Q1 2022 Equity Residential Earnings Call
Hmm.
[music].
Please standby were about to begin.
Good day and welcome to equity residential first quarter 2022 earnings conference call.
Today's call is being recorded at this time I'd like to turn the call over to Marty Mckenna. Please go ahead.
Good morning, and thanks for joining us to discuss equity residential first quarter 2022 results. Our featured speakers today are Mark Morel, our president and CEO and Michael Miller, Our Chief operating Officer, Bob <unk>, Our Chief Financial Officer, and Alex <unk>, Chief Investment Officer are here with us as well for the Q&A are earning.
Release is posted in the investors section of 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.
Sure because of subsequent events now I will turn the call over to Mark <unk>.
Thank you Marty good morning, and thank you all for joining us today to discuss our first quarter results.
In a minute Michael Mcnellis will walk you through a market update and then we will take your questions.
The growth in our business continues as evidenced by our first quarter performance.
<unk> is strong and lease rates are growing faster than we expected.
While we are well aware of the recent increases in economic and geopolitical uncertainties, we continue to manage our business by focusing on our operations dashboards not on the news headlines.
Those dashboards continue to nearly universally flash of Green signal.
Our well located properties in excellent service attract our affluent renter demographic in droves, allowing us to retain a record number of our residents and push rents up nearly everywhere we operate.
All of this allowed us to increase normalized funds from operations by 13% in the quarter and we expect this growth to accelerate over the next few quarters.
As we mentioned in our March operating update our first quarter same store revenue results were negatively impacted by an increase in delinquency in southern California.
It appears to us that a relatively small number of southern California residents, who had previously been good payors declined to pay rent in order to apply for state rental relief funds.
While we remain open to working with residents with true Covid related hardships. This sort of behavior is not acceptable and we will continue to work with these residents to obtain our full rental payment.
Translating all this into the numbers first.
First quarter same store revenue results were about 125 basis points lower than we anticipated due to these higher bad debt.
Partially offset by about 25 basis points or better rate growth.
Leaving the final quarterly same store revenue number about 100 basis points lower than we expected. When we gave you guidance back in very early February 2022.
Normalized funds from operations in the quarter ended up being about <unk> lower than we expected with a <unk> <unk> per share or about $6 million hit from higher bad debt offset by the better rate performance I just mentioned and.
And the better than expected expense performance that I'll discuss in a moment.
As we think about the full year, we feel that we are in a stronger operating position than we had initially contemplated in our full year guidance with the better lease rate growth trajectory more than offsetting are now more cautious view of delinquency.
Turning to expenses our residents appreciate the increasingly seamless digital experience, we are providing them.
Which in turn allows us to have a smaller and more focused property management team.
As a result of these efficiencies as well as low property tax expense growth, we're able to deliver two 5% same store quarter over quarter expense growth in an increasingly inflationary climate.
We look forward to continuing to drive innovation and to expanding our operating margins over the balance of the year, while creating remarkable experiences for our customers and for our employees.
On the transaction side as we expected we did not have much activity in the first quarter, we purchased one asset in San Diego that we discussed in the release and after the quarter end sold one asset in New York with that I'm going to ask Michael to fill you in on the operating details go ahead Michael.
Thanks, Mark we are pleased to report that we are seeing pricing power ahead of our expectations strong demand is being driven by the desire of affluent residents to live in our well located properties, both urban and suburban.
We have talked in previous calls about the recovery in our business being connected more to the lifestyle that our residents crave and less to how many days workers are expected to be in the office and that pattern continues.
Visited several of our markets over the last few months and I am excited by the vibrancy that I am seeing we.
We reported 96, 4% occupancy for the quarter, which is a 140 basis points higher than the first quarter of 2021 and in line with our expectations first quarter reported turnover of eight 7% was over 100 basis points lower than the first quarter of 2021 and represents the lowest rich.
<unk> turnover in the history of our company.
This trend reaffirms the desirability of our product as our existing residents signed renewals at record levels with increases that averaged 11, 9% in the first quarter.
This trend continues into the second quarter with preliminary April renewal increases, averaging 12, 5% with approximately 60% of our residents renewing we.
We are limiting rate negotiations given the strength and demand of new residents willing to pay full price to live in our communities.
As we began our primary leasing season, we feel really good about our pricing position, which includes the near elimination of concession usage.
Cross the portfolio outside of Seattle and is translating into robust new lease change performance with April on track to deliver just over $17, 5% new lease growth after posting over 15% in the first quarter.
Now let me give you some color on the markets beginning with Boston Boston is following normal seasonal patterns with improving demand and pricing heading towards the spring, where almost 97% occupied and the market is benefiting from the big Big College campuses being open and the return of international students and workers and.
Continued strong demand drivers from lab and life Sciences financial firms health care and education competition from new supply will be modest and market performance should be strong.
New York continues to thrive and was our best performing market in the first quarter with same store residential revenue growth of 13, 6%.
We're 96, 9% occupied and continue to expect this market to be our best performer in 2022 demand is robust we're renewing about 60% of our residents, which is healthy, but 5% lower than at the beginning of the year. This is primarily due to deal seekers choosing to move out versus paying the higher current price.
But it is not a concern since we are easily able to attract new residents at these higher rates.
Still expect to feel some pressure from new supply on the Jersey waterfront and Brooklyn later this year.
Washington, DC is performing as expected with residential same store revenue growth of 3% in the first quarter. This market was our best performing East coast market in 2021, and as I have mentioned in the past as the lease ground to make up.
As is often the case in DC, new supply is likely to pressure rate growth in the market that the metro area continues to boast record absorption strong employment across job sectors in the market is driving this demand and we are 96, 7% occupied we're renewing about 60% of our residents and feel good about.
Our positioning for the spring leasing season.
Before I talk about our West Coast markets, Let me give you a little color on our expansion markets. Denver continues to demonstrate very strong demand. We are almost 98% occupied and delivered same store revenue growth of almost 13% in the first quarter. Despite turnover being on the higher end, we're seeing very good pricing.
Power and healthy occupancy and.
In Atlanta, our acquisitions are performing ahead of their performance as the market continues to produce strong rent growth.
Dallas and Austin continued to enjoy robust demand driven by very good in migration and job growth in these markets.
Out of the West Coast, Seattle continues to be slow to recover compared to the other markets, particularly in the downtown sub market. The good news is that the city's new mirror is focused on the quality of life issues.
