently between $94.4 and 95.3 per cent for the past 6 quarters.
Our revenue per unit, which is the result of occupied run times occupancy continues to climb.
Q2s that rise to 11, and 75, which is $50 more than this time last year and $77 more than this time in 2019, and 7% increase over 2 years and affected move and rents for the second quarter and our same store portfolio were 10% higher than prior lease and renewal rates increased $5.6 per cent for a blended rate.
Increase in Q2, a 7.5 per cent.
Our leaders have been and our secondary markets are other mountain west portfolio, consisting of rapid city, South Dakota, and billings, Montana realized a 14% increase and revenues over Q2, 2020 well also achieving a decrease in expenses for 26 per cent increase and NOI when comparing the second quarter with the same period last year.
Well, our secondary markets have seen significant gains there are some lingering negative effects of the pandemic and our portfolio specifically across Minnesota, where the eviction moratorium is still in place with limited exceptions, well, there and other markets and states have returned to pre pandemic collections levels, Minnesota is an outlier our forecast does anticipate.
This improving as policymakers work through the phase out of the moratorium and rental assistance programs gain traction and providing relief to residents with past due accounts.
Overall, our portfolio collections were 98% and the second quarter.
Our Minneapolis, and Denver markets, well, turning the corner on new and renewal lease rates are lagging our secondary markets and the recovery as these areas are still experiencing supply pressures and with respect to our urban assets demand has been stunted by the slow return to office her downtown office workers.
And the whole of our Denver portfolio Q2 replacement rents increased 7.9% and renewal increases of 3.7% across and Minneapolis market replacement rents increased 3.6 per cent and renewals increased 5.1% and Q2.
Our strong year to day results have set the stage for success in 2020..1 we are 46% through our lease expirations with great rental increases and we renewed 52 per cent of our residents and Q2.
We have 41 per cent of our portfolio Rolling and Q3, so the trends here and give us a lot of optimism.
The strong Q2, the trend continued in our same store portfolio into July with 13% average increases and replacement rents and $6.5 per cent average renewal increases for a blended increase of 8% our target markets of Minneapolis, and Denver are accelerating with the Denver portfolio, Realizing 14 per cent, new lease growth and renewal growth of 5.
And 4% in July.
And then Minneapolis portfolio July replacement rents increased 7.7% and renewals increased 4.8 per cent, both Denver and Minneapolis returned to historic traffic levels and patterns in July.
Covid has not slowed our progress on our rise by 5 initiatives year to day. It through June 30th our gross margin is 74, 9% and our NOI margin is $59.1 per cent.
And 1 component of these results is our value add renovations.
Through our value add program, we seek to enhance our customer experience through a common area and unit renovations that drive strong lease over lease growth in the second quarter. We delivered 217 renovated units spending approximately $3 million and averaging $196 per unit premium achieving an approximate rois and 17% as Mark mentioned.
We're also underway on the implementation of our new property management software system were alive with our pilot communities and expect to be fully rolled out by year and the nonrecurring expense related to this implementation and Q2 with $448000 and we're expecting 740000 and additional non recurring expense by year end and finished the transition.
These investments at this stage for further efficiency enhancements across the portfolio.
The market acceleration, we have seen and traffic new lease rates and continuing high retention are creating a busy summer for our teams. They are working hard to keep our customer experience top of mind and leverage our commitment to making great homes and vibrant communities into positive results I'm Grateful every day for their efforts and now I'll ask John to discuss our overall financial results.
Thank you and last night, we reported core <unk> for the quarter ending June 32021 of <unk> 98 per share and increase of 7 or 7.7 per cent from the second quarter of 2020.
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 for the 6 months ended June 32021, G&A expenses increased $1.1 million or 16% to $7.7 million from the same period of the prior year. The increase was primarily attributed to increases of 500000.
And long term performance based compensation and $500000 and nonrecurring technology implementation initiatives.
