Q2 2021 Apartment Income REIT Corp. Earnings Conference Call
Good day and welcome to the Air communities second quarter 2021.
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Please note today's event is being recorded.
I'd now like to turn the conference over to Lisa Cohn. So go ahead Mike.
Thank you.
On this conference call on the forward looking statements, we make are based on management's judgment, including.
And as it relates to 2021expectations.
These statements are subject to certain risks and uncertainties, a description of which can be found in our SEC filings.
Actual results may differ materially from what may be dish.
Okay.
We will also discuss certain non-GAAP financial measures.
From operations.
These are defined and reconciled to the most comparable GAAP measures.
In the supplemental information that is part of the full earnings release published on <unk> website.
Prepared remarks day come from time to time are.
Our CEO.
He's come on our president in charge of property operations.
Building on our CFO.
Other members of management are present and will be.
During our question and answer session, which will follow our prepared remarks, I will now turn the call to Terry Considine Terry.
Thank you Lisa and thank each of you on this call from your interest here.
This is good.
The most important factor today is important market is that strong consumer.
This is driving higher rent and higher occupancy.
The most important question for apartment investors is how much of a higher top line.
My bottom line.
And here with best in class margins.
Total operating expenses and loans.
It provides.
<unk> provides purely.
Japan agency and the flow through of revenue.
And cash dividend.
Yeah.
It was on track to accomplish and exceeded its 2021 goals.
Each property operating gene superb again.
Bad debt, resulting from California laws and local ordinances.
Yeah.
Property revenue grew your per year in June.
Operating to be up year over year for the full year.
Controllable operating expenses are on track to be down for the full year.
Yeah.
Resulting in a return to full year.
NOI growth.
You purchased.
City Center.
Our portfolio and has joined the power grid operations.
<unk> issued $300 million plus equity to reduce leverage.
Hundreds of millions dollar balance expected by year end.
Properties into a rising market.
The result.
This is the first time.
By 7%.
The increase in the second half guidance by 7%.
<unk> raised our quarterly dividend.
By 2%.
There is well positioned for an excellent.
Yes.
2000.
Pete.
Shaping up to be even better.
Quality is excellent and well diversified.
Least promises.
Rent growth.
Yes.
Average production will be behind.
Okay.
And it's focused on.
Excellent.
To my colleagues in Denver from my teammates from the field bolt on and 10000.
How would you explain what we did how we did it and what we see.
I'd like to turn the call to key channel.
Net property operations Keith.
Thanks, Gary.
The second quarter.
Please go ahead.
More importantly on leading indicators.
Continued rapid recovery on the second half of this year.
Excellent 2022.
We are pleased with the strategy to maximize contribution to margin.
Alright.
Mike.
Yeah.
Thank you.
Allows us to deliver.
So on the moment, despite changes in market dynamics well in advance.
First our approach accordingly.
Our outlook for the business.
It's improved over the past 4 quarterly calls.
For calling up on last October.
Net identifying green shoots.
Great.
And then pointing to a rebound in April.
We see income.
Great.
The second quarter was good.
The recent performance.
Okay.
And force.
Okay.
And we're making decisions today to ensure 2020.
Okay.
On that performance.
What do I see Covid makes it increasingly optimistic.
Leasing is running it on record pace.
So volume from B.
Do you see in the second quarter Alright.
<unk>.
Net.
I'm told.
Okay.
Okay.
We should start book.
Okay.
That's a little awkward, but that's the advice from Rocco.
Good day.
On the professional.
Pardon me. This is the operator, we're going to drop the main speaker line.
It looks like Robbins with audio issues right now some of them from.
I was on hold music.
Stuart back with you as soon as they reach back.
Everyone and apologies.
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It will be.
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And once again, ladies and.
Paul will be get well I'll resume here momentarily. Thank you for your patience and once again today's forward zoom momentarily.
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Okay.
