Q4 2021 Equity Residential Earnings Call
Good day and welcome to the equity residential fourth quarter 2021 earnings conference call.
This conference is being recorded at this time I'd like to turn the conference over to Marty Mckenna. Please go ahead.
Good morning, and thanks for joining us to discuss equity residential as full year 2021 results and outlook for 2022. Our featured speakers today are Mark <unk>, our president and CEO , Michael <unk>, Our Chief operating officer, and Bob Curt Garner, our Chief Financial Officer Alec Brackenridge.
Our Chief investment officer is here with us as well so the Q&A. Our earnings release is posted in the investors section of the equity apartments Dot com. Please be advised that certain matters discussed during this conference call may constitute forward looking statements within the meaning of the federal Securities laws. These forward looking statements are subject to certain economic risks and uncertainties.
The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events I'll now turn the call over to Mark Burrell.
Thanks, Marty and thanks to all of you for joining us today.
This morning, I'll make some remarks about what we see driving our operating results and cash flow growth this year and going forward and I will comment on our capital allocation program and what the company will look like when it's complete.
After that Michael <unk>, who will review our operating performance and outlook for 2022 same store revenue, Bob Garrett Shana will spend a few moments discussing our innovation activities and their impact on our business and then we will go ahead and take your questions.
We're very excited about the prospects for our business in 2022 and beyond our Apple and resident base as well employed and receiving healthy raises and they are renewing with us at record levels. The robust demand for apartment living in both urban and suburban locations is driving high occupancy and the lowest resident turnover in our history.
Our same store revenue guidance calls for 9% growth at the midpoint, while our normalized funds from operations should grow at about 15% both of which would be the best performance in our history.
Flow from our business is likewise poised to grow strongly.
We see this as the beginning of what should be a good run of performance as we welcomed a 67 million members strong generation Z to the renter ship World and as we continue to attract and retain millennials with our flexible product offerings and a price point that is increasingly affordable relative to surging single family housing costs.
That said, we are aware of the recent storm clouds on the horizon in the general economy, which include high inflation and related concerns about how the federal reserve will manage short term rates in its balance sheet as well as continuing supply chain disruptions and unfortunately, the latest COVID-19 variant, while we're not immune to these pressures a considerable amount.
Out of our expected 2022 revenue growth is already baked into our results in the form of leases recently signed at higher rates as well as an expectation that even if rental rates do not rise in 2022 <unk>.
Resetting leases to current market levels will provide a significant revenue boost in 2023 and beyond our ability to reset lease rates annually should create a natural hedge in a more inflationary world.
We also continued to successfully execute on our expense control management with 3% growth in 2021, and our midpoint expectation of 3% growth in 2022, despite the impact of inflation on many costs in the economy, we run an incredibly efficient platform and continue to harness technology to control expenses.
<unk> enhanced the customer experience and grow our operating margin Bob will comment on all of this in a moment.
Switching over to investments, we had a very active year on that side of the business with $1 $7 billion, each in acquisitions and dispositions as well as progress in ramping up our development activities.
We continued to optimize our portfolio by successfully recycling out of older assets and deploying capital into newer assets in our expansion markets and the suburbs of our established markets are 17 acquired properties have an average age of two years as compared to our 2014 disposition assets with an average age of 30 years and.
We're recycling all of this capital while not diluting earnings our 2021 transaction activity on both the buy and sell side was done at an average cap rate of approximately three 8%.
In 2022, we expect to both sell and by approximately $2 billion in assets. Our acquisition activity is focused on building out our portfolio in Atlanta, Dallas, Fort worth Denver, and Austin, as well as adding select assets in the suburbs of our existing markets. We continue to see great opportunities in our markets and expect to deploy <unk>.
And to them in 2022.
On the development front, we commenced construction on approximately $450 million in development projects during 2021 and expect to deliver high quality properties in Denver Suburban New York and Central Washington, DC in several years. We also completed the construction of our $400 million Alcott tower and central <unk>.
Boston during the quarter and we're pleased to report that the lease up is going very well.
Of the development pipeline in the quarter, we entered into four separate development joint ventures in Texas and in Colorado with the Colorado Joint venture beginning construction in the fourth quarter of 2021 and the other three are expected to do so in 2020 to these three parcels of the first in our development program with toll brothers.
As we have discussed with you before we are reshaping our portfolio to reflect the demand trend, we see up some affluent renters spreading out from the coast and Congregating in markets like Atlanta, Austin, Dallas Fort worth in Denver.
We also see a similar but more local dispersion trend in our coastal markets is another group of higher income renters move to the suburbs of our established markets like Bellevue, Washington, near Seattle, and Burlington, Massachusetts in your Boston now, we've always had a presence in the suburban submarkets of our established markets. So what I'm talking about here.
Just creating a little more balance between urban and suburban markets.
We will also continue to have a substantial investment in the urban centers of our markets and those will continue to attract we think high quality renters seeking to enjoy the many amenities of urban living.
Driven by our analytical research and informed by our long experience in the apartment business, we seek to build and buy newer assets in urban and suburban locations in these markets, where we see demand from higher renters as being high and likely to grow where single family housing is expensive relative to renting and where supply is manageable.
We expect our refined portfolio. They are about one third of its assets in the three northeastern markets, Boston, New York, and Washington D. C with a reduction in exposure coming from New York, and Washington, DC dispositions, we see approximately one third or maybe a bit more of the portfolio being in California with divestments.
They are occurring and challenging regulatory locations and of older assets. The remaining third or so of the company will be concentrated in a diagonal from Seattle through Denver to Austin, and Dallas, Texas and over to Atlanta, Georgia. We think this distinct portfolio of newer less capital intensive assets and the 12 or so most does.
<unk> metros for more affluent renters to lift will provide high and stable long term returns. We also see reduced regulatory risk and resiliency benefits from this portfolio shift.
And finally before I turn the call over to Michael I want to give a big Thank you to all my colleagues in our offices and properties across the country. You are doing an exceptional job during very unusual times and we're all very proud and grateful we are in position for a great 2022, and I look forward to delighting, our customers and our investors with you go ahead Michael.
Thanks, Mark This morning, I will provide highlights on how we finished the year and give you some color on 2022 revenue guidance and market performance. So first a big thank you to our teams across the country, who have worked so hard during these trying times to deliver these results and are all geared up to make 2020 to a terrific year for equity rather than.
Will.
The recovery continues despite the presence of the omicron variant and noise from uncertainty in back to the office plans with tremendous demand to live at our properties, both urban and suburban.
We see reopened restaurants entertainment venues and other lifestyle amenities is attracting our affluent resident base without regard to continuing low office occupancy rates absence, a government mandated closure of businesses and cities, which we see as unlikely the lifestyle that our residents crave is again available in most.
Of our markets and our residents are voting with their feet and pocket books to be in these locations, whether they anticipate working fully remote hybrid or fully in the office interestingly, we see a little less of this trend and our tech heavy Seattle, and San Francisco markets, which I will discuss in a moment.
We are currently 96, 5% occupied and are on track to deliver about 13, 5% achieved new lease growth in January after posting just over 10, 5% in the fourth quarter, we reported the lowest turnover in our history for both the fourth quarter and full year, 2021, which reaffirms the desirability.