The increase and long term incentive compensation is driven by the timing of the performance grants from the prior year occurring in may of 2020 versus.
Versus January 2021 for the current year.
Well <unk> to 2020 plan utilizing stock options for performance based compensation, which reduced the accounting cost of the 2020 grants by approximately 30%.
Property management expenses of $3.9 million increased 34% or $1 million compared to $2.9 million for the same period and the prior year.
The increase comes from $200000 of recurring and technology costs related to newly implemented initiatives and $300000 of compensation costs. As a result of filling positions that had been left open since 2020, as well as higher health care costs and 2021.
In addition, and year to date property management expense includes nonrecurring tech implementation cost of $400000.
Moving to capital expenditures full year same store capex and is expected to be $875 to $925 per unit.
Our same store Capex forecast has been reduced from earlier guidance due to the impact of dispositions.
During the second quarter, we fully utilized our ATM issued.
Issuing 731000 common shares for net proceeds of $55 million.
These proceeds were used to fund a portion of the Union point acquisition and draws under our mezzanine lending program as well path anticipated transaction cost prepayment fees and capital related to the <unk> transaction.
And of course from normal business, we will file for a new ATM later this month.
In conjunction with our earnings release, we revised our financial outlook for 2021, which was presented and F 16 of the supplemental with strong quarterly results fueled by accelerated rent growth, we increased our full year core <unk> per share midpoint by 7% to <unk>.
$3.86 assets.
We have also increased our full year guidance on same store revenues and.
Our growth.
Same store expense growth has increased from prior guidance due to the impact of dispositions.
The year has been positive with strong year to date results, improving fundamentals and and improved financial outlook for the rest of the year I would like to thank our dedicated team for their work to make better every day for our residents and with that I will turn it back over to the operator for questions.
We will now begin the question and answer session too.
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Our first question comes from John Kim with BMO capital markets. Please go ahead.
Thank you and in your prepared remarks, you mentioned and I think 13% increase and new lease rates in July and and Denver will be leading the charge, but I was wondering what other markets are either outperforming or underperforming.
Average for Ya.
Yeah. Good morning, John So that was just a debt Denver rates, and which is I'd say right in the kind of main of what the average is for July overall for our new lease rates, we continue to see pretty dramatic outperformance in the billings market and rapid city market, but you know overall.
And our new lease rates in July are really came in right in line with Denver.
And how do you see on occupancy trending.
And the third quarter I think you mentioned 41 per cent of your portfolio has leases expiring and you had I think flat occupancy in the second quarter, how do you see that.
Changing over the next couple of months.
Yeah.
In line with our historical performance, we think that occupancy will dip a little bit as we pushed those new lease rates and try to optimize the revenue, 41% is a pretty big chunk of lease expirations and this quarter, but as I noted, we have been able to keep that occupancy within a really tight range with our low end being and 94.
And $3.94, 4 and over.
Over the last 6 quarters and so you know we're optimistic that occupancy is going to stay strong and really our goal is to optimize the revenue and take advantage of those growing new lease rates.
Okay and then my final question is Mark I think you mentioned.
You were.
You lost out on some acquisition opportunities and some of your markets.
And given your cost of capital continues to improve your stock price is up 21% over the last months.
Does it provide more ability to execute and be more aggressive on acquisitions and should we anticipate increased activity and a second half of the year.
Certainly that a recent Ron and has improved the cost of capital so that does.
It makes us a little more competitive I mean, we are I would say, we're very competitive but you know where we are where the world's sort of ends for us is when it stops being accretive to the overall so he.
And mathematics will help a little bit for sure.
And we'll be disciplined about that.
Great. Thank you.
Thanks, Jeff.
The next question is from Gaurav Mehta with National Securities. Please go ahead.
Thanks, Good morning.
And I was hoping and should provide some more color on your Tms acquisition and how that came about and.
And what did you like them on Bob that acquisition and maybe provide some color on the price and then our values and all of that acquisition.