Once again, ladies and gentlemen, we're working through some audio issues here, we'll be right back with you as soon as we can thank you for your patience on today's call will resume momentarily.
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Okay.
Hello, everyone and thank you for your patience.
Please proceed with your <unk>.
Thank you this is Lisa Cohn and I feel like Don Murray's Groundhog day.
Good day during this conference call. The forward looking statements, we make are based on management's judgment, including.
Projections related to 2021 expectation.
Statements are subject to certain risks and uncertainties a description of which can be found in our SEC filings actual results may differ materially from what may be discussed today. We will also discuss certain non-GAAP financial measures such as <unk>. These are defined and are reconciled.
And then on comparable GAAP measures in the supplemental information that is part of the full earnings release published on <unk> website.
Prepared remarks today come from Terry Considine, our CEO, Keith Kimmel, our president in charge of property operations.
Our Chief Financial Officer, and other members of management.
Filed and will be available during our question and answer session.
Our prepared remarks, I will now turn the commentary Considine Terry.
Thank you Lisa and thank each of you on this call for your interest in air.
This is as good.
And it's proof from a very good quarter when the most dramatic.
Our pet Lich is for sound quality on our call.
The most important fact of todays apartment business is that strong consumer demand is driving higher rents and higher occupancy.
And the most important question for apartment investors is how much of a higher top line.
<unk> will reach my bottom line.
Air with best in class margins flat controllable operating expenses and low G&A provides peer leading efficiency and the flow through of revenue to <unk> and cash dividends.
Areas on track to accomplish.
And exceed its 2021 goals.
Keith property operations steam was superb again.
Notwithstanding bad debt, resulting from California laws and local ordinances.
Property revenue grew year over year in June and is accelerating to be up year over year.
<unk> for the full year.
Controllable operating expenses are on track to be down from the full year again.
Resulting in a return to full year NOI growth.
Air purchased Citycenter upgrading our portfolio and showing the power of great operations.
Air issued $300 million of equity to reduce leverage with a $600 million balance expected by year end from selling properties into a rising market.
The result was a beat to first half <unk> guidance up by 7%.
And.
The increase to second half <unk> guidance by.
By 7%.
And have raised our quarterly dividend up by 2%.
Era is well positioned for an excellent second half.
<unk> is even better positioned for an excellent 2022.
Portfolio quality is good and well diversified.
Loss to lease promises substantial rent growth.
The dilution of leverage reduction will be behind us.
As always the key is the air team and its focus on operational excellence.
To my colleagues in Denver and.
On my teammates in the field, well done and 10000 things.
And now to explain what we did how we did it and what we see ahead I'd like to turn the call to Keith Kimmel head of property operations Keith Thanks Terry.
The second quarter was good and more.
More importantly, our leading indicators point towards.
Towards the continued rapid recovery in the second half of this year and an excellent 2022.
We operate with a strategy to sulfur maximize contribution to margin over a horizon of 12 to 18 months.
That long term perspective allows us to look beyond the moment to.
Spot changes in our market dynamics well in advance.
And adjusted our approach accordingly.
Our outlook for the business has improved over the past 4 quarterly calls.
First calling a bottom last October.
Next identifying green shoots in January and then pointing.
Inbound in April.
Today, we see acceleration.
The second quarter was good.
The recent performance, we will discuss means the third and fourth quarters will be record setting and.
And we will be making decisions today to ensure 2022 continues to build on that performance.
What do I see that makes me increasingly optimistic.
Leasing is running at a record pace.
The volume leasing in the second quarter is the best we've ever recorded 60.
65% ahead of 2020.
10% ahead of the previous best in the second quarter of 2019.
2 of our occupancy is poised to accelerate.
1 key leading indicator is the percentage of units which are leased.
Which includes today's occupancy and all scheduled future moving and move out activity.
Today, we are 95% leased.
8% ahead of the same day last year.
And 4% ahead of 2019.