Which we expect will have a positive impact also job postings in the market are at the highest level, we have seen with Amazon leading the pack with over 19000 positions posted with 16000 of them being in the city of Seattle, which is a good sign for future apartment demand.
Market occupancy in Seattle currently sits just above 95%, which remains behind our expectations and turnover, albeit within historical norms was the highest of all of our markets.
The suburban portfolio was outperforming the city with the Bellevue Redmond Submarkets seeing immediate demand improvement in March after Microsoft returned to the office announcements.
Year to date pricing remains flat in the downtown Submarket with approximately 60% of new applications, receiving a concession at just over a month and occupancy in this submarket is at 93%.
Overall, we expect continued strength in the suburban portfolio and remain optimistic that pricing power and occupancy will improve in the downtown Submarket. As we are just now beginning to see signs of increasing demand as the quality of life issues continued to slowly improve.
San Francisco has also lagged the recovery, but at the moment feels on stronger footing than Seattle, we are very encouraged by the recent announcements from <unk> and the local large employers about our commitment to bringing office workers back to the city, which should help address quality of life issues downtown.
There has been consistently good demand and early signs of improved pricing power that the market lacked in 2021 were almost 97% occupied and resident retention has improved from a year ago, Google which has asked workers to return. This month. They had a recent announcement that it is investing more than $3 5 billion in calif.
Cornea, including a big chunk in the Bay area with significant projects in mountain view, Sunnyvale and downtown San Jose all areas, where we have a significant number of communities.
Reising trend has increased almost six 5% since the beginning of the year, which is better than the normal seasonal expectations, which would be in the 4% to 5% range.
While those markets pricing remains below pre pandemic levels. The good news is that initial indicators point to a continued strong recovery of the market.
Now, let me move to southern California, three markets that have performed exceptionally well, but for elevated delinquency.
First Orange County, and San Diego continue to show remarkable performance with high occupancy and strong retention supporting very good new lease rents home prices in these markets are out of reach for many of our residents which is evidenced by the significant decline in move out, citing this reason during the quarter, we expect to see continued.
<unk> record high retention likely impacted by the local regulations limiting our allowable increases increasing home prices and very limited competitive new supply. The result of these factors should allow us to maintain elevated pricing power throughout the year in these markets.
Next Los Angeles, even with elevated delinquency la continues to be a star performer. The entertainment content creation business is really thriving in driving demand occupancy is almost 97% and pricing power is strong and better than expected. The urban markets performance is now on par with.
The suburban portfolio, a scenario, which we have not seen since the onset of the pandemic.
The percentage of residents renewing as the highest we have seen likely due to the impact of the local regulations limiting our allowable renewal increases and we expect to continue to renew between 60 and 70% of our residents.
Now that rent relief coverage is no longer available for April 2022 rents, we have seen an early uptick in payment activity, but remained cautious I was in southern California, two weeks ago, and I am very encouraged by what I saw our onsite teams continue to actively engage our non paying residents and are just now beginning to see.
A few positive signs either through payments being made or in some cases residents deciding to move out and give us their apartments overall.
Overall, the strength in demand and quality of our portfolio clearly points to above average performance for our southern California markets as the delinquency issues slowly clears.
On the innovation front, we finished deploying our centralized renewal process in the first quarter and are now focused on centralizing our application process as we mentioned last quarter. The foundation of our operating platform is in place and we are focused on further process automation and multi site coverage that will create additional efficiencies.
While continuing to meet the ever changing needs of our customers and provide them a seamless digital customer experience.
Let me thank the entire equity residential team for their continued dedication and hard work. These are exciting times for our industry and the overall operations of our company not only are we on track to have a very strong year of financial performance, but we are also advancing our platform rather than expectations are constantly evolving and our.
Teams continue to focus on leveraging technology to meet those needs and drive operational excellence.
I will now turn the call over to the operator to begin the Q&A session.
Thank you if you would like to ask a question you may signal by pressing star one on your telephone keypad, if youre using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach.
Equipment once again star one for questions.
Our first question from Nick Joseph with Citi.
Thank you.
More color on that southern California delinquency issues.
When did it start to pop up how many residents.
How many are paid now in magazine kind of widespread across southern California or is it concentrated in specific Walden.
Okay.
Hey, Nick it's Bob I'll start with that.
So we.
We had about.
<unk> had concentration of bad debt in Southern California, as you mentioned and in particular, I think Los Angeles, and the city of Los Angeles, specifically, and if you drill down even a little bit further there's a handful of specific assets, where it's even more concentrated than that.
That was true up most of 2021 peaked in terms of severity in September of last year and that had pretty stabilized and started to improve slightly.
In the fourth quarter, which shaped some of our perspective and our guidance.
What changed or what happened in the first quarter was you saw a little bit of an uptick in.
In terms of as Mark mentioned in the prepared remarks of residents again concentrated in those specific areas of about 300 more people that didn't pay we.
We believe that that.
<unk> may have been driven by the fact that they were applying for more rent relief, but they had previously been paying and how they stopped and so you went from that.
That kind of increase overall as you go into April and again, it's early and we haven't finished up the month is as Michael mentioned it appears that many of those people are at least starting to pay their April rent now what's changed also is that under the rent relief program you could only have March eligibility. So rent that was through March.
Of 2022 is eligible for the rental relief program April is not and so that probably is changing the behavior as well as some other opportunities we have to just communicate with residents et cetera.
Thanks, That's very helpful. And then Bob can you just remind us the bad debt policy and then blood guidance, assuming for net bad debt for the remainder of this year.
Yeah. So.
Our bad debt policy in terms of our write ups is once you get three times.
Hi under rent, we would write a reserve against and we also write off any bad debt associated with people who move out.
So there is that combination of.
Also if you were kind of three times, but got rent relief. So you werent. The actual payer. We also reserve against that so it's a pretty conservative policy and looking at kind of what the residents themselves is doing from.
Our payment standpoint.
And that policy hasn't changed since the beginning of the pandemic or even prior to that overall and what was the second part of your question Nick other than the policy.
But maintain 2020 guidance assumes net bad debt.
Yes, so our initial guidance back in January assumed that we would based on kind of our experience in the fourth quarter to be honest with you that I just mentioned thought that we would.
Before rental relief start seeing improvement in the first quarter, and then accelerate improvement, meaning more people paying or just moving out as.
We went through the remainder of the year.
What happened based on the first quarter has made us adjust that perspective, a little bit in that we still think that we will see the improvement but are probably be.
