Q2 2022 NexPoint Residential Trust Inc Earnings Call
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Ladies and gentlemen, you are holding for the next point residential Trust Q2, 2022 conference call will start shortly thank you for your patience. Please remain online.
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And ladies and gentlemen, please standby good day and welcome to the <unk> Residential Trust Q2, 2022 Conference call. Today's conference is being recorded and now at this time I would like to turn the conference over to Jackie Graham Director of Investor Relations. Please go ahead ma'am.
Thank you good day, everyone and welcome to <unk> residential Trust conference call to review the company's results for the second quarter June 32022 on the call today are Brian Mitts, Executive Vice President and Chief Financial Officer, and Matt The Greener Executive Vice President and Chief Investment Officer. As a reminder, this call is being webcast through.
The Companys web site and RP that next point.
Before we begin I would like to remind everyone that this conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 90 to 95 that are based on management's current expectations assumptions and beliefs.
Listeners should not place undue reliance on any forward looking statements and are encouraged to review the company's most recent annual report on Form 10-K, and the company's other filings with the SEC for a more complete discussion of risks and other factors that could affect any forward looking statement.
Once made during this conference call speak only as of today's date and except as required by law and FERC does not undertake any obligation to publicly update or revise any forward looking statements. This conference call. Also includes an analysis of non-GAAP financial measures for a more complete discussion of these non-GAAP financial measures.
The company's earnings release that was filed earlier today I would now like to turn the call over to Brian Mitts. Please go ahead Brian .
Thank you Jackie and welcome to everyone. Joining us. This morning really appreciate your time, just a quick heads up on that and the worry about the rest of the team of 1000, so hoping slides.
Slash brain good connection here.
I apologize in advance if there's any disruption backup contingency plans, but as Jackie mentioned I'm, Brian Mitts, and Matt Mcgrane, Our CIO, who is joining me today.
Kick off the call I'll cover our Q2 and year to date results update our NAV calculation and then provide guidance I'll, then turn it over to Matt to discuss specifics on the leasing environment metrics driving our performance and guidance.
Details on the portfolio.
Results for Q2 are as follows net loss for the second quarter was $7 8 million or 30 set loss per diluted share on total revenue of $65 8 million.
<unk> to net loss of $3 4 million or 14 cents loss per diluted share in the same period in 2021.
Total revenue of $52 6 million, which is a 25% increase in revenue.
For the second quarter, NOI was $38 8 million up 41 properties compared to $30 2 million for the <unk>.
Second quarter 2021 on 39 properties with 29% increase in NOI.
For the quarter year over year rent growth on renewals averaged 16.9% across the portfolio and year over year. Your rent growth on new leases averaged 21, 1% given where rental rates are in our markets for class B apartments, and equivalent single family rental product. We believe there is ample room for future outsized rent growth.
For the quarter same store rent increased 19, 2% and same store occupancy was down 150 basis points to 94, 1%.
5%.
More on rates and occupancy during the quarter.
This coupled with an increase in same store expenses of 10, 9% led to an increase in same store NOI of 16, 4% as compared to Q2 2021.
Rents for the second quarter of 2022 on the same store portfolio were up five 6% quarter over quarter.
We reported Q2 core <unk> of $23 million or southern nine cents per diluted share compared to 56 cents per diluted share in the same quarter of 2021.
An increase of 40% on a per share basis.
Quarter, we completed 650 full and partial renovations and increase of 22% from the prior quarter.
609 renovated units achieving an average monthly rent premium of the heart.
It looks like Brian has lost connection this is David one more I'll hop in and conclude Brian's prepared remarks.
During the quarter, we completed 650 full and partial renovations and increase of 22% from the prior quarter and leased 609 renovated units achieving an average monthly rent premium of $138 and 24% ROI during the year.
Which is 310 bps higher than our long term average ROI of innovations.
Inception to date in the current portfolio.
We have completed 6834 full and partial upgrades or 44% of the total units to 4724 kitchen upgrades and washer dryer installs and 9624 technology packages technology package installations.
Achieving an average monthly rent premium of $142 $48 and $42 respectively.
And an ROI of 21, 8% and 69, 7% and 33, 5% respectively.
Each of which helped to drive our NOI year over year higher by 28, 5%.
On April 1st we acquired two properties one located in Sandy Springs, Georgia, and the other in Phoenix for a combined $143 4 million comprising 562 units in total.
Our net loss for the year was $12 5 million or <unk> 48 cents per diluted share on total revenue of $126 6 million as compared to net loss of $10 3 million.
Or 41 cents per diluted share in the same period in 2021 on total revenue of $104 4 million for an increase in revenue of 21%.
Year to date, NOI was $75 4 million or 41 properties as compared to $60 million on 39 properties with the same period in 2021 or an increase of 26%.
For the year same store rent increased 19.2% same store occupancy was down 150 basis points to 94, 5%. This coupled with an increase in same store expenses of seven 8%.
