Q1 2022 Apartment Income REIT Corp Earnings Call
Financial Officer.
Other members of management are also present and all of US will be available during the question and answer session that will follow our prepared remarks, I will now turn the call to Terry Considine Terry.
Thank you Lisa and thanks to all of you for your interest in air.
The year is off to an excellent start as detailed in the earnings release.
My colleagues will provide further details my comments will be few I have three chief points.
First business is good.
Keith and the ops team continued to deliver outstanding results.
Second our balance sheet will be low leverage with fixed interest rates limited repricing risk great flexibility and simple.
Third we did what we said we would do.
<unk> focus on property operations, where we have a comparative advantage.
Get to low leverage.
Simplify our business.
Have low G&A in order to be efficient at conversion of rent growth to cash available for shareholders.
The transparent and provide a high quality of earnings.
Establish our relationship with <unk>, so that each is independent and stands on its own.
Yes.
One more point now comes growth.
Organic growth from our high quality portfolio improved by the sale of our lower rated properties.
Organic growth from focus on <unk> core competencies and customer selection and satisfaction and retention and.
And using productivity to control operating expenses.
External growth funded by paired trades and leveraged neutral.
Where our cost of capital as established by the property sold where.
Where the underwritten accretion is meaningful and.
And the key to success is the excellence of our property operations with Keith's calls the air edge.
Yeah.
We will be good corporate citizens continuing to be a great place to work.
Engaging positively with the communities, where we do business.
Conducting our business with sensitivity to its environmental impacts.
And we'll measure these results and seek their certification by independent third parties.
And we will do all of this as a team.
And I want to thank my teammates for the success of the first quarter that will be discussed on this call.
I look forward to working with you to achieve the high goals, we've set for the balance of this year and for the years ahead.
I also want to thank our engaged board you're most generous with your time.
You contribute from your wide range of life experiences.
You keep us focused on creating value for shareholders.
Now I'd like to turn the call to Keith Kimmel to discuss our operating results and prospects.
Terry.
Our first quarter results exceeded our expectations and reinforced our outlook. The 2022 will be an exceptional year for the business.
Occupancy continued at record high levels.
With the first quarter result of 98, 1% flat to the fourth quarter and up 270 basis points from last year.
Rates again reached new high watermarks with <unk>.
Our new leases up 17, 8% renewals up 11, 3% and blended rates up 14, 1%.
Our World Class customer service remained consistent with nearly 10000 surveys during the quarter, scoring us $4 three out of five stars.
Our trailing 12 month turnover reached a record low of 38, 7% with 200 fewer move outs in the first quarter of 2022 and 2021.
Strong operations translated into robust financial results for the quarter.
Revenue was up nine 2% from the first quarter of 2021.
Bad debt continue it's choppy, but gradual improvement, reaching 120 basis points for the quarter, 30% lower than one year ago.
Expenses were up three 1% year over year with controllable operating expenses up two 8% due to timing of the increased maintenance of our communities offset by lower personnel and turn expenses.
We anticipate full year controllable operating expenses will be on plan.
Flat to last year.
Net operating income was up 11, 7% from the first quarter of 2021.
As a result, our net operating margin was 72, 8% up 160 basis points from one year ago.
And our acquisitions portfolio performance and income growth outpaced our stabilized assets during the first quarter as we continue to see the impact of implementing the ear ache.
Our 2021 class a acquisitions performed well with 275 leases signed in the first quarter, new leases increased 28% above the prior lease renewals were up 19% for a weighted average increase of 23%.
If these acquisition properties occupancy was above 96%, while both rate increases and lease space exceeded that of our same store communities.
As a result, our 2021 class is financial results above our expectations.
We anticipate further upside as the year edge is fully implemented across every aspect of these communities leading to income growth this year, 50% higher than our stabilized communities and accelerating to a higher multiple in future years.
In April we've seen momentum build as we enter peak leasing season.
Occupancy during the month was 97, 4% in line with our expectation of frictional vacancy associated with the start of peak leasing season.
Lease space was strong with the seasonal increase of demand coming earlier than ever.