Less pronounced and it'll be further back in the year.
Offsetting some of that change so more impactful the number offsetting some of that changes. We now think we will probably have higher rental relief right. So based on what occurred to us. So that net net bad debt is probably going to be flat to may be marginally helpful to growth between 21 and 2022, whereas previously we had assumed that it would be a.
Peter to growth. The good news is that everything else that Michael talked about in terms of pricing and everything else relative to guidance is actually more than offsetting that like Mark mentioned, so we feel very good about how we're positioned going into the leasing season.
Thank you very much.
Thank you we will take our next question from Steve <unk> with Evercore ISI.
Thanks. Good morning, I was wondering if you could just maybe speak to the June and July .
Fuel increases that are being sent out to just help us frame against the April and may be how those numbers compare to when you set guidance several months ago, where those renewals and new leases in context of the revenue growth that you have currently out there.
Yes, So hey, Dave This is Michael So first basically when we're looking at renewals right now we're not completely done issuing quotes through part of July but if we would just step back and look at where we are for April and May and even preliminary June we're still putting out quotes that range somewhere between.
14% and 15% for these months, which is probably about 200 basis points stronger than what we originally contemplated which is just this intra period kind of strength that we see we do expect that renewal achieved renewal increase will moderate, especially on a net effective basis as we get into the back half.
For the year, because when we look at even the July explorations only 5% of our explorations.
The month of July had a concession when they moved in a year ago. So I think that right. There is going to put a little bit of pressure just on our ability to post 12, 5% achieved renewal increases, but right now the overall performance and even what we see for the next 90 days, probably trending about 200 bps higher than what we thought.
Okay, Great and I guess, Bob maybe just going back to the guidance I mean, I know the bad debt caught you by surprise and probably certainly limited your desire at this point to kind of raise guidance just to see how things play out but it sounds like all the things Michael has talked about.
<unk> wise are definitely better than maybe what you thought at the start of the year. So.
If this 125 or 100 basis point drag in Q1 really abates in Q2 and beyond I guess I'm, just trying to think through the potential upside to the numbers that you've currently got out there like how much wiggle room do you have to kind of revisit guidance next quarter.
Hey, Steve its mark.
We feel like we're extraordinarily well positioned the team would actually tell you we've never been in as good a spot.
So we feel really good about that conversation, we're going to have with you in July about where the numbers are going to go but we are entering into the beginning of the leasing season, it's really hard to predict on the bad debt side, we may get more reimbursements, California may slow down and it's just really unpredictable. So the exact place we're going to end up but do we feel like theres upside to numbers absolutely.
Great and then just one last question on transaction just given the move we've seen in the bond market in the last call. It <unk>.
Six weeks eight weeks I'm, just curious are you seeing unlevered IRR hurdles changing at all.
The levered buyers dropping out I'm, just curious the transaction market the dynamic that's out there with the sharp move in bond yields and how is that influencing your desire to put capital out.
Sure Steve This is Alec.
Youre right the market has changed a lot in the last three or four weeks from an interest rate standpoint.
The countervailing forces at work there is still all of this capital flowing into our sector.
Operating results are still so good that it's a really attractive place for people to put money and so I would say more that the frothiness is gone.
A month or two ago, we had multiple bidders going in over asking really bidding the pricing up and frankly, we didn't buy in that environment, because we thought it got so overheated.
So right now it's kind of a feeling out process, but I don't see distressed sellers out there operations are really strong and there is still as I said a lot of interest in buying so I don't I don't see any fire sales coming and certainly not for us and when.
When you ask about cost of capital for US that's really comes from our dispositions and we expect to continue to be able to sell at low cap rates.
And redeploy that money non dilutive Lee into our new expansion markets and Steve It's Mark just to build on that I think very already very complete answer I mean interest rates right now that two year and 10 year treasury or just back to where they were in early to mid 2019, So and I know you know this but we're not at some crazy new interest.
Rate level.
And yet our growth prospects are much better now for the industry for our company than they were in 2019, a lot of that's been capitalized into the value of these assets being much higher now than in 2019, but I still think that growth picture, which doesn't have any fractures in it at all for us and I think for most of the industry.
He is very supportive of values I'll also add I think the private market has recognized and I think the public market is increasingly recognizing that apartments are very very resilient.
Yes.
Pandemic was about the worst thing that could happen to an urban apartment owner and yet we're 25 months out of the start of that and we're telling you about how well everything is performing well occupied we are again, how we're moving rents up so I think the combination of the market's perception of the resiliency of the product, especially compared to all the volatility.
And other investment alternatives.
Combined with this the growth prospects it makes us feel pretty good about value going forward and maybe that exception is if you get into a stagflation environment, where the pressures would be a little different but we feel pretty strongly that values are going to hang in there for us.
Great that's it for me thanks.
Thank you.
We'll take our next question from John Pawlowski with Green Street.
Thanks for the time, Alex just a few follow up questions. The transaction comment. So the dispositions you have teed up out in the market right now could you just give us a little bit of color of how the bidding for those assets has changed in terms of any re trading youre seeing or the number of bidders getting whittled down.
Particularly on the Levered levered buyer side.
Sure.
John .
So.
I would say at this point.
Theres some bidders that are stepping back for sure. They are relying on higher leverage it's harder for them to make it underwrite.
But I can tell you that the.
Both what we've been competing to buy and what we've had on the market.
<unk> seen a lot of interest and then we see a lot of tours on stuff. We've just put on the market recently.
And so.
So far haven't seen a dramatic move in pricing, so really can't make a call on that I would just say there is this feeling out.
That.
Buyers and sellers are just going to determine whether there is a market right now and at this point it really feels like there will be theres, just so much capital out there.
Okay.
New York, specifically Adil.
Additional sales that we can expect in the coming quarters should we expect these low to mid three cap rates that we saw in 140 Riverside asset.
Yes, that's generally been the case in the market and certainly for the properties that were looking or thinking about selling that would be generally the case.
Okay. Thanks for the time.
Thank you.
We will take our next question from Rich Hill with Morgan Stanley .
Hey, good morning, guys. So I wanted to maybe talk about turnover for a second I think on an annualized basis you guys were just.
Shy below 35%.
Do you think thats sort of a new normal or do you think that will pick up in the peak leasing season, and maybe more specifically can you walk through whats driving.
So the collapse in the turnover rate is it really because theres no place to live and so people are just taking the renewals.