Sure Good morning, Rob.
So that that debt.
That acquisition really came out of.
About 2 years of dialogue, so I mean, we're always Ah.
Working dialogues like this and as I joke to our board, where we're more like professional golfers and baseball players, meaning we lose most of the time.
And so.
This was a situation where.
We had a really a contributor there not really a seller.
Who was looking for a solution to provide liquidity and and tax protection. So I mean, he had several asks for him and his partners that we were able to meet it.
I would say, it's more often the case that a seller just wants cash they can understand cash and they can understand tax bills and.
So to have a dialogue like this kind of pull all the way through to a close and my judgment you have to have a very discerning seller who's really willing to have a.
2 way relative value discussion so.
He is taking our equity so as soon as we agree on what his prices then we have to agree on what our price is.
That happened in December.
Candidly when we had a very different view of the world as did the seller.
And so we arrived at price based on on a on a relative 2 way discussion on what our overall company was worth what he thought his was worth what the tax protection was worth.
So a lot of considerations to kind of get to the finish line but.
And there was also very important for him to have a good place for his team to land them.
This gentleman has been running this business for 40 years. So this is his life's work and it.
It was important to him to have a steward.
Carry that forward for the team who wanted to stick around.
And we've spent a lot of time and energy.
Making that happen so really it was about the people that was about accommodating as partners and some cases their third Gen partners they've been Lps for 40 years. So we're now talking to the original partners grandchild.
So I mean, a lot goes into it.
And any transaction, but there's a fair amount of complexity here and a lot of sophistication and I'd say on the seller side.
Because really the pitch is hey, we're going and we'll take it from here, we'll run it from here and Youre going to participate and the upside.
There were a number of things that day.
I think see that were doing that they agree will be helpful revenue management.
A number of the technology investments, we've made and operating practices. So.
I guess I'll stop there and unless you have more questions about it but long long discussion we always have these going they usually don't work.
For a variety of reasons, but.
Very pleased to be close to the finish line with this 1 it's a it's really a big win for us and for the <unk> team and partners.
Great that's very helpful color.
So on.
Second question on your secondary and tertiary market I was hoping if you.
And could provide some color on what youre seeing and with transaction market, there and maybe some some time alone on the cap rates that you're seeing and in those markets.
Yeah and then.
The issue with those markets is there's just not a ton of transactions and.
And when there are and they may not be relevant so if a 5 blacks and Bismarck South I wouldn't say that that's market.
But we haven't seen much I mean, while we have seen is quite aggressive so you know.
As we often talk about.
If the government is your staple and they lend on a dollar of cash flow equally and.
No matter where.
And <unk>.
It's quite powerful.
Most recent real data point, we saw for a secondary market.
Outside of anecdotal what was our Rochester sale, where we sold.
Sub 5 on on our trailing 12.
Okay.
5 cap rate for for reasonably old assets.
Okay. Thank you.
Thanks, Rob.
Next question is from Rob Stevenson with Janney. Please go ahead.
Yes, Mark.
I mean, what is and what is the Minneapolis NOI exposure go to post closing of the <unk> transaction and you plan on selling some assets and Minnesota and Minneapolis to reduce debt.
I will go more and Robert will go to about 35%.
For the twin cities.
And I think we'll be probably tipping right around 50 per Minnesota as a whole when you when you add.
St Cloud and Rochester.
And the answer to the question of well I mean left and I said well always consider.
Uh huh.
Capital portfolio sale.
Sales, but but candidly, we really like the portfolio, we have and the twin cities and we think it represents a pretty strong opportunity to.
To push cash flow growth so.
I would say for the time being you Shouldnt expect to see us.
Actively selling things in Minneapolis and less.
And some someone wanders into our office with some really on disciplined capital in which case you know we've got a buy it now and price for everything.
Okay and.