New lease rates increased 18, 8% from the prior lease renewals increased 10, 3% leading to a blended rate growth of 14, 9%.
Our loss to lease is currently in the low double digits and.
And we expect healthy rate increases throughout the remainder of peak and the balance of the year.
Our customer selection of such that despite the historically large rent increases our affordability ratios are actually improving with rent to income at 21% in the first quarter down from 27% last year and with medium resident income up to nearly $150000.
Perhaps most notably in April we May have reached an inflection point for bad debt.
California recently reduced some of the limitations of our ability to collect unpaid rent and.
And we've seen a corresponding shift in resident behavior with an additional $1 4 million in payments from residents in April .
As a result.
Bad debt is outperforming our expectations by $500000 and while there is much work yet to be done.
Now more indicators that anytime post pandemic that we are on the road back towards recovery to normal bad debt.
In summary, we expected the business to be exceptional and through four months of the year. It is outperforming our lofty expectations.
Our leading indicators continue to show strength for the balance of the year fueling our optimism as we head into the peak months ahead.
My Thanks to all of your team members your dedication to serving our residents and your drive to continuously improve our business has made this quarter a great success.
And with that I'll now turn the call over to John Mcgrath Chairman of our investment Committee John .
Keith was another busy quarter on the transactions front I am pleased to announce that we have completed $1 7 billion of dispositions over the past eight months at prices above our reported JV with a boost from historically low interest rates.
All of the proceeds from these sales was used for deleveraging and strengthening our balance sheet positioning us well for future accretive growth.
During the first quarter and at very opportune timing and pricing, we sold eight apartment communities with 578 million with approximately 330 apartment homes located in San Diego, Los Angeles County, The Bay area and Chicago.
<unk> in April we sold three apartment communities or $161 million with approximately 560 apartment homes located in San Diego Orange County in the Bay area and.
In aggregate, we raised equity capital at a current NOI cost of four 3% and a long term expected IRR cost of six 4%.
Completion of these sales increased our allocation of capital to higher growth markets with lower regulatory risk and improve the quality of our portfolio.
Nick at significantly higher rents.
Turning to growth.
<unk> was designed to create shareholder value by bringing properties onto our platform, where the air edge will drive outsized growth in incremental value for shareholders.
Over the past 10 months, we invested in five properties at a total cost of $730 million before property upgrades or approximately 6% of our portfolio value today.
These acquisitions will produce a long term IRR of 9% a spread of more than 260 basis points that a pair trades used to fund them.
Encouraged by these results we continue to execute a capital allocation strategy that utilizes our pair trade philosophy, while maintaining leverage in our targeted range.
Pair trades allow us to be agnostic to periods of market volatility, while also establishing the cost and availability of our equity capital.
We remain firmly committed to disciplined capital allocation, we look to invest in top rated submarkets maintain broad portfolio diversification and earn IRR spreads of 200 basis points or more above our cost of capital.
In short we are focused on the continued systematic enhancement of our portfolio through disciplined accretive growth funded by paired trades for properties, which will benefit from the air edge or future acquisitions will build upon our track record of creating shareholder value by delivering predictable performance above market growth.
Yes.
With that I'll turn the call over to Paul Beldin, Our Chief Financial Officer Paul.
John .
I will discuss our strong and flexible balance sheet, our updated expectations for 2022 and conclude with a brief comment regarding two recent board actions.
Starting with the balance sheet.
Two significant steps to improve our balance sheet.
After reducing leverage by $330 million last year and $630 million year to date through April we plan to reduce total leverage by another $557 million in the second quarter with proceeds from Junes anticipated collection of the Aimco note together with a prepayment penalty of <unk>.
Prepayment penalty varies with the exact time of prepayment and with interest rates on short term Treasury notes.
The prepayment penalty will be approximately $23 5 million.
Pro forma these repayments our March 31 leverage to EBITDA is five four times well within our targeted leverage between five and six to one.
Next we fixed interest rates on $800 million previously.
Previously floating rate debt to do so we first entered into $400 million of <unk>.