<unk> of our product as our residents is our.
Our resident signed renewals at record levels with increases that averaged nearly 11% in the quarter.
In addition, our residents received $32 million in rent relief with $15 million of that received in the fourth quarter.
This performance has positioned us well for 2022, and what we believe will be the best same store revenue growth in our history.
The majority of our 9% same store revenue growth at the mid point is coming from resetting existing leases at current market rates as of January 183% of our residents were paying on average rents that are about 11% below our current market prices as.
As we have discussed in the past, we won't be able to capture all of this loss to lease in 2022, because leases will reset over the course of the year either through new move ins or renewals and there are currently a few regulations that cap our allowable increases in.
In addition to capturing this reset we are anticipating intra year growth in rates that is more reflective of typical seasonal growth than the steep growth we experienced during the 2021 pandemic recovery year.
Strong continued physical occupancy, particularly relative to the comparatively weaker period. In early 2021 is also a contributor with the remaining growth projected to come from lower bad debt improved non residential revenues and other income.
So far we continue to see strong retention with the percent of residents renewing expected to be just over 60% in both January and February we.
We may see some moderation from this high level as the year goes on but interestingly in Q4, we did not see much disparity in renewal percent per deal seekers. Those residents who had a concession on their current lease versus non deal seekers, meaning many of our residents are deciding to stay put regardless of the rent increase.
While the world remains an uncertain place we feel good about this expected pricing power given our net effective pricing trend is currently 27% over 2021 level and 7% over the same pre pandemic week in 2020.
A key driver of this improvement is the sizeable reduction in concession use in our portfolio, which is nearly non existent with the exception of Seattle that I will get to in a moment as I provide color on the markets and how they are expected to contribute to 2022.
Beginning with Boston, which is following a normal seasonal pattern with improving demand and pricing heading towards the spring overall, we're 96% occupied today with a drag from the urban core at 95 five versus the remainder of the market, which is above 96% with strong continued demand from lab.
In life Sciences financial firms health care, and education, and very little competition from new supply. We expect this market to produce same store revenue growth of approximately 10% in 2022. Another positive note is that we continue to see a return of international students and workers to the market.
After a difficult period early in the pandemic the quick turnaround on the New York market has been really amazing we expect New York to be our best performing market in 2022 with same store revenue growth of approximately 13%. Despite some expected pressure from new supply on the Jersey waterfront in Brooklyn.
Demand is very strong and we have been renewing about 65% of our residents occupancy remains above 97% rates continue to improve concessions are not being used and pricing is currently 11% over pre pandemic pricing levels.
We expect that Washington, DC will be a solid performer in 2022, but will end up as one of our lower producing revenue growth markets at about 4%.
This market held up the best of our East coast markets during the pandemic and so does not have the same ground to make up. This market also continues to deliver 12000 or so new units each year absorption of class a multifamily has been really strong even during the pandemic, making us optimistic that this absorption trend will continue.
Occupancy steady at 97% and rental rates are following a slightly better than expected normal seasonal pattern there.
Moving to the West coast, both of our Tech heavy markets, Seattle, and San Francisco have been slower to recover than other markets. While there is certainly demand the downtown Submarkets are 93% and 96% occupied respectively. The ambiguity and returned to office by Big Tech employers and quality of life Challenge.
<unk> are deferring a fuller recovery, we expect that the quality of life issues will improve through a combination of civic engagement and having more activated streetscapes.
The tech companies have a role to play here as they balance their growth plans versus employee preferences for work from home in a highly competitive job market.
It appears likely that the balance will be met by our hybrid work model, which should benefit our business in these markets, but until there is more certainty some employees will be hesitant to make housing decisions.
Longer term the overall drivers of demand remain positive and we would expect the urban centers of these markets to fully recover because they remain attractive to the many affluent renters that want to enjoy an urban lifestyle there.
Also the tech Giants continue to accumulate large amounts of office space, whether through leases or whole building purchases, which indicates that they are long term plans involve some level of in office.
We are optimistic about Seattle's recovery and expect the market to produce same store revenue growth of approximately 10% in 2022, our expectations are predicated on the CBD, where we have a large concentrations of assets recovering in the back half of the year.
Demand is improving initial lead and tour volume has ramped up past 2021 level, but our on site teams are reporting a lack of sense of urgency from potential renters to signed leases right now.
Occupancy has rebounded slightly to just over 94, 5% this market as the primary user of concessions in our portfolio with currently about a third of our applications receiving on average just over one month free.
Heading down to San Francisco, we are seeing good demand, but do not yet have a lot of pricing power. We expect to produce same store revenue growth of approximately 7% in 2022, San Francisco continues to be the only market in our portfolio that has not gotten back to pre pandemic pricing levels. As we are currently six <unk>.
<unk> below the same week in 2020 occupancy is holding steady at 96, 5% and we're renewing just under 60% of our residents.
Los Angeles continues to be a solid performer with demand driven by a robust return of the online content industry occupancy is running at 97% pricing power is strong we expect the market to produce same store revenue growth of approximately 9% for the year.
The percentage of residents renewing as the highest we have seen likely due to the impact of local regulations, we expect to continue to renew 65% to 70% of our residents here.
Both Orange County, and San Diego continue to show remarkable performance with high occupancy and strong retention supporting very good new lease rents. We expect these market to produce same store revenue growth of 10% or greater in the year and.
In Denver, we have very good demand and expect the market to produce same store revenue growth of approximately 9% in 2022 occupancy is strong at 97% and we're renewing about 50% of our residents.
Lastly, a few thoughts on our additional expansion markets of Atlanta, Dallas and Austin, So far our newly acquired assets are performing well demand remains robust and occupancy levels are high the expansion markets have seen good growth throughout the pandemic and we expect that growth to continue in 2022. This is an exciting.
Time for the industry and the overall operations of our company. Thank you I will now turn the call over to Bob carrier channels.
Thanks, Michael rather than go through a detailed review of our guidance assumptions, which are laid out on page four and page 27 of the release I thought I'd take a moment to elaborate on our approach to innovation. Our continued investment in our platform and how that's playing out in our financial statements in 2022 and going forward.
Over the last couple of years, we've had impressive results in our innovation journey and it's not over a few highlights that our property management and operations teams have been busy rolling out.
We brought mobility to both the service and sales teams to enable enhanced flexibility.
We had artificial intelligence handling 80% of our communication with prospects to lower costs and provide 20 <unk> service.
We've deployed roommate matching functionality on our website to drive additional revenue and we've moved 97% of our tours to self guided or virtual all while increasing our gross rent potential by using data and analytics to improve our amenity pricing.
These are only some of the examples of how we continue to advance our efforts to maximize efficiencies onsite and improve revenue while meeting the ever evolving expectations of our residents.
We have done so successfully through adjusting our processes deploying new technology like the artificial intelligence I mentioned and through advancing our use of data to inform our business decisions.
We have most visibly seen financial benefit from these endeavors in our ability to successfully minimize our onsite expense growth, particularly payroll in 2021, we reported negative onsite payroll after reporting less than 1% growth in the prior two years and we're just getting started.
Our focus moving into 2022 continues to be building upon the success we've already achieved.