That you are giving them and saying well, it's better than trying to find another apartment.
Hey, Rich this is Michael So first just there is normal seasonality to turnover by quarter. So the first quarter typically is one of the lower kind of reported turnover numbers and it will tick up as you work your way through the leasing season, and then kind of fall back off again in the fourth quarter, but the fact.
That we reported at eight 7% normal historical like going back into 18, and 19, and even 17 typically the first quarters like right around 10%. So you could see that kind of improvement that we're seeing my guess is that as we work our way through the second and third quarter, yes, It will tick up but it is still going.
Say relatively low compared to comparative norms part of which is what you just said, which is the optionality, where our resident is going to go we're delivering great service to our residents. So our customer service scores are kind of maintaining at the all time high levels. The price point that we're offering is <unk>.
<unk> in the marketplace and there is still a little bit of lift that we're seeing in retention regarding kind of just regulatory limits that we're bumping up against that is keeping some of these quotes while there is still significant increases below what the otherwise market price would be and again, that's just a matter of time.
As we work our way through kind of another cycle of renewals with those residents that will catch up to those market rates.
Got it and so what that tells me.
I know you've emphasized this a couple of times, but our pricing power is significantly in your favor and so if we're thinking about new leases and renewals.
I have a hard time, believing that there is.
Very little of that code.
That could lead that to start.
We're all over is that is that a fair assessment and I have a quick follow up to that.
Yes, I don't know exactly what you mean by rollover, but I would tell you just looking at the strength of the reported new lease renewals and blended right, knowing where the intra period rent growth is today, we are going to produce stronger results in the second quarter than what we originally anticipated based.
On that strength, but we still have a difficult comp period as we turned the corner into the second half just based on the recovery of rents last year. So they will start to moderate off in the second half, but relative to our original expectations strong early intra period rent growth is the biggest catalyst to produce revenue.
In the current year and Thats what were doing right now understood. That's helpful. I shouldn't have used rollover I was asking a rate of change questions. So thank you for that.
Could you maybe just talk about supply real quickly.
Starts and permits across the United States are pretty high here.
Do you think all of those permits are going to become starts and do you think those starts are going to be delivered on time.
Hey, rich, it's Alan I'll start and others can chime in but.
Generally that there haven't been that many projects that have stopped at all.
And then we see in the market, but everything has gotten harder so things are taking longer to deliver so typically about a three month or so lag.
So things that are in the pipeline will deliver a little more slowly in terms of things that are being underwritten right now to generate future supply that certainly gotten more challenging so a combination of cost going up and.
Costs were going up say half a percent a month are now going up 1% a month and even things like lumber, which may have abated, a little bit are now being offset by steel going up pretty dramatically. So it's a cost challenge on top of which interest rates are up so.
All of those things are going to combine to make development, a little more challenging to underwrite in the future.
Haven't seen that stop anything yet, but if you just look out it does get harder to make the numbers work.
Got it thank you guys.
Thank you we'll take our next question from John John .
With Goldman Sachs.
Thank you for taking my question so.
I wanted to talk about rent control.
That business definition female heightened.
Okay.
Bruce.
Could you perhaps talk about what you are seeing in Europe .
This is set in the market.
In already.
And in the markets that sure.
Now turning to the P&L.
Danielle.
And how do you think.
The positive for housing crisis.
Rent control is being offered as one.
Alright. Thank you for that question John It's Mark.
What I'd say is that rent control continues to be a conversation not just in the coastal markets as you implied but also in places like Florida.
And other jurisdictions because again as you noted rents are up significantly in some of our coastal markets. They frankly, just these big increases or frankly, just recovering the rents to where they were in 2019 and some places they are significantly higher like in southern California, So theres a little bit of that we have had residents, especially our residents have they're in.
<unk> continue to rise, which has an offsetting factor, but the biggest thing is we just need to keep as an industry focused and have these conversations with policymakers and in some cases voters about that rent control doesn't work and we're doing that the industry is very well organized on these topics. We continue to have these conversations there.
Relatively productive I mean rent control just New York said forms of rent control since World War, two and it's the highest cost housing market in the country and it just doesn't work and we're continuing to advocate for zoning reforms continuing to advocate for regulatory reforms public private partnerships like the 485 W program in New York that we do.
We hope gets going so.
The industry is aware, we acknowledged the problem of a lack of affordable housing.
In the country, but that problem is a problem that is.
In some regards as the government is making and we need their cooperation here with some effective policies to improve so we do see it as a risk and one of the reasons you see our strategy diversifying is to diversify away from that risk New York is a great market for us it's going to have league leading revenue growth.
Some of the assets, we're selling we intended to sell well before the pandemic for four for tax abatement reasons for 'twenty one type.
Type reasons or ground leases or whatnot, but it is also part of just diversifying into some markets that may be a little less political risk.
And having a company that can.
I have a little less volatility in compound cash flows more reliably going forward. So we're really excited where we're headed in this rent control topic does influence our capital allocation.
Thank you. Thank you for Golden point.
Follow up question on seasonality now that your engineering.
Pardon My voice.
What are you seeing from a seasonality standpoint.
Is it still in typical.
Any thoughts in terms of barstool.
2019 seasonality battles.
Any color on that.
Yeah sure. So this is michel so typically in a normal year the way to think about kind of transaction.
Volume seasonality is about 20% occurs in the first and fourth quarter and about 30% occurs in the second and third quarter, we did see a little bit of a shift right. As we were working our way through kind of the recovery in 'twenty, one and right now I will tell you we are getting very close.
<unk> back to those normal kind of percentages by quarter, we did have slightly more exploration in the first quarter of this year like it was like 24% versus the 20% norm, but as we're working our way through these new leases and renewal I think it's just a matter of time by next year, we're going to be right back in line with.
Those numbers.
Okay. Thank you so much.
We'll take our next question from Nick <unk> with Scotiabank.
Thanks, I just wanted to go back to the bad debt number that you gave I think you said it was $6 million was the uptick in bad debt versus what you expected and I wasn't sure. If that was should we think about that $6 million is only applying to those 300 additional people that didn't pay that you cited.
In southern California, or is there other pieces within that $6 million.
Hey, Nick it's Bob there's other pieces associated with it it's probably about half of the 300 people that didn't didn't pay that we mentioned earlier and the other half is.
Really we had anticipated improvement based on our fourth quarter experience and we didn't see any improvement right. So.