Floating to fixed rate swaps at an all in cost of 399% and a weighted average duration of four and a half years and second we entered into a $400 million Treasury lock in anticipation of our second quarter Refunding currently outstanding term loans with proceeds from our private placement of a debenture with <unk>.
Firms are an expected amount of $400 million.
<unk> duration of 10 years and expected pricing of around 170 basis points over the 10 year Treasury now lock at 239% 59 basis points below Yesterdays closing 10 year rate.
Pro forma the debt reduction that I have just described there has no unhedged floating rate exposure.
Additionally, our weighted average maturity will be eight two years, an increase of almost two years.
As a result, the balance sheet transformation is complete and 18 months ahead of plan.
Since our IPO, we will have reduced gross leverage by $1 5 billion or 40% such that gross and net leverage are now the same leverage to EBITDA at five four times, we will have increased our pool of unencumbered properties to seven 9 billion almost tripling from <unk>.
$2 8 billion.
We will have increased liquidity by over $600 million to over 1 billion available under our credit facility and cash on hand.
And we will have reduced refunding and repricing risk through balanced maturity and repricing ladders in fact, only $146 million or approximately 6% of our debt will reprice through the end of 2024.
Additionally, we intend to limit any future floating rate debt to 60% or less of apartment revenues, which we consider to be an indirect hedge of interest rates.
Day that limit is about $380 million.
14% of total debt.
Less than 3% of our gross asset value.
These characteristics strengthen our investment grade Triple B flat rating from S&P.
Bolster our case when we seek an investment grade rating from Moody's later this year.
We are well positioned to access the public bond market when doing so makes sense.
Now turning to our expectations for the balance of 2022.
First quarter <unk> was 57 per share <unk> <unk> ahead of the midpoint of guidance due to <unk> of stronger than anticipated operating results and one penny of items that may reverse during the balance of the year.
For the full year, we expect <unk> between $2 37.
And $2 45 per share.
We now expect same store NOI growth of 12, 5% up 50 basis points from our expectations, one quarter ago, adding a penny per share to <unk>.
The early collection of the Amesville loan and interest income of 14.
In the second quarter from the prepayment penalty.
Offset by interest income of nine loss in the second half for a net increase in 2022 or <unk> <unk> per share.
And lower borrowings reduce interest expense by <unk>.
While higher rates increase interest expense by <unk>.
For a net increase cost in 2022 or <unk> <unk> per share.
Our same store guidance range contemplates the potential for continued same store revenue and NOI outperformance driven by higher rental rate achievement, lower bad debt expense and lower property operating expenses.
There is also the potential for lower general and administrative expenses Accordingly, we see a path or the <unk> of incremental interest expense is offset by these items.
At the midpoint. The result is 2022 <unk> $2 27.
Before consideration of the prepayment penalty income and $2 41 inclusive of it.
We anticipate that our second quarter <unk> will be between 66, and <unk> 70 per share, including the estimated 14th of onetime income from the early repayment of the Aimco note.
The second half of the year, which reflects no contribution from the Aimco note and does reflect higher interest expense associated with fixing the $800 million of debt, we anticipate <unk> between a $1 13 and $1 19 per share.
Finally, the board recently authorized both the common stock repurchase program of up to $500 million and at the market offering program also up to $500 million.
To date, neither has been used.
With that we will now open up the call for questions. Please limit your questions to two per time in the queue Austin I'll turn it over to you for the first question.
Thank you at this time I would like to remind everyone in order to ask a question Chris Star and then the number one on your telephone keypad.
We'll pause briefly for Joseph a moment to compile the Q&A roster.
Okay.
Okay.
Our first question is from Rob Stevenson from Janney.
Rob There is open.
Good afternoon, guys. Keith what are you running in terms of average fees per unit per month and how much are you guys increasing fees. In addition to the current rent increases.
Rob Thanks for the question.
When we think about fees.
Theres, probably a couple of things to think about the first one is maybe like parking and storage those types of fees, we try to increase those that follow the commiserate of how we're raising rents and so.
We will see similar similar impacts, but when you look at the actual fees that represents just about 10% of the total revenue. So it is not it's not a big impact.