And then the $40 million of Rehabs on the kms stuff apply something like $15000. A unit what is your typical kitchen and Bath remodel running you. These days given current construction costs and trying to get a feel for how much beyond the sort of normal.
Redevelopment scope these properties either need or Warner and at this point.
Yeah, So that dollar I would call those dollars not value add dollars, so I would call that deferred capital or.
General property improvement I think we believe that we will be able to get to the top of market for those.
For those specific types of.
Holmes based on having really got and everything that tip top but the value add would kind of be a gear past that which which we haven't really talked about there is a lot of value add pipeline I think embedded in that portfolio, but you should think of that $40 million is kind of keeping up with the joneses.
Capital.
Yeah.
Is there a reason why you wouldn't do it at the same time that you would come back and do that stuff later on versus just knocking it out now.
Given the capital position you have.
And what are the remaining acquisition.
Yeah short answer is we May I mean, we've given ourselves 3 years to put that capital out so I mean theres nothing.
Critical fire life safety or I mean, these properties are well run.
<unk>.
They have been run by a private owner, who probably Refis every 7 years and that's kind of when they've got and capital. So there is some opportunity I think just to bring capital is up.
To know but and.
And do you on talking about total yeah.
Yeah. So the way, we're going to approach the value add and the standard which you know I'd say typically we're looking at 10 to 12000 and unit on a full unit renovation here in Minneapolis and.
But the way we will approach that is we really wanted to take over operations get there and get their communities onto our platform and then really see where the rents are and then we would start kind of looking to underwrite, but if we take our in place rents today and try to underwrite value add we may not be considering you know the true value of what the market rent is for those once it.
On our platform and we've kind of exhaust all the other revenue opportunities and that does take some time to get us through the lease role and during that time, we will be looking at those value add renovations and you know as Mark indicated because we have a few years to deploy that $40 million you know some of it may happen concur.
Currently that the things that'll happen and the first year will be really just setting the stage for the potential of a value add and the future.
Rob I mean, just.
Just to expand briefly we really look at this.
Like IRT circa 2016, and Thats the real opportunity is just to kind of bring everything.
Forward, so and that that's it feels very.
Familiar to us and and and being able to buy something that makes sense on day, 1 and not have to push a bunch of initiatives that may or may not be the best thing given a little bit of time and the saddle feels.
It feels really good to us.
Is there anything quirky here given some of the age of the communities in terms of the expenses either in terms of heat being included or the inability to sub meter for water et cetera, or would use rubs et cetera and the.
Locations with her and.
No.
Okay, and then last 1 from me and the depth of new leasing for you last year and other words, Max concessions lowest effective rent so curious as to what your.
Year over year comps are easiest this year what months are easiest this year and then when they start to get more difficult for you.
Yeah, I think that and you know we.
We don't have that exactly in front of us that we July really was probably our toughest month last year with respect to concessions we were holding our renewals flat. We were not we had very very low traffic and and saw some pretty big declines and some of our new lease rates. So I think it was July of <unk>.
Got a little bit better in August, we started pushing renewals and and seeing some stabilization and the rents come September.
Okay. Thanks, guys appreciate it.
Thanks, Rob.
The next question is from Daniel Santos with Piper Sandler. Please go ahead.
Hey, good morning, Thanks for taking my question. So my first 1 maybe and this is for you and it's about the Delta variant, which is on everyone's mind, obviously, you guys probably arent as effective as they office, but are you seeing any any impact on the ground relative to your properties or that market economies and I guess, if you zoom out a bit are the local sort of state.
Governments reacting differently they were sort of in the last year. They were supposed to respond and I'm just curious to see if that's still the same.
And <unk>.
Yeah.
Just actually provided our team with an update this morning on the Delta variant. So good timing, we haven't seen any response from any of our state or local governments.
Beyond just kind of reiterating what the new CDC guidance says about wearing masks and in public places where there is high transmission rates. We don't operate any place that right. Now has high transmission rates are high number of cases on the Delta variant. So we're watching that closely.