Saying flat relative to our expectations that you were going to actually go down and then on top of it adding these 300 people.
Okay got it. Thanks, that's helpful. And then just other question is on I noticed.
Issue, that's probably will play out in New York I don't know if its also in San Francisco as some other markets that had heightened concessions were.
Had some residents move into the portfolio over the last year and a half at a discounted rents when free months were given.
Those leases I think in New York, We've just heard in the market increasingly are starting to turn in.
Second quarter summer.
And I guess I'm just wondering if you have any early read on how some of those conversations are going in terms of the.
The resident who got a bunch of free rent is now being pushed up the market and.
What's happening to the market itself is very tight so maybe the person can move but any any sort of anecdotal color. You are hearing on that topic would be helpful. Thanks.
Hey, Nick this is Michael so.
I said something in by prepared remarks about in New York in the first quarter, we were renewing about 60% of our residents versus like the historical norm from the fourth quarter and third quarter last year that was up at like 65%. So we did see a little bit of that drop off and what we started to hear back in like late February early.
Mark just some of those folks from Manhattan, we're looking at those increases and actually choosing to go across the river into the Hudson waterfront to trade down from a rent perspective, but given the strength of the demand that we see at the front door. I mean, we are more than okay with that trade off occurring and as we look into April may and even.
This preliminary June it really isn't materially different we still expect to renew a large percentage of our residents in New York, but we will allow some of that trade out we centralized our renewal negotiation team, which really allows us to kind of be very strategic and tightened up kind of renewal negotiations to <unk>.
Sure that we're consistent in these markets and right now the results appear to be very consistent to us and Nick just to add you might remember we qualify everyone on the basis of their base rent.
So they may have gotten a one or two months concession from us, but they can afford to pay that face rent. So they may react to any increase above the face rent, but the disappearance of a one month concession on our financial statements as an 8% increase in revenues, but they've been paying US 11 months worth of that higher face rents. So for them there is no.
Change beyond what Michael and his team push above face rent. So again, it'll look a little different on the financial statements than it will to the resident at hand, but we really are at the tail end of this because the concessions really ramped down last year. So by the time, we hit July Theres very few of those residents that had those big concessions when they came in.
Okay, Great. That's very helpful. Thanks, guys.
Okay.
Thank you we'll take our next question from Brad Heffern with RBC capital markets.
Hey, good morning, everyone.
You mentioned in the prepared comments a decline in residents moving out to buy a home in San Diego I'm curious, if that's a trend that you've seen across the rest of the portfolio as well.
Yeah. So during the first quarter, we did see a decline in the percent of residents that site buying home as the reason when they move out remember the turnover was low so the absolute number of residents, leaving to go buy a home is materially down and the percentage ticked down to about 11, 5%.
Of move outside of that reason.
Pretty much in line with our historical norms of like an 11% to 12% but.
Reduced from 15%.
That we were seeing in the fourth quarter and third quarter of last year I think right now what you're starting to see is just the supply constraint to the cost of single family housing in our markets rising mortgage rates. We expect that is going to keep this percent at a very low and which really eliminates pressure on move outs from this reason going forward and because renewals are.
So high the absolute number of people actually moving is really small I mean like when you talk about a percentage thats one thing but.
10% or 11 is being applied against a much smaller number of people that are in fact, leaving us at all for any reason.
Okay got it.
And then have you seen any change in demand.
One bedrooms versus two bedrooms I'm just trying to see if people are starting to double up again, given the increase in rates.
Yes. So this is Michael we really haven't seen kind of any change right now we're back to like a pre pandemic levels, where we average about one seven adults per occupied unit in the portfolio. What I will tell you is what we've seen is through the pandemic studios, where the law.
Lowest occupied unit type that we had I talked a little bit that we were seeing the trends of the recovery in the portfolio of that unit type, but even sitting here today in the first quarter Studios were $95 995, 9% occupied and today. They are at 96%. So there is still trailing the other unit type mix.
Which if we're going to have vacancy in the portfolio I'm, okay with that vacancy being at the lower price point unit of a studio.
Okay. Thank you.
Thank you we will take our next question from John Kim with BMO capital markets.
Thank you.
You have a fair amount of debt expiring this year and next Theres no debt offerings in your guidance what are your thoughts of refinancing some of that debt with equity given your implied cost of equity is lower than your long term cost of debt.
So I'll start with the debt maturity real quick and then maybe Mark and I will tag team. So this year, we don't have much debt.
Maturing John actually and then next year, we have the bigger amount of the one.
$3 billion or so some of which is secured and.
For various structural reasons needs to maintain secured and then we literally have no debt maturing at all in 2024. So when you look at the profile over the three year time horizon, It's a pretty average to below average kind of maturity profile.
And we have lots of flexibility in the markets at least in the debt markets.
To refinance whether that shorter dated longer dated fixed floating secured unsecured kind of the full access to the capital our leverage is also very low.
Relative to kind of targets and other things and it will be continue to be low, particularly as the recovery and just the overall business performance is great.
And maybe I'll, let mark talk a little bit about the equity side and just thinking about cost I. Appreciate the point that the sort of <unk> yield as compared to interest rates may be lower but the long term cost of adding partners, which is effectively what equity is to the company. When you have all this as Bob said additional.
That expansion capability when you have all this additional availability on the debt side.
That seems to us to be dilutive at this point.
I don't feel like the stock's trading above our NAV estimates internally, so again that doesn't seem to us to be the best idea right now relative to just refinancing and I think Bob and his team have done a good job of giving us a multitude of options. I mean, we can go short doesn't have to be 10 year debt almost 20%.
Our debt was issued at 30 year maturities and expires in 28 years or more so we've got the whole curve to use we have 5% floating rate debt, maybe we will float some debt for a little while online. So I think we can manage this increase in rates pretty well without having to issue equity that I appreciate might feel cheaper, but to us kind of doesn't.
Okay, and Mark you mentioned.
Some of the reasons for selling more New York assets and deemphasizing the market.
Has a strong rebound in rents in New York, giving you any.
Considering this.
Yes. Thanks for that question I think we're really to your point kind of in an enviable position in New York, We got great properties and a great team running them and assets were.
Potentially going to sell and have sold.
<unk> been assets that have had these ground lease accounting issues of add these $4 21, a tax reassessment increases that are coming up in the near term.