Okay.
And then Paul on the guidance, what's what's going to drive any of the G&A and the other savings that you talked about over the remainder of the year is that just not replacing people because of technology is that targeted head count is that something else that you guys are doing can you elaborate a little bit in terms of.
The expense savings that you could realize over the remainder of the year relative to previous guidance.
You bet, Rob and thank you for the question.
As you know.
We designed <unk> to be very efficient and so that more of our revenue will flow through to the bottom line of our shareholders and part of that efficiency is maintaining gen. G&A expenses equal to 15 basis points or less of our JV and for the current year at the original guide of $17 million, we anticipated not only achieving that 15 basis.
Our basis point benchmark, but coming in well under that in the first quarter. We have updated our range. We do have some efficiency projects that are ongoing that might provide some benefit this year, but also I would just call out that our incentive compensation program is variable and dependent upon our results and so there is the allowance in that G&A.
Range for maybe.
Performance target that might not fully achieve that.
Our budgeted levels.
And are the property people I mean, if you guys wind up doing 10% plus or minus revenue growth. This year on a same store basis is that going to impact the bonuses et cetera pay to the property operation staff is that going to cause that.
Cancel out any of this G&A savings you guys hit the upper end of your range.
Well, Rob I'll start and then I'll turn it over to Keith if he wants to add anything we have separate bonus programs for our onsite teams from our corporate teams and so those onsite teams are incentivized based upon the performance of their properties relative to their budgets and so any incremental cost that would run through our property operating results.
Does the property performance will be more than offset by higher revenues.
And Rob I would just I would just add that the way that our incentives are are handled onsite as theyre actually individual are individually associated with <unk>.
Position and by community by community so.
Each one has an individual goal to achieve and outperform.
Okay. Thanks, guys appreciate the time.
Our next question is from John Kim from BMO capital markets.
John Your line is open.
Thank you good morning.
There's a big difference in leases signed new versus renewal I'm wondering how much of that is <unk> 14, 82 related given your California exposure.
Hey, John it's Keith.
Youre seeing it relatively relatively correctly. So what we see is is that.
When we think about renewals they go out and we really focus on not just what market rents are today, but what they will be in the future periods. When we send the increase out and so youll see varying degrees of results.
I'd point, you, maybe to Florida, where you might see increases that could go out as high as 50%, where you could see increases in Denver go out in the teens and then you would see increases in California that will have some restrictions from 14 82 that would be neat.
8% to 10% so between the combination of those things Thats, how you get to those numbers.
And Keith you mentioned southeast, Florida, Miami has been a very strong market.
How concerned are you.
Concerning you of rent.
Rent controls in that market.
And Conversely, what's your appetite or ability to expand your presence in Miami.
Well I'll start with that.
Certainly.
Concern about rent control that comes up in a lot of scenarios, but I'll, let patty schrader in a moment chime in on a particular in Miami, but but what we've seen most recently is that it was more about an extension of time to give inclinations of how much when the increase will go into place and there hasnt been any limitations around.
How much we can push the rents but of course, we recognize that there's there's lots of talk about that.
Anything you would add to that sure hi, John .
Florida has prohibited rent control state level and it is to be enacted at a local lever. It requires two things one is the state of emergency and two that there is devoted to people. So that is sort of hired.
Barriers to cross and for now.
Take care.
And this is John Mcgrath on your question about increasing our presence.
Looking for market anomalies that gives us an opportunity to have a comparative advantage from our air edge and where we can invest in deals where IRR spreads or 200 bps or greater than our cost of capital and if we find those deals in southeast, Florida, We will certainly pursue them.
One final question if I may.
What are your expectations as far as the resident relief funds that youll be.
Receiving for the remainder of the year.
Jon It's Keith can you I'm not sure.
Clear on your on your question are you talking about government assistance on on on rents or what is it.
Youre looking for there.
I mean, just the improvement in bad debt I think in the first quarter, you had $1 9 million from the California rent relief program and I was just wondering do you expect that pace to continue.
For the rest of 2022.
Okay, I got you, so well here's what I, here's how I would describe it.