That means continuing to improve our digital customer experience, our business processes and to advance our sophistication and data driven decision, making tools. This is an area in which we have historically been a leader and expect to continue to excel at going forward.
Our approach remains focused on efficiency marries technology and data and should reduce exposure to expense pressures, while increasing revenue growth.
In order to accomplish this we're making investments in foundational areas like centralized teams it infrastructure and licensing and data analytics, which is driving a good portion of our forecasted overhead growth in 2022.
These investments enable our progress in our innovation journey and have significant ROI that should continue to garner margin improvement benefits in 2022 and beyond.
I'll now turn it over to the operator for the Q&A session.
Thank you Dave I'd like to ask a question. Please signal by pressing star one on your telephone keypad.
If you're using a speakerphone. Please make silicon mute function is turned off to allow your signal that he said equipment again.
Scott I wanted to ask a question.
We'll take our first question from Nick Joseph with Citi.
Thank you very much.
Maybe starting on the transaction side, Marc you mentioned the $2 billion. This year on acquisitions and dispositions I think at a 25 basis point dilutive cap rate. How are you thinking about that trade from an IRR growth perspective over the next few years I know you are buying newer assets and selling older assets. So just wanted to understand.
Alright.
Hey, Nick this is Alex Brackenridge.
Yes, so so.
Feel like the assets, we're buying will have higher IRR is over time, the combination of both higher top line rent growth, but also less capital demands over time as well. So we feel like we're in a point in time, where we have an opportunity to have a really good trade of selling these older properties into newer properties. In these markets that are very very robust.
So are you seeing any difference in the buyer pool or competition for the assets that you're trying to buy versus what you're selling.
Just that it keeps getting bigger multifamily is clearly a favorite asset class and we see people that had gone away coming back and certainly in our coastal markets that were acquired or like New York.
It's full bore full bore people that we're investing only in office are now investing in apartment people that went down south or come back north. So it's a competitive bid both for what were selling and for what we're buying.
Thanks, and then just what does 2020.
'twenty two guidance assume for government rental assistance.
Hey, Nick it's Bob.
We're roughly assuming maybe slightly below half of what we got in 2021, so in 2021.
Just to remind the group we received about $34 million and so we expect the programs. They tend to start tailing off as we go so about half of what we've got in 'twenty one.
Thank you very much.
Thank you we'll take our next question from John Pawlowski with Green Street.
Thanks for taking the question maybe to think Nick's question a step further Alec just in terms of how your team is approaching underwriting intermediate term growth. So if you went and sampled all the deals you've underwritten on the acquisition side in recent months. We're currently underwriting with the intermediate term NOI growth assumptions be high.
Or lower for the average sunbelt deal versus the average coastal acquisition.
Yeah.
That's a hard question for me to answer in specific because every deal is a little different every rent role. Obviously is different there is a lot of still to be <unk>.
Picked up rent.
Growth in both what were buying and selling but youre getting a kind of in a different way and some of the things we're selling there's still maybe some pandemic recovery and what we're buying generally there wasn't a big pandemic down downturn.
But there is still the market has moved so quickly you still have leases under so net net we feel really good about the short and medium term growth of these expansion markets, but it's coming from a different source hey, John It's mark just to add to that and the risks are different in each of these markets. So you get into the intermediate term with some of the markets that we call.
Our established coastal markets and there is a bit more risk of rent control and things like that interrupting rent growth in those markets.
I'd also just say that when you look at the growth in some of these markets. We think of the new portfolio is having a bit of a handoff munis diversification is going to service well.
<unk> supercharged growth this year because of the recovery in our established markets and as we establish the sunbelt presence, we're going to have more balance and I think youre going to see just more balanced growth. So maybe there is a little more growth in the sunbelt and a little less in established but we'll pick that up and vice versa. So from our perspective, it's sort of a risk.
Adjusted thought process and a diversification thought process. So maybe the established market to drive the machine for the next 18 months or two years and maybe some of these diversification markets help add power to the engine in outer years.
Okay, well. Thank you for all the thoughts final question.
Michael I'm not sure I fully understand why there's been such a large and persistent breakage between net effective pricing trend in the blended reported spreads so since July or effective pricing trends been 20 over 20% above the year. Prior so I would've expected new and renewal.
Acknowledging they're very healthy out of expected new and renewal.
Closer to 20% than 10% eventually so I'm not sure if it's regulation or just more time is needed any comment there.
Well I think it's a little bit of both of those factors. So one.
As that pricing trend improves it's a law.
Lead indicator as to what to expand.
What do you expect on that new lease change and renewal and those forward months, but I think clearly you're subject to who's moving out and who's moving in a little bit of the timing of when those original leases were written and then clearly we are subject to some of these regulations right now that are limited.
Our ability mostly on the renewal side of the business with allowable increases, which in my mind just differs kind of the <unk>.
Rent growth that we were going to see in 2022 and pushes it more into 2023, because we're going to recapture that spread again, either through that next renewal or at move out in time of a new lease coming in so I think youre seeing to the trend. If you look at that January kind of trend youre going to continue to see that growth in these <unk>.
First couple of months of this year with both new lease change as long and the blended and then youll start to see us come up against that comp in the back half of the year and it will start to moderate a little bit. So I think youre seeing us close that gap with that net effective pricing trend, but I don't think you should ever expect that we're going to fully realize those numbers.
Okay. Thank you.
Thank you we'll take our next question from John Kim with BMO capital markets.
Thanks, Good morning.
Just wanted to ask about your same store revenue guidance.
You had signed leases at 13% increases in January .
Talked about the positive pricing trend of 27% over last year, and an 11% loss to lease and on top of that you've market rental growth, which I'm sure is not really factored into this but how do you get to the low end of your same store revenue guidance of 8% just given these other factors.
Yeah, Hey, John It's Bob I'll take a stab at this and I'll piggyback with Michael If there is anything I think when you think about the range on the revenue guidance side and Michael outlined in his script a little bit most of the growth is coming from rate right and there is different flavors that you just outlined in terms of rate.
A lot of that rate is kind of I'll call. It baked in because it's that capturing that existing loss to lease et cetera. The way you get to the low end of the guidance ranges that you don't get as much intra period market rent growth.
During 2022 right. So if you think about it as we kind of continue on the pricing the pricing trend.
The low end would imply that we don't get much intra period, the higher end would imply that we get more intra period than what we otherwise anticipated and the midpoint is slightly above trend above historical trend interim period growth and that's how you kind of balance the range. The range is a little wider than what we've historically done because I do.
There is a little bit more potential for volatility given what's out there.
But those are kind of the low end of the middle and the high.
And what do you expect as far as the difference between new and renewal lease.
Basically on top of each other.
In the fourth quarter I would've thought that you would have had a higher new lease rates.
Given it goes straight to market rather than renewals when you maybe.
To be more difficult to reduce concessions, how do you think that.
Anything that goes in rest of the year.
Yes. So this is Michael I think clearly in these first several months of the year youre going to see that new lease change starts to outperform the renewal numbers, we got pretty good insight into the renewal performance for the first quarter. You can look at what we're quoting for February and March and see that it's kind of right in line we've been quoting just.