1 thing where share of after last year is that we're prepared to be very nimble you know I mean, we could put put in place put back in place any of the protocols and procedures needed at any of our assets debt to date.
We're still operating in the areas where.
You know the government's arent responding yet and we havent seen high transmission rates.
Okay. That's helpful and then I guess more specifically you mentioned.
The remaining eviction moratoriums and how they haven't been tested yet and Minnesota is your sense that when they are listed the tenant and a few tenants that are sort of behind and rent going to try to catch up and stay in that portfolio I sort of asked because if you think about you know coastal markets. It's a lot harder to catch up on a few months and Miss rented your rent is 3 or $4000.
Versus the 14, hundreds and your average portfolio.
Yeah, I think I think that we're gonna have a little bit of a mixture as it rolls off. So we are starting to see some traction with the rental programs here in Minnesota and the best outcome for US is that though is is that the residents who are behind are able to get assistance and stay and then continue to pay going forward.
And to the extent that their income has stabilized and they can't they can't afford it that day and.
And I think that that will be the case for some and then you know and it's probably 50.50 and the other 50% will probably once we're able to let you know.
Move on and and find other housing that's suitable to their income and or you know if they pocket the rent that they didn't pay for a year and and take it and do something else, but and you know where we've been encouraged and we're optimistic about the rent help programs here, both in Minnesota, and and some of our other markets where you know.
And they have launched kind of ways for people to stay in that that's the best solution for us as an operator is to actually collect the rent and help the residents stay in place and it's.
In fact, theyre able to make their rent payments going forward.
Yeah.
Okay.
That's helpful..1 last 1 from me if I can.
When you think about potential acquisitions going forward is your sense that you're going to target, maybe b or b minus assets that youll kind of includes will be plus or are you seeing opportunities to maybe buy we'll call them sort of aging day product that just might pencil better for the second owner.
Yes, I mean, Daniel the answer honestly is we're looking for the best.
Relative return for the asset that we believe has durable pricing power and a sub market and I mean, theres more than 1 of those and submarkets, but where we've.
Found ourselves I mean, it's been interesting because there has been just so much compression.
And <unk> has really been working and funds that are oriented towards value add.
I have a lot of dollars and also a lot more knobs. They can turn on their and their excel models, where we've historically found in our judgment the best relative value is with.
Our pre stabilized deal or a new way to Union point would be a good example, newly stabilized deal.
We're typically missing the value add by.
4% and 8% is where our underwriting because again, our bias is to get into the app that live and it for a little bit of and then.
Come up with a good business plan from there the winning the winning bidder is not doing that theyre going to come up with their business plan and advance and Theyre going to go.
Right away.
Yeah, I'm not faulting and that's just that's just not how that's risk we've been unwilling to take so far I don't see our risk appetite changing a lot there.
Okay. Thank you that's it from me.
Thanks Daniel.
The next question is from Buck Horne with Raymond James. Please go ahead.
Hey, good morning, and I appreciate the discussion.
I'm curious just on the thoughts around Nashville at this point and just given the capital surging into that market area and and the compression we've seen and in cap rates and.
Is anything Pennsylvania's is potentially feasible and that market near term and and do you start to shift your focus into other geographies or other types of of price points that might be cash flow accretive.
Yeah, I would I would say.
And then on the bright side Theres been more product actually available and Nashville over the last 3 to 4 months it was really slow and.
And the beginning of the year for a couple of reasons a lot around tax.
You know understanding what the taxes were going to be going forward, but listen and where we've been close on on a bunch of things and frankly, we have some shareholders, who say well.
Don't and some shareholders, if they push and push forward.
And there was a strategic decision.
We don't generally changed strategy.
Based on you know a few months of data, but what we are and and it's also the case that.
You know yields across the markets are and it's not it's not like Nashville is really hot and everywhere else is awesome and we're just avoiding great deals and other markets.