What we've seen recently is that in April we were allowed to start giving notices for folks that had not paid the month to pay the rent for actually the month of April so unless they had Colgate protection, we're able to start serving notices for non payment as a result of that what we're seeing is is that not only do we have residents coming in that are.
The rent for April , but if they've had back payments, we're getting a combination of well let me just I guess I guess I'm going to have to pay it off so when we pay the whole thing or I can pay 20000 can I come up with a payment plan. So it's early days, but we're seeing some really good results of that and what I. What we've sort of said all along is our average FICO score for our <unk>.
Angelus resident is at a 735, they have high incomes and we believe that they will be good for their for their dollars. So.
More to become we know Theres a lot of work in front of us, but we do believe it will continue to improve.
Great. Thank you.
Your next question comes from Nick Joseph from Citi. Your line is open.
Thanks, Karen can you walk through the conversations.
Issues around the prepayments.
Eight code load versus just letting that mature in January 2024, and then the benefits for air update.
I'm doing it now.
You bet.
<unk>.
The.
I guess the way we thought about it was first that.
With market and at least a number of the analysts and shareholders who spoke to me.
The spread income at a low multiple.
Even one times knowing that it would end in two years.
And we could see that the loan was losing profitability even sooner.
As higher interest rates narrowed the spread.
Interest income on the Aimco loan and the interest expense on <unk> borrowings to fund alone.
And we also thought that higher interest rates would increase inflows refunding risk and therefore, our credit exposure.
So waiting seem to bet on interest rates a year from now and Thats just not our business.
Most important.
We were able to do what we said we would do.
By moving air to low leverage now where it hasnt we.
Just a little bit more than $2 billion against a $13 billion JV.
So the combination of.
Timeliness.
And.
Doing what we said motivated or should we feel good about our balance sheet, which is I think bulletproof.
We're committed to keep it that way.
Thanks, and then.
After obviously the repayment of the note.
Whats the remaining relationship with I D.
The remaining relationship will be cordial collaborative and independent.
That we will get a contract.
Okay.
But.
And I guess im a contractual side.
Yes, we'll contract with them when it's to our advantage too.
New development activities.
Their risks not ours, because we've said we won't take that on but we will do that with third parties too and so being able to see our pricing with <unk>.
People without a historic relationship to know that our pricing vis vis the emco is is that market.
And.
And we think they will do good work and we think the third parties with the good work.
Thanks.
You bet. Thank you Nick.
Your next question is from <unk> St Juste from Mizuho.
Your line is open.
Okay.
Hey.
Good morning out there you guys.
I guess my first question is on the I guess operating strategy here Keith.
This further into peak leasing season, I guess I'm curious, how you're thinking about.
Occupancy versus rate the occupancy is down 100 basis points versus January while blended rates have accelerated so I guess I'm curious.
How far are you might be willing to let occupancy.
Lets you drive rate and what's the underlying turnover assumption yes.
And al Thanks for the question.
This is by design and on plan. So what we do is we want to have frictional vacancy to be occurring when we have the greatest demand in the market.
With the greatest pricing opportunities to push rates and so.
We've moved from 98 into the 90 Sevens call. It when we get into the peak of the peak July July August we could go into the $96 and then we will build back up and recover from them from there.
And as we think about turnover.
I'll tell you that we anticipate and expect that we're going to continue to have low turnover much like you've grown to become accustomed to.
And as a result of it.
Something that we feel like we can backfill quicker if we do have churn during.
During the peak season.
Okay.
Okay fair enough.
Got it.
Maybe one on the.
APM new ATM.
Tim I guess, just curious the scenarios under which you may consider using equity you don't have any real debt maturities near term lower deleverage here sounds like match funding.
The capital plan going forward. So I guess I'm curious, maybe you guys could talk about under what scenarios. There maybe guideposts that you would consider issue.
Thanks.
<unk>, it's Terry we don't have any current plans to issue equity.
These prices were just putting in place.
The sort of typical corporate infrastructure to have options to do either to buy or sell or issue equity.
Okay listen I understand that yeah, I was just curious.