Around 14%, we're achieving around 12% in these months I would expect that to continue but on that new lease side youre going to see a little bit more momentum kick in here as you go January February and probably even into March and then youll start to see it kind of moderate a little bit.
And as you turned the corner and get towards the back half of the year.
Those numbers are going to converge together.
Great. Thank you.
Thank you for take our next question from Rich Hightower with Evercore.
Hey, good morning, guys.
So I guess just to just to dig down a little bit on in terms of new and renewals.
If we go by market there are some pretty dramatic differences I'm looking at San Francisco, but thats not the only example between.
New lease change and renewal rates in the fourth quarter, but what's interesting too is the pattern.
Across different markets right, it's not consistent across the market. So what explains that theres something with concessions. That's driving that you know how do you expect that to trend over the year I mean give us maybe a little more detail on some of the market by market color there.
So hey, rich this.
This is Michael so I'll just start I think maybe are you focused on the sequential changes that youre seeing across the markets and the differential that youre seeing in the fourth quarter over the third.
Momentum.
I'm looking at just for the fourth quarter the differences between.
New lease growth achieved in renewal lease growth achieved and again San Francisco being a good example of call it a nine.
100 basis points difference one versus the other but again that pattern is not consistent across all markets.
Yes, So I think you got to go market by market and you've got to understand the retention you need to understand the regulation limits of the caps that you are bumping up against.
And in certain markets like San Francisco or even in New York. It's you got to understand the concession use that was in play this time last year or in the fourth quarter of 2020 and that comp period is kind of what's driving some of that so I was looking more into that January kind of projection and.
Just thinking about where you see those spreads today and know that the renewal number is probably going to stay like I, just said in that similar range, but youre going to get a little bit more mentum momentum out of that new lease change and some of those recovery markets.
Okay. Okay, maybe we can dig into it kind of separately off the call.
That is helpful and then.
My second question just on the.
The 25 basis points of call it net investment dilution.
Forecasted this year embedded within guidance I mean, I think you guys did a little bit better than that in 2021, maybe versus original expectations. What are the chances that you can.
<unk>.
Little bit of dilution in 2022 with your investments activity what would drive that.
Hey, rich it's mark.
Our goal is not to have any dilution, maybe even have accretion that would be wonderful, but we're trying to do is build a great long term portfolio and there are timing issues too. So I would just tell you that 25 basis points of dilution is just what's in our model. It's just what's in our guidance.
Number could be slightly more slightly less right now it feels great to be selling these assets. In these established markets that are older. They are nice properties, but there are a lot of older assets, a big capital needs, sometimes regulatory challenges and buying these newer assets in these new markets for us so that trade at even feels like a good deal to us.
So I think Youll continue to see us trade, even if it's de Minimis Lee <unk>.
Dilutive and again, there are timing issues too sometimes you sell before you buy and things of that nature. So I will tell you the goal of Alex and his team is to trade as accretively as possible, but on the other hand not to be fooled by that initial cap rate to be thinking hard about the long term return.
On the asset.
Alright, Thanks, Mark Thank you.
Thank you rich.
We'll now take our next question from Rich Hill with Morgan Stanley .
Hey, good morning, guys and congrats on a very solid quarter.
We run we run a cash model and so I wanted to speak a little bit about.
The same store revenue guidance on a cash basis I recognize that you didn't provide that.
But I would think that the cash number would be higher than the GAAP number given the.
The rent.
The Brent benefits that youre, providing and $1 <unk> of 'twenty. One can you provide when it would be on a cash basis or at least walk us through if our.
Our reasoning is correct.
Yeah, Rich, let's talk through this a little bit.
Let's talk just straight on a cash basis kind of what we're assuming in the 2020 revenue number. So in 2021 right you had.
Call it $27 million, which we disclosed on page 12 of cash concessions were assuming at the midpoint of our guidance.
That we have significantly less concessions in that right. So this is all cash cash right.
And so therefore, we're thinking that we're going to normalize something back to normal it's not quite the <unk> annualized, but it's something in that general ballpark that we're assuming at the midpoint. So what's happening I think is the inverse of what you just talked about so in 2021, the GAAP number was negatively impacted by concessions.
In 2022, it will benefit from concessions right. So the cash number on a year over year growth rate basis should be a little bit lower than the midpoint that we had in our guidance range.
And based on the numbers that I just outlined to you it should be call. It 60 basis points lower at the midpoint than the 9% that we just gave and rich just to add a little bit. It's mark. The general rule you should think about here is that when you're doing concessions than we were in a concessionary environment for a while at the beginning when you were issuing.
Large amounts of concessions.
Our concession fully net effective number for revenue will be higher than it would be on a cash basis. We're now at the tail end of that where these concessions are going away and that means that the opposite is now generally true and that youre doing a little bit better on the other direction. So you're.
Your GAAP number is generally not doing the same so that's just so you understand the trade. So when we disclose on page 12, as Bob said that for the full year. The differences for six GAAP versus negative versus negative <unk> cash you're effectively going to have that thing switch around a little bit.
Youre not going to have concessions improving your number like you did youre going to have concessions hurting your numbers slightly and thats. What it does so I think our cash number is 80 basis points lower as about 70 basis points lower than the 9% at the midpoint, you've got more like an 83 on a cash basis year over year.
Then then the night.
Got it that's crystal clear guys. Thank you and I am really asking the question because there is obviously not uniformity across your peers, how thats reported which I think is.
I understand.
I want to come back to the.
The new leases and renewal leases I appreciate the transparency and disclosure about why you might not be capturing the whole <unk>.
20% growth.
But I think what I heard from you is next couple of quarters next couple of months you can expect to be in sort of a steady state as to what you showed in January .
Again to decelerate.
In the second half of the year.
But as we start to look forward to 'twenty three.
Looking forward not looking for you to guide here, but.
Thought you were telling us.
The near term is never going to be as high as the 20% blend it is going to be lower but that probably means you extend some of it out into 'twenty three and therefore, the blended spreads in 'twenty three can probably be higher than what some people were expecting because that's just pushed out is that is that the.
Right way to think about that.
Yes, absolutely.
Differs and pushes it into the next year.
Okay. So just to be clear you will get all of that change. It's just a matter of when and that depends on as Michael said, the lease maturity schedule, a little bit of regulatory <unk>.
Im pressure those sorts of things, but youll get the whole thing unless the market changes. It's just whether it's all this year or a little bit falls into 'twenty three.
Got it so said another way if youre going to put up let's just say slightly less than 30.
Slightly happen slightly less than 12, 5% blend that we should think about rolling the difference between that $12 five in that 'twenty and into 'twenty three.
Yes, I mean, I think a lot's going to depend on what intra period growth looks like and the timing of that growth whether it's early in the year later, but yes, I mean, I think thats, a fair way to model.
Okay. Thank you guys I appreciate it.
Thank you, we'll now take our next question from Nick <unk> with Scotiabank.
Thanks, Good morning, everyone in terms of San Francisco Bay area I was hoping you could maybe.
Talk a little bit more about you said that good demand, but not pricing power and maybe you could talk about how that's doing in the different submarkets you're in the Bay area.
Yes. So this.