It is the case that there is an enormous amount of capital.
Chasing multi and pricing is really.
Come in so the last deal that I really liked and many more I should say, we really liked and many so that a sub 4 cap rate.
Similar kind of 10 year.
IRR as to what we're seeing and Nashville, So you know.
The going in cap rate is 1 piece of data and I would say the market is generally pretty efficient at pricing growth and those markets.
And we consider that.
And when we're looking at our assets and and markets and Submarkets.
Great, Thanks, and kind of.
Sure.
And we made we'd love to do something and Nashville, and if we can find something and it meets our returns we'll do it.
Okay.
But speaking of kind of long term growth.
Certainly the back office shifts seems to have slowed a little bit recently, but also just you know.
A lot of survey work seems to indicate a lot of workers.
Enjoy remote working and there's certainly been a huge population shift into.
The secondary markets Youre seeing that I think obviously and billings at the moment and a few other places does that shift and that secular.
Change in how people want to live.
And you some some pause around maybe reallocating capital to your secondary markets or.
Finding assets any and any billings as an example to kind of change your and your portfolio mix.
Yeah.
And if something comes up in 1 of our secondary markets. We generally look at it so.
You should know that we're looking at anything that kind of comes up where we're active.
The thing that we love about billings and rapid city and.
And I'll say the whole mountain West portfolio, which is now about 30% of our NOI is that like the south east, they're catching a lot of migration and obviously rapid city and billings are much smaller metros, so little bit of and migration goes a long way well.
What we havent seen with the same amount of robustness as Denver is housing pricing housing pricing move and.
And new job creation, and that's really what is the long term driver and our judgment of being.
And a great multifamily market our apartment market. So you know.
We have to balance all of those things together.
Okay. Thanks, guys.
Thanks Buck.
Again, if you have a question. Please press Star then 1.
The next question is from Amanda Sweitzer with Baird. Please go ahead.
Thanks, Good morning, guys.
And a few questions on some of the moving pieces within your guidance kind of just start can you provide and update on what you're assuming for the campus acquisition and guidance in terms of both pricing and timing and assume that cap rate assumption has increased today, just given the broader fundamental strength you've seen.
Yeah, I mean, the cap rate that we've generally talked about for cam assets plus or minus a 5.
Kind of going in and 5 after capital.
Uh huh.
I mean candidly that the NOI, we underwrote.
And agreed to us in February and they are ahead of their budgets their budget and our underwriting arent the same thing.
But I would I would say 1 of the things. We believed was embedded in that portfolio as it was a reasonable loss to lease.
That's grown I mean, we.
We haven't gotten that scientific about it we're really focused on integrating their team will be picking up about 130 and.
Team members.
As part of that and so our focus really has been.
On.
Getting that team.
We're getting ourselves prepared to on board that team.
We have a pretty significant integration have you already that that has to go right alongside that which is a lot of.
Complexity that they don't let me and let me and those meetings because theyre very detailed but.
There's a lot of work going on with that I mean, what we know is it's no worse and we expected, it's probably better and frankly for now that's all we need and now.
Yeah.
Got it and so in terms of timing and assumed in your guidance for that deal, though is it fair price to midway through the third quarter or what's embedded in guidance.
September 1 and John Yeah, Yeah, Okay timber ones are scheduled to close date and I mean.
At this point.
On that.
There's a lot going to that we're on track for that day.
Okay. That's helpful and then what blended lease rates are you assuming and.
The second half of the year and guidance and where are your renewal rates going out today.
Yeah.
And I'll talk about that.
Our renewal rates today and July were 5 point.
1.
Alright, and 5.1%. So that's that's where our renewals are going out today and then John on the on the forecast side for guidance.
What are we assuming theyre, a little bit less than that I think well Amanda the way we forecast our rents is we actually use our rent roll and the.
The loss to lease that's embedded in that rent roll.