Maybe a more intensive renovation plays that maybe arent our thing to do or we arent things, we believe in but buyers would so we're keeping the assets that we think are going to drive performance. We're going to have this and we will continue to have this amazing New York portfolio that will benefit from I think very limited supply from some good job growth So I <unk>.
Think owning New York. The next couple of years is going to be great. I think it has to be balanced against these regulatory concerns. So this didn't change our mind out in New York because this is something we wish we had sold some of these assets in the past, but the pandemic interfered with that and we waited for them to recover and now our investors are going to harvest those gains and we're going to help with our diversification.
<unk> place so that the company is a little more balanced against against some of these regulatory pressures. So now it doesn't make us reassess our position.
I mean, we're really pleased on what we own in New York, and what will and long term I think it will it'll be a big driver in the next couple of years.
I appreciate it thank you.
Thank you.
We will take our next question from Rich Anderson with SM BC.
Okay.
Mr. Anderson. Please go ahead your line is open.
Apologies on mute.
So on the topic of guidance.
And the decision not to raise it.
To your peers did this quarter you had done it last year at this time I don't think its a policy thing for <unk>.
Im just curious is it entirely the unknowns around bad debt that caused you to hold the line or were there other.
Factors behind your decision to wait until next quarter or two to reassess guidance beat.
Beyond just the bad debt issue.
Hey, rich smart.
Last year was a year like no. Other so I would say, saying what our behavior is off of last year. We were really challenged trying to figure out guidance for other folks didn't even bother giving guidance in 'twenty. One that we at least told you where we thought the business was and then obviously the recovery was really vigorous and 19 in 18, we didn't raise at the April Mark So it's.
It is kind of our general view here since I've been here seven not to do much in April and the reason for that is we tried to give you a real hard good look when we issue guidance early in February many other guidance changes really took the numbers to our range. We had the highest range. So again that was only a couple of months ago.
And there just isn't enough time in the period I mean, we think we gave you a pretty high quality estimates for everyone's portfolios different everyone's process is different but I think we started off with a higher number. So we don't have to adjust it in April .
And we're sort of looking at July and going at that point, we'll have a real good sense of where the leasing season is going we will we hope adjust the guidance range is appropriately, but it isn't just a matter of you do it.
Guidance ranges. So you can definitely raise every quarter that isn't our goal.
Okay fair enough I appreciate that.
Second question is you and your multifamily peers have been kind of gifted with this incredible environment.
And we can all see what 2022 is going to look like and I hate to say it but the conversation is going to shift to 2023 really soon here.
Curious what youre doing differently given this unprecedented level of growth that you are enjoying and how that might be influencing longer term plans I doubt EQ are given the quality of the organization has just taken the money in running and hoping for the best in 2023 is this is this causing you this environment.
Causing you to.
Maybe do things a little bit differently. So you can lock in some of this growth.
For next year, and thereafter may be longer term leases I don't know what it would be but I'm. Just curious if there is a change in strategy. So that you can extend the lifeline of what's happening today.
Maybe we'll split that up into two pieces on the operation side. This custom of one year leases is so deep in our business that it's really hard rich for us I mean in New York, we have to offer two year leases and we just don't have a lot of uptake on that and we haven't seen a lot of uptake on add anywhere in the country. So it's an interesting idea and we've.
Tried that before and we just have not had a lot of progress on that so on the operations side I think all the things we're doing in Michael's world to manage expenses better because this inflationary pressure on payroll is real and it isn't going to abate and I think that is part of the 23 conversation and that I think it's something we're working really hard on and we're making good.
<unk> and you can see that in our numbers. So I think as we think about 'twenty three 'twenty four 'twenty five we're thinking we're going to live in an inflationary climate for awhile, and we need to adjust to that by managing our people and processes as best we can on the transaction side. The blessing here is that we're able to do this trade I would've loved to have done it accretively was a little accretive lag.
At year, but we're able to switch into these new markets much newer product much less capital intensive product.
Without dilution is a wonderful thing and we're taking full advantage of that so the opportunity to sell product that's older product and markets that do have real regulatory challenges that we think a lot of private owners arent that concerned about because they've got other things on their mind, that's an opportunity from our perspective, and we're selling into that opportunity.
Okay fair enough so you're in New York.
Yeah. Thank you.
Are you there.
Thank you we will take our next question from Joshua <unk> with Bank of America.
Yes, hey, everyone.
I appreciate all the market color on the beginning just curious on the la market. It looks like year over year same store revenues were up eight 6% what would that have been if you backed out.
<unk> impact.
Yes that would have been a little over 200 basis points better. So it's something that would have been around not dissimilar to what the reported Orange County, and kind of San Diego, where sell like a 11 ish percent.
Okay, Okay that makes sense.
Michael You mentioned in your prepared remarks that you're working on if I heard correctly centralizing your the application process.
The benefit.
You are expected to derive from this is it is it more on the expense front or.
That are able to kind of drive revenue growth.
Something else so it is.
So it's really it's just part of the overarching plan of just centralizing a lot of the onsite kind of tasks into a group, where we can create that operating efficiency and running assets with fewer kind of folks in the office.
And really getting more into this multi site coverage kind of model. So that's really the biggest thing which is layering in we started with renewals. We saw the immediate benefit to kind of being able to create the guardrails in negotiation now we're looking at this application processing and creating efficiencies in that process and having fewer people happen to be.
Such points with that and creating more of that seamless kind of experience kind of four prospects as they're going through.
Then we will move into kind of the evictions and delinquency. So we're looking at every single thing that gets done on site and saying is there an opportunity and benefit to the organization to streamline that process and have fewer touch points with it and Thats really the essence of what we're doing right now.
Awesome, Thanks for the time.
We'll go next to handle <unk> St Juste with Mizuho.
Right.
Hey, there.
So.
Questions.
Mark maybe another one on transactions, but from a different angle.
No transactions can be lumpy, but I guess I'm curious what the strategy Youre thinking today here is it's almost may and you've only done.
$100 million of acquisitions to admit on the disposition side, well behind the $2 billion annualized pace.
One of the questions and comments with you're waiting for the market to settle down a bit here are you looking at.
A bit more aggressively now and buy more later given the surge in interest rates anything under LOI and maybe some color on how youre thinking.
And maybe how.
How we should think about maybe the pace.
Acquisitions, and if you have anything under LOI or far along today.
Hi, hand Ellis's Alec.
No.
The whole market kind of took a pause at the beginning of the year just because it had been so busy at the end of 'twenty, one and certainly we were part of that we closed literally five deals in the last two weeks of the year.