This is Michael so it clearly there is a divergence right with the city of San Francisco is the area that has the most pronounced spread to the pre pandemic pricing you actually have pockets as you work your way in through the East Bay, that's right on top of it the peninsula is really approaching.
Kind of that pre pandemic and the South Bay. Despite the 4000 units that just came to the market is also just like that peninsula area. It's right on top of that pre pandemic pricing. So I think what we're seeing is just when you roll it up at the market level and we're still at 6% off of the pre predominate pricing, it's mostly weighted.
<unk> from from the city of San Francisco, and you have signs of demand returning in there you just don't have quite enough of it to get to that pricing power that you need to fully recapture everything but the signs are there and the question is just how fast in the year you can get to that price because the earlier, we get it the more it's going to yield a.
Revenue growth this year versus deferring into 'twenty three.
Okay. Thanks, Michael that's helpful going to the bad debt.
That number that's been just under 2% debt on page two of the sub debt.
Additive benefit to your same store revenue growth I think it's been the same number the last two quarters, how should we think about that benefit in continuing to play out in 2022 from a timing standpoint from a quarterly standpoint, you're still getting that for a couple of quarters.
Yeah, So hey, Nick It's Bob Let me talk about the kind of two competing factors that go into that number as we think about how we model that in 2022. So.
One of the competing factors is the rental assistance right. So rental assistance, which I think we talked about a little bit earlier on the call. We will reduce that number and we do expect that to trail into 2022, because the programs are not completely done and we would expect that to be front half.
Right and so that will benefit you on the front half basis. The apathy competing factors just the actual resident behavior in terms of who's who is paying who's not paying.
And how that kind of progresses, we do expect the benefit.
For that to occur, but that's probably more back half loaded so what I think youre going to end up having depending on how this all plays out is something that's a pretty constant maybe a little sub 2%.
Level that will be kind of throughout the years as you go through the quarter, but those are two factors that are driving kind of the bad debt. We do think on an absolute basis that bad debt will be lower with both those factors in 2022 relative to 2021.
Maybe we'll give a little bit more precision and Bob will help me, it's mark here, because im just playing CFO now im not actually getting that job.
But are any old days before the pandemic our bad debt write offs are generally 40 or 50 basis points of revenues. They obviously went up considerably during the pandemic and now youre getting these pretty variable numbers because of these great job, Michael and the team have been doing with our residents of getting some of this government rental relief money. So the question on the <unk>.
Run rate is probably a number that's in the one 5% range for the year because it's still there's still are eviction restrictions and where there arent. There is just slow processes and there's just still some stuff the system needs to work through Nick So our sense is it's higher than a normal year, but considerably lower than the $2 seven or so.
We were feeling through most of 'twenty is that a good enough number Bob yeah. So.
Even more synthetic so call.
Call it $30 million of bad debt net of rental assistance in 2021.
A normal year to marks point would have been something more like 10, we won't get all the way back to the 10, but we might get close to halfway there in 2022. So we will add something thats call it $15 million to $20 million of bad debt is what we've included in our guidance.
Okay very helpful. Guys. I was just one quick follow up on the renewals you talked about you felt pretty good about keeping pricing for renewals. This year I mean should we assume that something over 10% is baked into the guidance for renewal growth this year.
Yes.
Well no I think what you need to remember is that the first part of this year is going to be strong its going to be these 12% numbers on the renewal and then as you turn the corner in the back half of the year I think you should expect some moderation. So I don't think its materially below 10%, but I'm not sure we're going to stay at 12%.
Run throughout the whole year.
Thanks, everyone.
Thank you, we'll now take our next question from Kenny Luo Chen with Goldman Sachs.
Hi, all congratulations on a strong quarter.
I'd like to talk about.
Relationship with toll brothers builders, obviously, you have been experiencing widespread disruption.
<unk> talked about you know labor challenges materials inside of extending their cycle times and toll brothers also in December kind of talked about it so on cycle times getting extended so what are you seeing from your standpoint, and then any change to that for me.
Timing perspective, when do you expect to deliver the first set of developments with investor relationship.
Sure. This is alec.
So what we're seeing and we haven't broken ground on anything in our joint venture with total yet so I don't have any toll specific information on something thats under construction.
But I can say that for the projects that we're working on with other partners.
<unk> of timing right. So things have pushed out by a matter of months, but it's not whether or not the project gets done and thats true of us and many of our competitors as well. So people are getting around the supply chain challenges either by finding substitute products or warehousing the inventory that they need so costing a little more taking a little more time.
But on the other hand rents have been rising so I'm not sure yields in most cases have materially changed.
The other thing that we would say is we are in a different business apartment construction versus single family home construction I mean thats more of an assembly line at a moment you just need 1000 windows you need them right now and for US we have longer cycle times, it's a lot longer period of time to build an apartment building in a single single family home.
So maybe you don't have the windows, but maybe have all the dry wall you can do or whatever the situation as you can kind of manage things a little bit better than I think you probably can if you just can't deliver the house at all because you just don't have a key component while in apartments, you can go to a different stage in the process at least sometimes.
And knock that out.
Understood and then I'd like to follow up on your expense outlook. So obviously and if you kind of go back and look at 2019 your expenses.
5% and then.
'twenty and 2021.
Very well controlled and you gave some color on <unk> growth in 'twenty, one instead of how that was a big tailwind as we think about 2022 with the midpoint of 3%.
Steve.
What are the other factors that are helping.
If you think about <unk>.
Any such as taxes utilities et.
Et cetera.
Yes, so let's start with the biggest category because it is we expect it to continue to be a help as it was in 2021, which is real estate taxes real estate taxes, we do expect to grow below trend.
And a lot of that has to do with timing as well.
So some of the real estate jurisdictions.
Not on calendar years. So they are on different fiscal years. So we've already got like locked in assessed values that are lower rates that are lower or just the general health of the jurisdiction.
Curious addiction is better so we have a little bit of that continuation kind of flowing through so we would expect real estate taxes to be more around a 2% kind of growth rate then maybe in 2019, our historical and real estate taxes were more of three to four.
So that will drive some of the assistance the payroll I think you already hit upon.
Utilities in R&M will be probably mix will probably be a little above average.
That depends on a variety of factors on how it flows through on utilities with.
Commodity prices and other areas, where we've seen a little bit of relief as of late a lot of the utility price, we're able to pass back to the resident so it's more of a geography than kind of net.
And that impact overall, but it's the combo of good expense controls and initiatives associated with payroll continuing to manage the R&M piece and then also benefiting from real estate taxes.
Got it thank you.
Thank you we'll take our next question is from Brad Heffern with RBC.
Hey, good morning, everyone.
On the development front, you have the $450 million and starts in 2021 can you talk about what that number is expected to be in 'twenty, two and maybe any trajectory over the next few years.
This is alec.
We're working on growing that pipeline $4 50 was kind of Jumpstarting, our program, which was helpful. But <unk> had these three projects ready to go but we're hoping to grow that to $1 1 billion to over time.
This year will probably be somewhere between the $4 50 and $1 billion.
Sure.
Okay got it.
And then on the transaction front, how do you think broadly the market's likely to respond to these higher rates are we going to see eventually cap rates move up or some sort of lag or do you think that just the underlying growth expectations have increased and asset values sort of end up in the same place.