Our lease percentage in 2019 was a precursor to the 97, 4% occupancy in the fourth quarter.
Driving our bullish outlook for the balance of this year.
Pricing is rapidly improving.
We.
<unk> effective asking rents by $130 on average during the second quarter and in July we increased rates another $60.
As a result.
New lease rates increased for the 10th consecutive month with July up 9.5%.
That means we've not.
We include a return to our pre COVID-19 rates, but we have recovered back to the long term growth trend line.
That combination of record leasing higher occupancy and increasing rates will be the drivers that result in a strong growth in the second half of 2021.
And into 2022.
Not on learning to the second quarter results.
Revenue was lower year over year by 1.9%.
While increasing quarter over quarter by 80 basis points.
The year over year decrease was largely due to the earn in of last year's lower rents.
And continued bad debt elevated due to government's suspension.
<unk> of our contractual rights to collect past due rent.
The trend for year over year revenue growth is improving.
With June revenue up 1.8% from June of 2020, as we begin to earn in positive rates from this year.
Bad debt for the quarter was 2.1%.
As renters, even those without hardship continue to be protected from legal recourse.
That being said I am encouraged that we collected $700000 in city and state rental assistant payments during the quarter, partially offsetting the growing delinquency from those still allowed to live rent free.
Controlled.
<unk> operating expenses were up 2.8% in the second quarter largely due to the timing of expenses last year during lockdown.
For the full year, we expect controllable operating expenses to be down compared not only to 2020.
But down compared to each of the previous 5 years.
Overall expenses increased 5% driven by increased taxes and insurance.
As a result net operating income for the quarter was down 4.5% in turn positive in the month of June up 2.6% year over year.
Most importantly, even.
At the bottom of the cycle, our margins remained strong at 77%.
Continuing a string of 19 consecutive quarters with margins above 70%.
Moving to individual markets, we've improved across the board.
Most markets are.
Recovered not only to pre Covid peak, but also to the long term growth trend in asking rents.
Miami and San Diego were our strongest markets.
Posting signed new lease rates up over 15% in July with asking rents now well above long term trend.
Denver.
<unk>, Boston, Los Angeles, and Washington D C.
Have all steadily strengthened each has signed new lease rates up 8% or more in July and with asking rents also above trend.
In Philadelphia, and keeping with our approach of solving for long term contribution.
We pursued a strategy of increasing rates in the face of low occupancy this string spring excepting the vacancy loss.
In the anticipation of a rapid recovery in the market.
We have now seen leasing rebound with demand from University city students in center city workers and as.
<unk> day, where more leased than we were in 2019.
Signing new lease rates were up 5% in July as asking rents recovered to pre Covid peak, though they still lag trend slightly.
In essence, we made a calculated trade in March lower second quarter.
As of to occupancy and income for a higher rent roll at the end of peak season.
This decision has been a net positive for both 2021 and 2022.
Pressure continues to ease in the Bay area, where we've seen the occupancy rebound with a return of tech workers rates.
Rates have gradually.
<unk> <unk> and while they remain below pre Covid peak new leases in July were signed at positive lease to lease.
As a result of these positive trends across our markets July has demonstrated further acceleration.
Rates have reached record levels with sign new lease rates.
Lease up 9.5% over the prior lease renewals up 5.9%.
<unk> signed blended rate up 7.5%.
We anticipate occupancy of 95, 8% up 30 basis points from June despite the higher frictional vacancy.
Rates and we exited July well positioned for the balance of the year.
Net debt will continue to improve with increased California government assistant payments and the anticipated lifting of eviction moratoriums, allowing us to address those who are delinquent and without a special hardship, while still helping those who are in need.
We will continue to earn in the strong rate growth, we've signed over the past few months.
With 4000 leases that are already signed in yet to begin at an average increase of 8.6%.
And sustained strong pricing as indicated by a 10% loss to lease and our current rent roll.
Need finally occupancy will increase rapidly as we exit peak season, and frictional vacancy dissipates.