If there would be a change in funding going forward, if perhaps new equity could play a role.
Perhaps change the approach given your match funding.
In the past I was just curious.
So something in the future.
C.
You bet I think I think decisions like that always turn on the use of proceeds and so having the ATM in place does give us optionality, but.
That's a general thought.
Therefore, a little hypothetical and current applications.
Okay Fair enough and then maybe one last one maybe some commentary on the transaction market you guys have been fairly active here maybe discuss how the.
Interest rates has impacted them.
Market as you perceive it.
Pause, maybe a change in buyer tightened by demand.
And cap rates.
This is John Thanks for your question.
First is I can't predict the future, but what I can say is that there's a lot of capital still out in the market and we've not seen significant changes to our values.
The best assets in the best markets are still trading at high end of estimates at the end of the day apartment fundamentals remain very strong and any cap rate expansion as being outpaced by.
The historically high NOI growth.
We are seeing the buyer pools to becoming a little more shallow but they are very competitive still.
Levered buyers are the ones that are having a harder time, making their deals pencil and what we're seeing is this becomes.
Particularly true in larger transactions say $300 million plus from our own perspective.
I am comforted by the fact that we have a pair trade philosophy, which we're executing which allows us to lock in our cost of capital we are going to be out in the market looking for opportunistic.
Acquisitions, which we have a comparative advantage because of the air edge.
And we're going to be looking to invest where we can earn spreads as I mentioned earlier about 200 bps or more above that cost of capital.
So it sounds like that the margin not seeing any change in the value yet, but that's not to say that underwriters underwriting them today aren't putting that in.
So much demand and so perhaps is it translating into lower accepted return.
As the capital.
Still pursuing that.
Yes.
Yes.
I don't have a crystal ball to say what the future obey we're seeing values are holding right now.
I can't speak to other People's underwriting, we're underwriting hours the way, we always have based on our opportunity to have the advantage of our operating platform and we will continue to do so.
Yes.
Okay. Thank you appreciate it.
Yes.
Your next question is from Chandni <unk> from Goldman Sachs. John meet your line is open.
Hi, Thank you for taking my question. So just building up on that last question I mean, now that leverage is where you wanted to be.
The potential for more acquisitions in 2022 and <unk>.
How would you would bear to it would be still be kind of the right way that you would go about it.
Thank you very much for your question. This is John .
First is I would say our guidance includes $500 million of accretive acquisitions.
It's an amount, which we already have under some form of agreement we.
We will provide more information on those transactions when they close.
Beyond that guidance, we have no fixed school for further acquisitions.
As I mentioned that we are continuing to look at systematic enhancement of our portfolio through accretive growth, which will be funded through those pair trades. We mentioned to your question about the pair trades.
Their trades gives us an opportunity to lock in our equity capital today.
But we will also obviously always look at what the best cost of capital could be so that we are able to make the best investments and create the most shareholder value.
And as a follow up to that you know speaking this Boston capital. So you expect to go to Moody's soon could you could you talk about what kind of.
Cost of capital advantages you'd get down the line.
As you get to IAG.
Right.
Hey, Jonathan this is Paul.
What we look for is to have the broadest option as possible when it comes off of financing our activities and so and we are currently a mid tier investment grade rating from S&P, a triple B flat.
Moody's has a different <unk>.
Metrics that they use for their ratings methodology. One that was very focused is very focused on the percentage of non recourse debt as compared to underappreciated book value basis, and so one thing we've been very focused on during the past 15 months has been to improve that metric and we have done so and now it's less than 20% of our underpin initiated book Val.
So we're in great shape from a ratings perspective, and it doesn't mean that once we get those ratings will definitely tap the public bond market, but it gives us greater optionality and thats, the CFO something thats very important to me.
And Paul one housekeeping one there are no changes to the master lease agreement in guidance.
Cash lease payment from redevelopment properties from employees that correct.
Yes under the leases that are affected with Aimco theres been no changes to those arrangements and as long as they continue to own those properties are from a <unk>.
Accounting sense, our lease it from a legal sense, we will continue to receive those lease payments.