So the whole market kind of took a break and then it started back up again really in February and from our perspective as I alluded to earlier was Super frothy really a lot of bidding wars going on we were part of the process, but we didn't feel like it was the time to step it lean into that now the market seems to have calmed down a little bit I think theres going to be an opportune.
<unk> for us to get back on pace and last year.
Bob.
Hold 1 billion seven and borrowed 1 billion, 7%, we didn't do anything in the first quarter either so.
Up to that pace is certainly our goal and certainly my job to make that happen and we are pricing very.
Very actively right now.
Okay fair enough.
A question maybe on the market.
Based on your comments this quarter versus last quarter. It seems to me that San Francisco might be the market, where we could perhaps spending at most in terms of expectations at the start of the year versus now putting the bad debt issues in la aside obviously, so I guess I'm curious one is that fair and maybe what your sense of the market same store revenue potential today in San Francisco versus.
The 7% you outlined a few months ago.
Yes. So this is Michael so I think the way I would look at this right now if I think about intra period rent growth the markets that I kind of alluded to in my prepared remarks that are really kind of outperforming expectations.
New York, San Francisco and La.
Relative to San Francisco right. Now you are just now starting to see some of that pricing power come back so from our full year expectation that was probably a seven at the beginning of the year. It's like a 50 60 basis point improvement right now to the full year projection, but I think what I said in my prepared remarks is I'm more excited.
Because we're seeing that pricing power improving week after week. So sequentially right now we have a great opportunity as we head into May and June to write a lot of leases at a rate higher than what we otherwise thought which would then add to those numbers.
Got it fair enough.
Can you give us an updated lots of these quotes for the portfolio and that's my final question.
Yes, so as of April 15th.
Portfolio loss to lease remains at 11% for all leases in place. So really it's the strength of this intra period rent growth that has allowed us to maintain this loss to lease at a very high level sitting here in April even though we just captured a whole bunch of it in the first quarter through this renewal and new.
New lease process that you can see when you look at that blended rate that we reported for the quarter. So I think right now in the portfolio. There is 85% of the leases that are in place that are below current market pricing and I think as we mentioned in the past, we're not going to be able to capture this full 11% this year, but the fat.
But theres number remains at 11% and is higher than what we otherwise would've expected it to be in April really does put us in a great position for the portfolio not only to contribute into 2022 revenue, but position it for 2023 to have stronger embedded growth.
That's great color. Thank you.
And next we'll go to Conor Mitchell with Piper Sandler.
Alright, thank you.
How soon can you return the delinquent tenants over to the credit agencies.
So this is Michel so there is a lot of nuances to that so for residents that have moved out that have balances with us we are able to turn them over to a collection agency now and they can begin that process. There is periods of protected.
Rent so it's not as clean as what it would have been pre.
Pre pandemic period, what we are starting to do or what we've started to do in April as we our credit reporting now for folks with their April rent payments and Thats something that really kind of the law has shifted around and we were able to kind of have that ability. So we are now reporting to the credit agencies, each and every month.
Our residents' ability to pay rent in any balances that they own.
Okay.
Okay. Thank you that's helpful.
And then as EQM moves into the Sunbelt.
In our coastal markets the expansion markets.
Are you seeing any different affordability dynamics.
Yeah.
Hey, Conor it's Alec.
When you say affordability about affordable units on site or are you just saying generally about is it rent as a percent of Brent Vince Okay rent as a percentage of no no. We're keeping on track generally 20 low 20%.
Rent as a percent of income and as we've talked about in the past, we're really finding the same general kind of renter, who is working in the same general knowledge based industries.
<unk> has a growing income that supports rent growth over time.
Okay, yes. Thank you.
Sorry, if there was any confusion so yes, I was really asking about.
<unk> spent more kind of.
The percent that Youre talking about and then compared to other markets like San Diego, that's been touched on a few times.
Okay.
So one of the dynamics is that we're growing off of a lower rent base as well. So the average rent is 2000 2500 versus 4000.
That spot for a rent.
<unk>, who has a good income.
We can take the next question operator, Thank you moving on we'll go to Anthony Powell with Barclays.
Hi, Good morning, a question on Los Angeles, you sided streaming content contract creation as a source of strength, there's been talk about some of the streaming providers cutting down their content spend given the competitive market. There how much frankly was driven by contribution and how do you see the overall demand generators in that way.
Yes. So this is Michael so I think one some of the announcements that you are reading today is probably more going to be impacting the future into like a 2023 the demand in the la market is really strong I don't quantify like how many applications came to us from that content creation, but you can look.
Look at like the strength in West L. A and really just the overall kind of inbound leads that we're seeing in the overall la market, it's really strong on a year over year basis, and that's just one component of the strength of that market to generate demand, but I think the announcements that we just saw in the last week or so really way too soon to understand if it's any.
The impact on the future demand and you got to feel bullish about entertainment in general how people will consume it has changed I mean, we many of US who are older like me consumed it through network TV now youre consuming it through streaming services and there may be a different way to consume entertainment, but L. A is.
One of the worldwide centers of the entertainment industry, that's a very powerful economic magnet and again, even if streaming kind of does withdraw a little bit and maybe there are tighter budgets. There you may have more people going entertainers going direct to the audience.
And a tic Tac type format and needing production services for those sort of things outside of the streaming industry. So I just think entertainment can be consumed a lot of different ways, but I think <unk> has a central role in how that's all done and I think one way or another we'll benefit from it even if so to some of the streaming stuff. These very elaborate productions become a.
A little a little less.
Got it thanks, and maybe one more on rent to income you said that it's still in the low 20, so there's really been no movement or even as you push rents higher and how do you look at rent to income in an inflationary environment would you may be right.
EBIT lower given there could be some other cost pressures outside of ramp that may be impacting certain renters.
This is Alex I would say our typical renter is also seeing their income going up pretty aggressively as well so.
You see that particularly within the profile that we typically rent too. So so that is keeping pace.
And at the overall portfolio I mean, we're at 19, 5% rent as a percent of income and really when you look at move ins from the first quarter. The only change that happened was new York that used to be the absolute low point at 17, 5% ticked up to 18%, which still shows that from an overall affordability standpoint.
Those residents are going to be able to absorb additional increases and it's mark just to add a little to that because this is important in the inflationary climate and we had a lot of we've had a lot of good conversations with investors about this 0.2 or higher and rent are paying call. It 20% of their income to us in rent with a lot of those folks commuting by public transit.