As we look to 2022, we expect revenue to benefit from the earn in of the greater the growth rate of leases already transacted and those to come.
He re price that 10% loss to lease.
Continued growth in rental rates next year recovery of occupancy to pre COVID-19 levels improvements in other income and bad debt as government restrictions are eased.
Continued discipline in controlling costs and contribution.
As with City center on 7.
Where we have seen the value of air operations in the early days of ownership.
In the first 45 days, we have raised rents $350 on average.
We've transacted 27 leases at rates up more than 20%.
<unk> from increased occupancy beyond 97%.
City Center will be a textbook example of how properties are worth more when operated by air.
Over the next year or so we will refresh the physical property.
But more importantly, we're putting in place Eric customer selection.
<unk> customer service and customer retention.
We are also implementing air's disciplined property operations. So that work is done more effectively and net lower cost the.
The expected result will be a sharp expansion of margin and bottom line.
Just as we've done before.
And for example, with victory and our Philadelphia acquisitions.
My Thanks to all of the air team members involved in the successful integration of Citycenter into our portfolio and more broadly. Thank you to all the air team members, who have worked so hard and so well during the challenging times in the past 18 months, whose energy.
For innovation and commitment to Costar customers have set us up for a strong rebound in future growth.
With that I'll now turn the call over to Paul Beldin, Our Chief Financial Officer, Paul Thank.
Thank you Keith today, I will discuss 5 topics first are strong balance sheet, including our measured.
Energy to reduce leverage by $900 million over the course of the year.
Our recent acquisition of studies that are on 7.
Third our expectations for the remainder of 2021.
Our announced dividend increase and fifth our optimism for continued improvement in 2020.
<unk> per <unk> airs balance sheet is strong and flexible.
Part of the separation transaction, we set a leverage target of debt to EBITDA of 5.5 to 1 and a completion date of year end 2022.
On April we decided to accelerate our de levering by 12 months to year end 2021.
Our plan is to achieve this result in 3 phases.
First during the second quarter, we used the proceeds from our equity issuance to repay $318 million of property debt with a weighted average interest rate of 4.6% in.
In doing so we incurred $34 million of prepayment penalties.
Prepayment penalties are justified through future interest savings.
During the third quarter, we expect to contract for property sales, primarily from our New York City, and Chicago portfolios, providing additional proceeds in excess of $300 million.
Marketing these properties is well underway demand is.
With numerous would be buyers and attractive pricing.
Those things are expected before year end with proceeds applied to reduce property debt.
Third during the fourth quarter, we expect to raise an additional $300 million are more from the sale of properties outright are enjoined ventures, our marketing here is also underway.
Your way with similar high interest and attractive pricing.
Some we are on track to remain raise the remaining $600 million necessary to reduce leverage to our target level.
Next I'd like to spend a moment discussing our recent acquisition of Citycenter on seventh and Pembroke Pines, Florida.
Net New center has 700 apartment homes with average in place rents monthly rents just under $1900. We purchased city center 6 weeks ago for $223 million and anticipate completing the per trade by selling an additional $175 million of properties in the fourth quarter.
We expect a 4.2% yield.
Yield during our first year of ownership and expect this yield to approach 6% over the next few years due to the.
The effectiveness of Keith's operating platform investment of an additional $10 million on property upgrades and refreshment and strong local demand.
The transaction will slightly increase leverage day.
EBITDA at year end, but we expect that rising EBITDA will put us on target soon thereafter.
This transaction is important to portfolio management.
By year end, we expect to have reduced our capital allocation to New York City, and Chicago and increased our allocation of South, Florida by 200 basis points to approximately 10%.
The expected result is faster growth because of the strength of the south, Florida market and more predictable taxes and regulation.
Now turning to full year 2021 guidance for a second time. This year, we are increasing our expectations for <unk> same store revenue and NOI and lower in.
Our expectations for expenses.