Yes, I mean, we are in that latter camp, Brad it's mark about value staying give or take where they are in.
I think interest rates going up are pretty manageable for values that you think about the customary spread and we talked about this on the last call of between the 10 year Treasury and prevailing apartment cap rates are being 200 basis points give or take and you imagine the fed moving short rates and long rates responding and you wonder if the cap.
Rates should go up and I guess, given all durable multifamily cash flow has proven to be even during what was I think the biggest crisis in the industry's history in the last few years.
Were hit pretty hard and were right back in two years and not a good growth trajectory and the great prospects going forward.
I feel like.
That bit of a risk premium is going to decline a bit I also think there's a wall of capital that I know, you're well familiar with that wants into real estate and specifically into apartments heard that number quoted and its all sorts of different numbers, but it seems to be at least <unk>.
$1 billion or more so.
So I think that creates a floor as well so our sense is that as long as interest rates going up doesn't crush growth and take the whole economy into a serious recession.
<unk> will remain pretty good and I also think you're going to get both real and nominal cash flow growth. So I think your NOI that youre applying your cap rate too is going to improve as well over the next few years.
Great I appreciate the color. Thanks.
Yes.
Thank you we'll take our next question is from Alexander Goldfarb with Piper Sandler.
Hey, good morning out there.
Just going back to the opening comments on the rent increases and you guys were clear that a lot of this year is going to be driven by the burn off of free rent from last year, just based on the on the rent that you are sending out on a face to face sort of apples to apples comparison, how much are the new rents going up so basically.
Lee.
Someone had two months free last year is it just reflecting that now they're not getting that two months free so whatever they were paying in face last year, but they are paying now or are you able to raise that face rate call. It 5%, 10%, 2% I'm just trying to get some perspective on the actual rent increase.
Hey, Alex this is Michel so maybe I'll start with this for a little bit. So there's a couple of ways to look at that first you can go into the fourth quarter kind of statistics around like the new lease renewal in the blended and just look at the difference between like a net effective in our growth and I'll tell you you can almost.
Say, it's about a 300 basis point impact where outside of concessions that net effective as being kind of lifted up by about a 300 basis point impact from the use of concessions in that prior period, but a better way to kind of think about this is if you look at the loss to lease that we have today in January and I said, we are approaching.
At around 11% that's on a net effective basis and when you look at that on a gross basis. So without any regard to any concession activity either last year or this year. It's about a 75 basis point impact. So you have about a 10.25% loss to lease right now on just rate and thats the opportunity there.
It allows you to work your way through 2022 and capture that rate and some of that will fold into 'twenty three.
So then if the bulk of the Mark to market is really rate not necessarily concessions youre, saying your inability to capture that is really just purely from markets, where youre restricted on your ability to push rents.
And timing right not all leases expire.
Alex on January one that's the other way right. So you got it.
So it's a little it's mark it's a little bit of both.
It's certainly there is some regulatory restrictions, particularly in southern California, but theres also.
Just timing, we don't our leases don't overall January one.
Yes.
We get that money the next year so.
That that is going to contribute to 'twenty three and just to talk about the concessions I mean, we did take all that pain through the system. Our shareholders felt that so the fact that there is some concession makeup I mean that is real cash flow, we didn't get that we will get so it isn't I don't think you are implying this but it isn't an accounting charge. It is a true cash.
<unk> reduction we had that we're now getting back.
Oh, no no landlord want to not get paid for rent totally agree with you Mark the.
The second question is.
On the on the on the assets that Youre, selling obviously, great cap rates on the sale, but if you think about your basis on those assets. What's the current yield that you're giving up so great that you are selling whatever $3 seven awesome, but if you think about the cash yield that you're giving up is that like a six is that a five is at a seven because some of them.
These things you've owned a long time with your basis being a lot lower correct.
Well I'm going to ask Mark just ask a question. The three seven we quote you. The disposition yield is what we think forward cash flow is based on the price we sold it at so it is what EQ or would have gotten if we had kept these assets. So if youre talking about what our historic book value is.
Just to give you a sense of perspective, because we just had this conversation with our chief Accounting Officer I mean this company is very good at investing in apartments. So we have half the.
The book basis, or so gas compared to the actual sale price and most of that the vast majority of that isn't depreciation it's actual gain on sale. So I don't know if thats helpful perspective to you, but the book value. It's fair to say is about half, but I'm not sure why the book values terribly relevant in the $3 seven.
He is a good reflection of the cash flow EQ are gave up is that helpful.
Yes.
Obviously, you had an investment before mark that was yielding new sounds like double the $3 seven that you are selling it. So I'm just trying to get that perspective, as you're reinvesting the capital.
Okay.
Yes, I don't know about double because again, you're you're failing the mark the asset to market.
I mean, we don't operate on a historic.
Basis here.
At an asset and say, it's only worth its net book value. It's it can be worth more or less and in our case, it's often.
More so I'm a little confused by the comparison of net book value using that as your denominator with cash flow is your numerator I think cash flow forward is your numerator and your denominator is what you sold the asset for you think the essence worse at the moment right.
You answered my question. So we're all set anyway listen thank you.
Thank you.
Okay.
Yes.
Okay.
Okay.
Operator, do we have another question.
We'll take our next question.
Anthony Powell with Barclays.
Hi, Good morning, a question about renewals.
You said that your renewal rates are among the highest they've ever been and I'm just curious.
What do you think causes that to normalize and does it matter to you or do you prefer.
Renewals are left in the current environment.
So this is Michael I mean, clearly, we're we want retention right, we deliver an outstanding customer service to our residents we have a market price that we're using as a quote and we want our residents to stay with us. So as I think about that retention right now you do have.
Have a couple of areas that the retention is super high and that is probably being influenced by some of the regulations. That's keeping some of those increases call. It well below what the current market rate is.
And that to US is just a deferral of the revenue into next year, So, but I think what you should expect to see is as the year goes on I'm guessing, we could see a little bit of that moderation on that retention or on that percent of residents renewing but I don't think its going to be material. I mean, our residents are telling us and you can see by the.
Greece's that we've been putting out there and they are signing with us that it's not an affordability issue you may see a little bit of a tick up based on increase and then moving around but I think we expect to see strong retention through the year.
Got it thanks, and one more from me on the cap rates on acquisition and disposition.
Asked a few times on the call already but.
Do you expect to see some expansion in some of your sales activity and maybe some contraction in what youre buying or is it given what you talked about in terms of the fee.
Capital coming into the space you expect to see continued low cap rates for even some of those for you target noncore sales that you are selling now.
What we're seeing.
Low cap rates kind of across the board. We're also a very tactical seller right. So if a market has not got a lot of bids in a particular remember last year, we didn't feel like New York.
There's a lot of interest in New York. So we didn't sell now were feeling differently, we have a property under contract and we will get a low cap rate on that and so but investor insurances broad across the markets and we're going to continue to match our sources and uses here with the dispositions paying for the acquisitions as Mark said, it's roughly the same cap rates.
Alright, thank you.
Thank you we'll take our next question from Rob Stevenson with Janney.
Hey, Good morning, guys, Bob what did you guys spend on new and recurring technology. In 2021 that allows you to have the AI and the self guided tours and the negative on site payroll growth and what are you expecting to spend in 2022.