Perfect. Thank you.
Your next question is from Rich Anderson from SMB see rich.
Rich your line is open.
Thanks, Good morning out there so.
Looking at the.
The guidance and specifically juxtaposing it to the pro forma run rate that you provided and I know, we talked about this a little bit earlier.
Sure I understood it but as I as I look at this it seems as though you are.
Not that youre going to give 'twenty guidance, but it seems as though your 23 ish cents behind.
As a starting point when you say when you remove the prepayment penalty income and also take the full allotment of reduced interest income for the full year.
No.
Am I thinking about that logically correct in terms of how to grow off of $2 41 next year, because youre missing two chunky things are too chunky things.
<unk> impact your growth profile in 2023, now you might not have 45 cents of.
Delta from from sales from dilution from sales, but I'm just wondering how the building blocks are starting to stack up when you start to think about formulating your view for 2023 with this pro forma run rate in mind.
Yes, rich I don't think its prior to the appropriate time and place to get into too. Many nitty gritty details around 2023, but what I would point out is that air is a simple business and now that our balance sheet is in order that are.
Fixed rate debt no floating rate exposure.
Limited maturities over the next three years, there's not that many moving parts the most significant moving parts.
As you point out is in same store operations.
We are leasing activity in 2022 should set us up for a very good 2023.
As far as what's in our numbers for 'twenty two that won't be there next year.
We'll do our best to lay that out on the bottom of page nine of our earnings supplemental I would just point out.
To try to avoid any potential confusion and we do have a benefit in our numbers. This year from the <unk> note that will not reoccur next year.
So we'll have higher run rate interest costs from fixing the $800 million of debt.
<unk> excuse me the majority of those costs will run through our numbers. This year, but we will have a little bit of our earn in next year and so that's why we provided that $2 19 run rate and so if you take that $2 19, which is a pro forma assuming that the <unk> was fully paid off in 2021 and at our current balance sheet structure was in place on <unk>.
<unk> 22 that would be our 2022 <unk> and so you could grow your NOI expectations from same store in there and have a really good starting point to think about 2023.
Okay fair enough and I do appreciate the added disclosure there.
The second question for me is heard this from you and from others about.
Moving away from regulated areas into less regulated areas.
Sometimes obvious things to do in the present tense often have negative consequences in the future tense and in this case you could be walking into elevated supply there's a lot of things that aren't perfect.
Nonregulated world or area of the country not to not to not forgetting. The fact that they can become regulated someday soon too. So I don't know if for some reason that that that sort of.
Escape from regulated.
Yes.
Areas of the country seems a little reactive and not proactive to me in.
Talk me off the ledge on this one why is it the right thing to do to to make that step today.
Rich, it's Terry and first it's good to hear your voice.
I'd say second Theres.
Theres nothing reactive today. This is of course, we've pursued for example in Florida.
For the last number of years.
And like all things in life, it's a question of balance.
And.
We have felt that under current circumstances there are some markets.
The <unk>.
Burdens of regulation outweigh the benefits.
But we've got plenty of capital invested in California, We've got plenty of.
Capital invested around the district, where there is whether it's in Virginia or rather in Maryland The district so.
We're exposed to.
Yeah.
Regulation in our portfolio, which is try and find where there's the right balance between as you pointed out the discipline of expected competitive supply.
And the discipline of government.
For example, we have exited from Texas for a decade, having been previously a large land owner there because competitive suppliers.
So burdensome.
Look we will look for a spot and try to find that right balance.
I guess I would say regulated in.
Cut areas of the country are also appealing to tenants.
So don't want to lose sight of that.
But yes, I get it and I appreciate the balanced commentary, so I guess I'll leave it at that and thanks very much great quarter.
Thank you.
There are no further questions at this time, Mr. Considine I'll turn the call back over to you.
Thank you Austin and thank thank you for your all in this call for your interest in and are you.
If you have any questions, please call me or Paul or John or Keith.
Or anyone who is <unk>.
Okay.
And.
We look forward to seeing many of you hopefully at Neri and just next month. So thanks again.
This concludes today's conference call you may now disconnect.