We now expect full year <unk> per share between $2.9 and $2.15.
At the midpoint. This is an increase of 7% from the guidance, we gave 6 months ago.
Year to date <unk> of $1 <unk> our guidance.
<unk> implies 8% acceleration in the second half of the year.
This acceleration is primarily attributable to the revenue and NOI growth embedded in our guidance for same store operations.
During the second half of the year at the midpoint, we expect revenue growth of about 6%.
We're confident in our revenue.
Invitations because most of the growth is based on facts in existence today, including maintaining july's expected average daily occupancy of 95, 8%.
The earn in of existing leases and incremental commercial income from tenants, who have resumed rent payments.
The remaining.
Any unexpected growth of approximately 200 basis points is based on continued improvements in average daily occupancy lower bad debt expense, including government assistance payments continuing on at a level similar to the 700000 received in the second quarter.
And the contribution from 3700 leases remaining to be executed.
Our rates expected to be 6% to 8% above expiring lease.
Next on July 27th the Air Board of Directors declared a quarterly cash dividend of 44 per share a 2% increase from the dividend paid in may.
This increase was due to higher revenue results also due to.
The air business model, which features peer leading efficiency and conversion of higher topline the bottom line, providing a flow through rate to shareholders, 10% higher than peer average.
I'll conclude with 4 quick comments about next year.
First we have the opportunity for substantial revenue growth in 2020.
22 from the earn in of the current 10% loss to lease.
Improvements in average daily occupancy and lower bad debt expense.
More of our revenue will convert to <unk> and dividends because of arris pure leading flow through rates.
Third we expect increasing contribution.
From the acquisition of Citycenter.
And fourth we expect a significant reduction in interest expense from lower borrowings at lower rates.
Added altogether, we can see that 2022 shaping up to be a very good year.
With that we will now open the call for questions. Please limit your questions to 2 per time in the.
Queue Rocco I'll turn it over to you for the first question.
You saw on as a reminder, if you'd like to ask.
Please press star 1 on your Touchtone phone.
My question has been adjusted to remove yourself from Q <unk>.
2.
Today's first question comes from Alex <unk> with Zelman Associates. Please go ahead.
Alright, Thank you for taking.
The question in the in the supplement you discussed.
The the Moody's reading and how that could potentially.
Essentially change later in the Europe do you execute some of your deleveraging what incremental benefits do you think you'll achieve in that process versus where you already have a with the S&P investment grade rating.
Yeah, Alex Thank you for that question.
But what we desire with the potential of the Moody's rating is continued optionality and by having both on investment grade rating from Moody's and S&P. It provides us greater opportunity to the the debt public capital markets and as you know today bond pricing is quite attractive.
And many of our activities during the course over the past 6 months since the establishment of air have had been leading us towards a path of providing that optionality, most notably an increase on our pool of properties that are unencumbered by debt has increased by 50% just in the past 6 months.
Got it thank you and turning.
Turning to the dispositions you you gave some numbers, but just curious how the weightings will look like on 3 Q4 Q.
And what do you think they'll due to the portfolio in terms of.
Percentage of asset class. So do you expect to have a little more waiting in a or b or C. A post this.
Positions.
Okay.
Alex I'll start with that and if somebody else wants to jump in please feel free.
You know well that the impacts of the third quarter will actually be on not consequential because the only real change between now and then is the acquisition of Citycenter.
The transactions we've been discussing.
Discussing are expected to close in the fourth quarter. So if you project a year and you know as I mentioned in the prepared remarks, our allocation to New York and Chicago will come down the Chicago portfolio is kind of a b plus a minus portfolio. The New York portfolio is a C plus and so you'll you'll see some shifts in our our weightings.
From that factor, but I think longer term what we wanted to do is remain diversified we want to remain diversified in both price points and in geography, and we think the steps that we are undertaking will help accomplish that goal.
Got it thank you very much.
And our next question today comes from Nick Joseph with Citi.