Especially in the East coast are less susceptible to some of these energy pressures because they are higher earners. They have more disposable income so even if their energy and food costs are up they're liable to be pinched less I think the pressure in your implied in your question is more likely to incur occur pardon me.
In class B apartment buildings in apartment properties in more further suburbs, maybe any FSFR sector, where people are a little more stressed than our renter.
Got it thank you.
Thank you.
And next we'll go to our Montana.
<unk> <unk> with credit Suisse.
Hi, Yes, good morning, everyone.
To go back.
<unk>.
Bad debt question.
But I'm curious why does it happen just particularly early if the extension.
Done statewide June 30.
Or is it only happened in la.
And then by June 3rd year, when the protections all kind of come off.
Do you kind of expect kind of a repeat of what we just kind of saw and <unk>.
Yes. So this is Michael maybe I'll start and then others can kind of build in so I think when you look at the concentration of our delinquency. It is has been southern California focused but la has always had the highest concentration of the overall delinquency in the portfolio. What we also saw early on.
In the January is we saw rent relief payments actually slowed down in January and February as the programs. We're very focused on working on first time rent relief applications and really put everything that they call like a recertification residents that were coming back for more they put those kind of.
On hold now what we saw in March as they basically started to work those cases and net net for the whole quarter. We came out right around where we thought we were going to be but you can really look into April right now and look at this rent relief volume that we're seeing and we're already over $5 million for the month of April So you can see.
These programs catching up so the concentration in la is probably just due to the fact that that is where the delinquencies and theres also a lot of publication around these rent relief programs in that market that kind of influences the behaviors of the renters, there and it's mark I'm going to add a little to that because I think there is another.
The regulatory impact that Michael alluded to there I mean in the city of Los Angeles. There is an eviction moratorium I mean, that's still exists theres exceptions to it there's different actions we can take.
Think residents have been diluted into thinking that means they don't have to pay their rent when in fact as Michael said, we can do other things to affect their credit and have other more pointed conversations. So I think in some places a moral hazard is been created by these I think initially well intended but now well overdue policies and.
That's part of it I think the reason you see it a little more in southern California than in Northern California.
Is because of that and I think these as these if these programs get extended I think youre going to see very much more effective legal challenges to them because we're two five months into the pandemic and all of these emergency measures have expired and the idea that this is the one measure that needs to keep going at this.
Cost needs to be put on landlords as opposed to dealing with the housing crisis as a public good that needs to be dealt with.
I don't I don't understand how that's going to work I think theres going to be.
Pressure on policymakers on that topic. So I think it's a combination of a little moral hazard, a little regulatory mischief as well as just I think some PR in that market.
Okay.
But when it does expire do you think people incentives not paying or do you expect a shock to the system at that point.
Our resident base is different.
Isn't it basis, if we don't I mean this is.
This is troubling to us sure, but its not deeply material, which we just don't have a lot of evictions I think we need to just keep having conversations with residents Theres no rent forgiveness program and AQR. We will continue to pursue you will follow the rules, but we will be persistent so.
I guess I would say that we're going to advocate that these various eviction moratoriums that serve their purpose and now should lapse and we will continue to have these direct conversations with our residents and the vast vast majority of them are paying and paying on time and like their service. Unlike their property, but you can't leave for free and you need to.
<unk> financial obligations meet your contractual obligations and Thats something we will be diligent in following up on <unk>.
Yes, I would say to you I think it is going to get better, but it's probably going to get better slower in la than anywhere else.
Great. Thank you.
Thank you.
As a final reminder, star one at this time for questions moving on we'll go to Michael Goldsmith with UBS.
Good morning, Thanks, a lot for taking my questions first quarter operating metrics such as same store revenue growth and same store NOI growth were below the low end of the full year range for reasons already discussed in depth, but how should we think about the pace of the acceleration of these metrics through the year and given the tougher comparisons in the back half when does this peak I'm trying to get in.
Updated view of the shape of the year and the exit rate into 2023. Thank you.
Yes. So this is Bob so the shape is actually not changed all that materially even with the negative impact on the first quarter from bad debt. So the first quarter was always in our mind going to be lower because you are getting this compounding effect of the rent roll right Youre getting this compounding effect of like putting on these.
Great New lease changes, great renewal rates, great blended piece.
And so in our mindset is really Q2, and Q3 are going to be probably the peak above kind of midpoint of full year guidance range performance from our same store revenue standpoint.
That has to do with the comp period, right and just kind of the comp period trajectory.
From Q2 in 'twenty, one, but also just that compounding effect.
And we felt like in our original guidance that you would then see more normal seasonality.
In the fourth quarter as you went into the fourth quarter and so you'd see a little bit of a dip there. The question will be given where we sit today about how strong the leasing like the lead up to the leasing season is if that normal seasonality of returns are not right. We've had years, where we've defined that normal seasonality that's.
Setup again sitting here today, it feels like that normal seasonality might not be as pronounced as what we assumed in our initial guidance so that feels pretty good.
But I think we'll know more in in July when we talk to you on the call and we will be able to give you a kind of a robust or view on that.
Yeah.
That's very helpful and you have invested in technology and technology initiatives.
Still have higher than usual staffing vacancies and I'm just kind of wondering.
When do these higher vacancies just become the norm and based on your investments you've kind of reached a new equilibrium between technology and unemployment levels.
Yes. So this is michel so in terms of staff vacancies on site right now the portfolio is running just below 7%, which is about 100 basis points higher than what historically, we see in the first quarter. It is nowhere near like what we saw in Q3 of last year, where we were like 10.
11% kind of vacant positions on site. So a lot of that vacancy kind of as a wrap has evaporated through recruiting efforts and really all of the work that we're doing right now around the centralization and creating these operating efficiencies like we're still in the early innings of all of this coming through and I think I've said in my prepared.
<unk>, even last quarter that this stuff is going to go and flow into 2023 as well because we're redoing a lot of the onsite processes.
But again a lot of the gain that you see in payroll is not from vacant positions in the first quarter.
It's from the efficiencies that were created.
Great. Thank you very much.
And there are no further questions I'd like to turn it back to our presenters for any additional or closing comments.
Thank you all for your time on the call today, we look forward to seeing many of you in conferences and in your offices over the next few months stay well. Thank you.
Thank you and everyone else has left the call.
And that does conclude today's call we'd like to thank everyone for their participation you may now disconnect.