Okay.
Yes, so in fairness and I'll I'll, let.
I'll, let Michael chime in here most of the investment that yield the yield the results in 2021 related to the AI and other things. We're actually spent in prior years, there is a little bit of.
Chicken and egg thing so typically what you see is investment in the overhead our technology like the AI, which by the way it was relatively inexpensive I think.
Bus.
You see that investment happened first as the enabler and then you begin to see the reduction in the onsite payroll or the change in the staffing and so then when you move forward to 2022 were in that position, where we're once again in a phase of investment in the technology and that's a lot of what our above <unk>.
<unk> overhead growth that I alluded to in my comments is driven on it's a lot of attack at some centralization of staffing et cetera. So there's call it maybe $4 million to $5 million at least embedded in kind of the prop management growth rate.
We're seeing some of that come out again in the 2022 numbers, but a lot of it is the investment into 2023, and 2024 and you've seen in some of our presentation deck. What we think the growth potential of that when we make these investments that are going between geographies. Just so you know, it's very ROI focused geographies.
Matter of bottom line and cash flow due and so what we look to do is to invest in technology or invest in centralization that gets a positive ROI.
Overall, regardless of geography.
Okay.
Mark anything incremental from a legislative regulatory ballot initiative perspective that youre worried about at this point that could have a significant impact if enacted.
While we're probably feeling a little better in a couple of places I certainly think in New York, the new mayor seems to be seems to have been elected by a populous that once practical problem solving government in New York.
Just thinking about the crime issue and a good thoughtful way. So that's we think that's positive the governor has a lot of experience with real estate and understands our market factors working real estate. So that so probably feel smidge better in New York.
I would say one thing in California, there will be an exploration shortly of a prohibition on local eviction moratoriums and we do have some concern about that I mean that is something we do think about we think the time has passed for those sorts of emergency measures justified by Covid and that the system needs to adjust itself.
And if theres going to be a need to keep people in homes of that sort then the government should fund those kind of programs with enhanced vouchers or whatnot, but that's probably the thing that's foremost in our minds and like I said I think I feel a little better about New York, maybe not a lot, but a little in terms of the policymaking and then we will continue to keep our eye.
Good cause eviction as well and some of our other markets again, there seems to be more focus on quality of life and concerns of that sort, whether it's in Seattle at the city of San Francisco, and we welcome that as well.
And then one last one for me, Bob what was the $17 million impairment charge in the quarter.
Related to yes, yes, so that related to a specific parcel of land and you can now just looking at our balance sheet, we don't have much land at all.
But it related to a specific parcel of land in downtown Los Angeles that we no longer anticipate pursuing from a development standpoint, we obviously do a very thorough review of our land bank and all our assets from an impairment standpoint.
Periodically and that change in intent is largely what drove that that charge.
Okay. Thanks, guys.
Thank you.
Thank you, we'll now take our next question from Henderson.
Mizuho.
Hi, there thank you.
Hey, I just wanted to go back I don't know if did you outline a timeline for getting your portfolio to that kind of pro forma balance that you mentioned earlier in the call.
One third, California, one third.
The balance you outlined earlier and then also it looks like Theres a bit more wood to chop in California.
So maybe it's part of that can you talk about the level of demand.
And by a profile that youre seeing in California, keep hearing lots of chatter that NAND is far less for coastal California, just curious on what you're seeing there. Thanks.
And Alex Mark I'm going to start with the timing and I'm going to leave now I'd like to talk about what's going on on the California sales side. So it will take a few more years I mean $2 billion is our goal on buys themselves.
There was a lot of products sold towards the end of 2021, and so 2022 is not yet that busy thats pretty common for the first quarter to be a little quieter wed love to do more than $2 billion, but we will do only as much as makes sense on both the buy and the sell side. So I think you should expect this to take several more years to fully effectuate, but I'd say in the.
Meantime, the others are going to get the benefit of the strong recovery in our established markets and so again, we're going to continue to own a lot of New York and New York is going to be a terrific market in 2022.
Then you will see our exposure to that market drop over time, and I think hopefully that will be well timed with improvements in performance in some of the sunbelt markets that we're adding exposure and so I think it is going to be a couple of more years for sure until we get to that that balance I'd spoken of.
And as to Investor This is Alec as investor interest in California.
We see both newer transactions that were typically looking at buying and it's been a very full bidding tent for that and also the older stuff that we're selling is it such that could slightly different buyer in many cases more value add focused.
Also a lot of interest the exception to that is really downtown San Francisco there has not been a significant trade and right now I think the market is to continue to recover both from a rent level, which is starting to do but also from investor appetite, it's somewhat analogous to New York.
12 months ago, we felt the same way we needed to wait on that than before.
Sold any property there in San Francisco lagging behind that but that is the market where you just don't see much sales transaction otherwise it's very robust.
Got it got it I appreciate that Mark assuming you're open to fast tracking that should a portfolio because that yourself and you have identified use of proceeds or is it something you just want to manage a bit more.
Rationally here over the next couple of years.
I apologize I didn't that broke up a little would you repeat that question.
I would that would you theoretically are you open to fast tracking that the asset recycling out of California should there be any day.
Portfolio transactions.
Absolutely if there was an opportunity of that sort we'd be all over it but a lot of the portfolios. We've seen that have traded have been offered for trade.
Have all sorts of frailties, they're either a lot older product or theyre in the wrong place or both and they may have a few of the assets, we want but we're looking to try and make trades that move that goal along yes listen we are open to buying assets frankly anywhere that makes sense. If we get a great price and this is not a market where you're getting a great price so otherwise.
You need to have it makes sense relative to the strategy. So we'd love a portfolio acquisition, Alex and his team are super focused on that we have not seen a lot of those opportunities that we are in our wheelhouse come by.
Great Okay. Thanks.
One more question I think a bit of a.
A question, but just curious on your thoughts.
Intrigued by your reference to the Gen Z cohort earlier looking at the number of 65 million there are large group but.
Sure the.
The $72 million of the millennial cohort that preceded it.
I guess thinking ahead I'm wondering at some point, how that kind of plays itself out maybe in less demand or potentially less rate growth at some point.
But also I'm curious kind of what did you learned about that cohort maybe have a different perhaps the millennials and this is impacting anything on kind of that collection of services.
And then as a follow up would you be enticed.
Perhaps to do a bit more on the single family rental ship side as they appear to be more set up to be beneficiary of the millennial the ageing of the millennials.
So theres a lot in there and I don't know if some of the rest of the team might contribute to the answer I mean, I have to Gen Z or sitting in my house that I very much want to get out there launched in.
We see that cohort as very large and I think with we hope sensible immigration policies I'm not sure it'll end up being much smaller smaller at all than the millennial generation.
<unk>.
So besides the raw numbers Theres also what percent of those people are captured in the apartment renter ship world versus homeownership for single family Renters ship and I think we're going to capture and continue to capture a fair amount of these millennials I mean, it's been well documented that a lot of those folks are pretty good P&L pretty good earnings power, but not.
<unk> a lot of savings to put down to purchase homes and so a lot of those folks that are going to stay longer with us and they value that flexibility from renter ship. So our sense and again, we've seen research on this is that.