That's 8%.
And I think and correct, the locker and 8% and July so what we would've done it the way we forecasted is.
And we load those market rents and by every unit.
And then the.
On the rent growth goals, we're using them into the future.
Vary by region, but theyre not substantial the real driver of the forecast is that loss to lease so its the.
The 10% to 13% new lease rates that we've been giving over the last few months.
Okay, that's helpful and and on that renewal rate increase that you were talking about was that renewal rates effective in July I guess, I was asking where rate increases aren't going out today for future P&L that those are the rates that were effective in July so with respect to renewals and those would have been price.
60 to 90 days in advance of that but that is what went effective on the July expirations.
Okay.
And then last 1 on guidance what was the impact of those Rochester Dispersions on your same store NOI growth range I heard your commentary John on that expense growth impact.
Yeah. So.
The way I would look at Rochester.
Our Rochester guidance, we actually present.
And our guidance.
And the amount of the sold NOI. The 1.2 million represented basically 4 and a half months of.
2021, NOI, we had on our books before we sold it.
So extra.
Extrapolating that out that would be.
Fair representation.
And what came out of the NOI we.
We don't know exactly what came out of the NOI.
And at the point of time, because that's and that's how we measure it and rates so.
Forecast has been updated but thats that would be a reasonable.
Assumption to use does.
Is that helpful and.
That's helpful I can extrapolate from that.
And $1.2 million.
And then final question from me just firstly on cloud during the quarter you did see a larger occupancy decline and that market was that in response to you strategically pushing rates or were there other dynamics at play and the market that impacted occupancy.
Yeah. So it's a it's a little bit of a value add work going on and the St cloud market as well. So we have a little bit of a value add vacancy there as we as we kick off and value added projects and then you know really it is the pushing of the rates.
And in that market, so and that is a trend we typically see here coming into the third quarter.
That's probably going to wait till the time, we do yeah. Thank you. Thanks Amanda.
The next question is from Barry, Oxford with Colliers. Please go ahead.
Great. Thanks, Hey, Mark.
When do you think not necessarily about your portfolio, but when you think about the market and relation to the moratorium and.
And that burning off do vacancy rates have to kind of creep up or not necessarily because you think the rent.
And help programs will will come in to that but if they can see rates are going to be timing and the future because of this how are you guys figuring that out into your software.
Software system as far as rental increases maybe 2 to 3 months from now.
Yeah, I think we've been watching that really pretty closely and 1 of the ways that we figure that in his debt individuals', who for example have and paid for 18 months and they're on month to month leases. So and we have a we feel really good about our percentage of month to month leases as compared to the hall. So.
That is that is 1 way, we're kind of managing and monitoring it and we do not you know our our collections rates have been strong and while we do have you know at each site a few people that we would like to move along and if the eviction moratorium where to where to burn off.
And you know I don't think it's anything dramatic enough to really impact our overall rates.
But you know it is yet to be seen how much there and help will will give us assistance and help those people stay stay in place, but they're at this point all of those residents are on month to month leases and we're watching that number and closely as a percentage of the whole and making sure that we're managing that.
Everyone on them on 2 month lease could leave at the end of the month and so we factor that and when we look at exposure.
Yeah and.
And just make a macro comment Barry I mean, yes, yes. Thanks, yeah, we're not over housed so I mean I think hard.
Hard to imagine vacancy materially moving down and especially.
At our price point, which we're plus or minus <unk> $12500 I mean.
The most amount of supply is Florida, $600 north of that in most markets.
Okay. So you wouldn't you wouldn't foresee something that debt that would cause you to kind of back off of your rent assumptions.
No.
Okay, great. Thanks, Marc.
Thanks Barry.
Yes.
This concludes our question and answer session I would like to turn the conference back over to Mark Decker for any closing remarks.
Thanks, Gary and thanks, everybody for your time and interest and center space and we look forward to talking to you next quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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