Please go ahead.
Thanks.
How did you think about redeploying those proceeds from the asset sales what is the coupon on the debt that you're planning to repay and then what are the prepayment penalties associated with it.
Yeah, Nick what we're planning to day to primarily repay property debt with the proceeds from the sales to.
<unk> leverage again to help reduce our non.
Non recourse property level debt down to levels that are more in line with the Moody's targets on the average cost of that debt. We haven't finalized each piece of paper that we're going to repay but I would tell you it's going to come down from the 4.6 that we repaid in the second quarter will be more like.
In the mid 3 range and so there will be prepayment penalties associated with that the exact amount again will kind of determined will be determined by the.
Actual pieces repaid, but what I will tell you is we've run the numbers, we expect that the interest that'll be saved in future years is greater than the prepayment penalty on an NPV.
To reduce basis.
Are you able to provide a range on it I think last quarter, you had at least given kind of a range for the potential prepayment penalties.
You know not not not at this point Nick in the in April when we spoke we had already identified the specific pieces of debt that we're going to be repaid.
Thanks.
And then as you think about your on South Florida portfolio are there any additional engineering studies or re inspections are needed just given kind of the tragedy that happened down there.
Thanks for the question, Yeah, we routinely work with structuring.
NPV engineers and architects and others as we're doing any work on our properties as well as any work that's being done on adjacent properties and routinely inspect our properties from their 40 year inspections, and additionally, and so we have no known issues.
Just an abundance of caution and going to go back and take another.
Traction on those to ensure that we haven't.
I haven't missed anything which I don't think we have but also just from peace of mind for our residents and teammates who work in those buildings.
Thanks.
And our next question today comes from John Kim with BMO capital markets. Please go ahead.
Just wanted to ask for more.
Color on the rent uplift you had at city Center.
Much of this was due to the market strength versus the air initiatives.
And what do you think you did at the prior owner did.
I found that question hard to hear because.
I think on fluctuation and Sam would you mind repeating it please.
Sure.
Just some more color on city center and what you may have done that the prior owner did anything get that rental uplift and how much of that.
Conversely was due to the market strength.
Jon It's Keith.
I'll.
Because of where you really.
You know John and became belief.
We just we have a.
Team, who operates our buildings, who doesn't put a ceiling on the opportunities in front of them and what I would say is is that.
What we did is when we walked on to the property and we.
Look how we were performing at our other communities in and around the South Florida area, we could see that.
There was opportunity to push it much much further.
We also think that there could be even more upside as we actually make improvements to the community. So this was literally a day 1 work on site, bringing our team and.
And increase it and then of course not to be missed.
South Florida market is very very Red Hawk Theres lots of people that are moving there and there's lots of benefits of living and in.
Florida is augmenting the performance.
Yes.
Okay and on the new lease change that you had in July.
You.
You mentioned it was led by Miami, San Diego, but it was really broad brushed across your portfolio.
Can you remind us how much of that uplift was due to the rents versus the reduction of concessions.
John.
Really what has happened is is that we have actually.
Moved beyond that because what has happened is as we would have.
We've had a reversion to the mean of the of those asking rents that were pre COVID-19 and now we've exceeded what would've been the historic trend lines. So what we're really seeing is not only a recovery, but an acceleration that is happening is the business is getting even better.
So while of course lots of people talk about concessions and coming back, but we really are focused on as we've.
We've gone past that Mark and we're seeing growth and strength that goes well beyond that.
And what is your expectation for August and September.
It would be better than July.
Yeah.
Or both.
Indeed, okay. Thank you.
And our next question today comes from John Pawlowski with Green Street. Please go ahead.
Okay.
Thanks, maybe just wanted to follow up on the on the Florida acquisition is that 160 bps yield expansion should we think about that tier 3 yield or what's the time to put the capital into the building and achieve that.
Okay.