Even though the ownership percentages have been going up and millennials are certainly part of that I think we're going to continue to have a pretty good share of that millennial population, even as it ages. Our average renter is 33 years old in our portfolio. So it is a little older than some of our competitors. So I think we are still approaching the high water.
Mark for the millennial generation in terms of the largest single year of population. So that all feels good I think the runway for demographics and apartments is really good in terms of going into the single family business.
We're a residential company, we think about all those things all the time, but what we have in front of us as this really good opportunity to build a 12 or so market portfolio and the best places for affluent renters to live in the U S. We're really good at managing apartments, and we're good at that we can be good at other things too, but I think what we have.
In front of US is an opportunity to really trade out of some of the.
Older product and maybe regulatory challenged product and move into apartments that seems like that's right in front of us I wonder if that isn't the opportunity for US right now as opposed to trying some new things, especially since those new things arent cheap.
I think single family is certainly analogous property type and plenty of Rx employees of work, there and pretty senior roles. So we know a fair bit about it.
We think about it a fair bit but it isn't something that from my perspective is the immediate opportunity.
Okay, great well listen thank you for the time appreciate the thoughts.
Thanks Sandro.
Thank you, we'll now take our next question from Nick Joseph with Citi.
Hey, it's Michael Bilerman, Mark if we could just stay on this idea of the refined portfolio.
Right.
Let's call it six or $7 billion of assets and in New York, and California to rotate into the diagonal line starting up in Seattle.
And I recognize you have $2 billion a year it will take you through the three years.
You have been selling a lot of assets outright have you given any thought or is there an opportunity to maybe do a fund or a larger joint venture because I would assume that theres, a fair amount of capital out there that would like equity residential as an operator and just given your presence in these markets.
25% of an asset continuing to manage it.
It's better or is your mindset now I just wanted to be out completely and.
And not have a stub interest in the market.
We're open to joint ventures, and there is some places where we're probably more open to them.
For example, the city of San Francisco with very high transfer taxes may be a place where selling part is better selling twice as much in halves is better than selling one hole. So I guess, Michael we are open to it that's a different pocket of money. We have conversations we know all of those people.
If an asset just needs to be sold we want to sell it we don't want to put a partner into an asset that we think will be challenged but there are certainly assets were just overexposed in the sub market and we just like to have a little less exposure. So we're open to that and we've had those kind of conversations but honestly the market to sell 100% been so darn. Good we've just gone ahead and done that.
But we're open to that and the most important part of that is if we found more to buy.
Then we hit the switch on everything Jv's and larger portfolio dispositions and all of that so the big limiter on doing one of those trades is all of a sudden Alec would get $600 million of cash do you need to reinvest in 90 days, a bunch of new great apartments, and that Michael probably concern.
Turns me most is how we would go about finding that new product more than anything else.
Right.
You think about I guess, rather than selling assets just growing the base I know it takes longer to do.
But.
There is an element that maybe just.
Can you talk about your rents being back at peak levels Youre stock is too right. So your equity.
All of a sudden becomes attractive potentially I don't know, how you think about it to issue to grow rather than selling cash flow assets.
Yeah, well I mean, we do intend to grow the development engine, we hope will create some growth. We're open to the suggestion you made its again finding things to buy if there were it was a lot to buy out there Michael.
We might be.
Very interested in using that we have a lot of debt capacity, maybe a little bit of equity and start buying we'd love to get bigger. That's we think this is a great time to be in the apartment business and we'd love to have both asset and cash flow growth will get a lot of cash flow growth from just the existing business. So I would tell you on both your very good questions. The limiter is more opportune.
<unk> set not us wanting to pull those levers we will pull the JV lever, we'll pull the equity lever. If there was a lot of great things to buy with it being such a tough market to acquire in.
The trading activity has been probably a.
Better way for us to go.
Alright.
So I think back to <unk>.
<unk> history.
Is your company has gone through.
In times of market.
Our repositioning going back to the two thousands and then obviously the starwood deal pre pandemic.
Yes.
The company into six core markets.
I guess are you thinking at all about a larger transaction.
No it has to be available for you.
But at least relative to some other times you have culminated the market repositioning with a large a much larger transaction versus sort of just year by year.
Methodology.
And we will react to the opportunity set that presents itself.
<unk>.
I appreciate the comment because youre right. We are transaction lists we're good at doing large deals we know how to integrate assets 50 at a time or more into the portfolio but.
I don't see that opportunity set out there. So I guess, it's hard to react in the abstract to that but I'd rather be done with this process that part I agree with you EQM rather be done with the.
Our realignment process, but were not in such a hurry that will do it by buying lower quality assets.
Okay great.
Florida.
Yeah, you there.
Thank you we'll take our next question from Joshua <unk> with Bank of America.
Yes, Hey, guys.
I just wanted to ask about a follow up to an earlier comment when you spoke about same store guidance ranges and you mentioned trend intra period rate growth could you just remind me what the.
Kind of how to think about trend intra period rate growth.
And the seasonality.
Yeah. So if you think about kind of and I'll use maybe 2018 2019 is like typical right. So typical for this business kind of trend would have been something you know in the high twos low threes in terms of rent growth and it tends to start it.
Start a little bit in the first quarter you build in the second quarter at the beginning of the late season, you peek at the third quarter and then you typically have a little bit of a.
Sequential rent decline as you get to the fourth quarter.
So that would be typical kind of pricing trend as you looked at other years right now from a revenue standpoint, you're obviously not going to capture all of that because we talked about you don't write all your leases on one one you have you may be capture half of it based on the what I outlined.
In terms of actual revenue performance in a given year. So that's kind of what I think about it.
In terms of trend what we've assumed in our 'twenty two guidance is that we follow that kind of same shape of the curve, but that it's a little bit above trend right that we continue to see that strength.
And it is a little bit higher than trend if that is much above trend right is something that is approaching more like the mid single digits or even above that is going to push your guidance range. Your guidance results to the or your actual results to the high end of the guidance range. If you are below that call. It three that I was saying trend.
You got kind of no growth that will push you down towards the bottom end of the range.
Okay. That's helpful. I appreciate that and then.
Five basis points drag from capital recycling is that just a function of timing or maybe a difference in cap rates across both buying and selling.
Yes, it's mark.
Kind of just in our model it can be either one but like this year. We didn't have any in our goal with Alec is to not have any again for it to be accretive, but it can be from either it can be from selling early in the year and thus having more disposition NOI gone or it could be from buying early in the year and having more accrete.
<unk> just by virtue of that so yeah.
Either or I guess I would tell you.
Can you just 25 basis points multiply it by $2 billion, that's the negative drag somewhere in EQM P&L model on this.
On this activity.
Okay awesome.
So I'll put it up there.
There's all sorts of upside of luxury none so.
If I'm reading it correctly.
Thanks, guys.
Thank you.
Thank you. It appears there are no further questions at this time I'd like to turn the call back to Mr. Mark <unk> for any additional or closing remarks.
Well. Thank you all for your time today, we look forward to seeing many of you in person at the conferences that are coming up and in your offices over the next few months. Thank you very much they will.
This concludes today's call. Thank you for you for everyone else has left the call.