Okay. John Thank you for the question and your thoughts on timing is right on line with our plan on how we're going to be executing it we are starting the refreshment and improvement process as soon as we're able to mobilize and implement the plan. So that's starting very soon but the completion of that work and then the full earn out.
Earning of that work as reflected on our results, we will end up being in our numbers in the third year.
Okay.
But clearly went out.
John I'm sorry.
Left out a portion of that something I should have said is that our going in yield today at 4.2 is quite strong on a relative.
The cap rate basis, but we're going to see that expand in year, 2 and eventually end up at that.
Close to 6% range in the third year, So youll see nice expansion in both years and year 3 it's not just a hockey stick in the third year.
Understood.
Joining the call late so apologies if I missed this.
As you stand here today do you anticipate additional acquisitions this year.
John This is Terry and we're always looking for opportunities for accretive uses of shareholder capital.
Alright last 1 from me Terry when can we.
Expect to hear.
Additions to the board or New Board New Board members joining.
I think soon.
Soon as in months or couple of years or.
As soon as soon John.
Alright.
Alright.
Thank you from time.
Yeah.
Ladies and gentlemen, as a reminder, if you'd like to ask.
Questions first was on 1 our next question today comes from Rich Anderson from B C. Please go ahead.
Hey, good morning, everybody so.
The the strength that we're seeing in the sunbelt.
It reminds me of.
Mid 2000, and ethics in California in the hyper growth that that was coming out of that market back then.
Like everything else nothing lasts forever, but I'm wondering if.
Maybe the rules a little bit different this time, if COVID-19 has created a permanent stigma on on some of the coastal.
It'll markets, namely, California, and the ability to push rents, particularly in the sunbelt is more of a permanent condition in your mind or do you think there'll be more of a reversion to the mean between Sun belt and coastal gateway within the next few years or so.
Rich.
Good morning, and it's Terry I'll try and take a cut at it. There's we're comparing 2 different markets with 2 different dynamics. The sunbelt market is is today fantastic.
But it's in a context, where where money is free.
The increases in profitability.
<unk> will attract competitive new supply you can see the record level of completions over 27000, I think it is in Dallas and Houston.
And so that would be the dynamic there that there'll be tremendous economic growth and employment growth, but over time the rental growth.
We'll be governed by the cost of competitive new supply.
In the coastal and coastal market, specifically in California, which was your question.
The demand is great its existing today, it's unsatisfied today and there is a period of time, where we're building can be.
Be absorbed by existing demand and it remains hard to build and so the competitive new supply will be more constrained.
It is certainly correct that California is less of a golden state than it was a decade ago or 2 decades ago and that it's dealing with difficult social.
Social and political issues and it's something that gives us makes us want to keep an eye on it.
Okay, Great and then Keith here or maybe Paul to your comments about 2022.
Specifically on the earn in it.
It seems to me.
The upside in 2022 might be more impressive.
The first half of the year as opposed to the second half of the year, assuming the earn in kind of only.
Plays a role on the first part the first half of the year or is that is that the right way to think about and for the.
The full year of 2022 to be sort of equally impressive you need you just need market rent growth to continue to to at this pace or greater for.
For the back half of next year or does it.
To keep pace is that a fair way to think about it.
Rich it's it definitely is.
A good way to think about it because as we're gaining momentum in these rates on transactions that are occurring now when you kick off a new year, they will start earning in against.
Just on what would have been a lower comp, but the truth is is that when we look at that loss to lease it is spread over our portfolio and so there will be opportunities throughout the entire year for us to re price and our expectation is that we will continue to see our rate growth on trend. It will go through the balance of 2022. In addition.
Okay, Okay, great. Thanks, very much everyone.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to the management team for any final remarks.
Well Rocco. Thank you very much for hosting us today for those of you have questions. If our air we thank you.
Interest if you have further questions. Please feel free to call Paul or me and we'll be happy to give you our best answers. Thank you so much.
Thank you Sir This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines moving wonderful day.