Led to an increase in same store NOI of 16, 4% as compared to the same period in 2021.
We reported year to date <unk> of $40 4 million or $1.58 per diluted share compared to $1 13 per diluted share in the six months ended June 32021, or an increase of 40% for.
For the year, we completed 1181 full and partial renovations and increase of 90% from the prior period in 2021.
Based on our current estimate of cap rates in our markets and Ford NOI. We are reporting an NAV per share range as follows $80 70 per share on the low end $96.27 per share on the high end and $88.48 per share at the midpoint.
These are based on average cap rates ranging from three 9% on the low end to four two.
2% on the high end, which has increased approximately 40 basis points from last quarter to reflect the rise in interest rates and observable increases in cap rates in our markets.
For the quarter, we paid a dividend of 38 cents per share on June 30th since inception, we have increased our dividend 84, 5%.
Year to date, our dividend was 2.0 wait times covered by forces with a payout ratio of 48% of four <unk>.
Turning to guidance, we are reiterating core episodes and revising our same store NOI guidance upwards for same store NOI resonating 14, 7% on the low end and 17% on the high end the midpoint of 15, and 20% is a 150 basis point increase from our prior guidance of 14, 3%.
At the midpoint 2022 core <unk> guidance represents a 24% increase over 2021 course, or so of $2 43 per share.
With that I'll turn it over to Matt for a commentary on the portfolio.
Thank you Dave.
Let me start by going over our second quarter same store operational results. Our Q2 same store NOI margin improved to 58, 4% up 118 basis points over the prior year period.
Rental revenue showed eight 8% or greater growth in nine out of our 10 markets. While same store average effective rent growth reached a record 19, 3%.
Eight out of our 10 markets achieved year over year growth of 10, 4% or higher with Tampa, leading the pack with 21, 7% total rental revenue growth.
Second quarter same store NOI growth with special cross across the board with the portfolio, averaging 16.4% holding in line with Q1, driven by an accelerating 14, 2% growth in total revenues eight out of our 10 same store markets achieved year over year NOI growth of 13, 2% or greater.
Operationally as I mentioned the portfolio experienced continued positive revenue growth in Q2 with nine out of our 10 markets achieving growth of at least eight 8% or better our top five markets, where Tampa with 21, 5% South Florida at 18, 3% Nashville at 18% Orlando at 17, 8% and Atlantic.
Atlanta Phoenix were tied at 15, 4%.
Q2 renewal conversions were 49, 3% for the quarter was six out of 11 markets executing renewal rate growth of at least 15% in new markets were under 10% our leaders where Tampa at 26, 2% Orlando at 24, 1% South Florida at 22, 5% Phoenix at 16, 9%.
And on the occupancy front, we were pleased to report that Q2 same store occupancy close at over 94%. Despite a robust renovation output and as of this morning. The portfolio is 97, 6% leased with a healthy 60 day trend of 91, 4%.
The occupancy strategy for Q2 was more akin to our pre pandemic strategy of pushing rents to force turnover in order to achieve primarily two goals close the gap on loss to lease and renovate more interiors or <unk>.
Same store loss to lease was 12, 7%. This is about 5% percentage points ahead of real pages National average and the 8% range because our class b rents continue to outpace growth more growth than the overall market. Our initial base case for the second half of the year saw risks saw rent growth in Los lease moderating, but the actual <unk>.
<unk> fundamentals have outperformed expectations to start this year and our outlook remains constructive.
We now expect to see loss lease decline into the high single digits in the second half with the most significant reductions coming in Q4, as we shift priority to higher occupancy over Max rate during the slower traffic and demand season.
As Dave mentioned, our occupancy strategy also led the 650 completed rehabs during the quarter generating an average of 25% return on investment and our second highest rehab output since the inception of the company.
As we entered the second half of the year, we will place more emphasis on occupancy and we'll likely see some moderation of rents, but do expect continued strength in rents in the mid to upper teens for the rest of the of this year and high single to low double digit growth going into 2023.
Jai read so far showing continued strength and strong traffic despite record high temperatures in most of our markets with a blood is 16% growth on new leases and renewals on roughly 1100 leases.
Turning to the 2022 guidance to strengthen.
And rent rolls and GPRS and total revenues allowed us to increase same store NOI got NOI NOI guidance again for the second time this year as Dave said to a range of 14, 7% to 17% with the midpoint of 15, 8%.
I'll quickly share a few data points that have informed our guidance at underlying the strength that we're seeing in our markets.
First our resident incomes continue to see healthy growth, both ours and real pages data show Renter average annual incomes are up 24% from January 2020 rent to income ratios in our markets as of July at roughly 23% as our tenants average household incomes continue to increase to now over $70000 and.
Italy.
The gap between class, a and class B rents would also remain elevated at nearly $500 per unit, leaving little room to trade up to class a are out to S. F. R.
Two factors a dearth of construction financing due to credit market volatility a banking system stress tests, plus elevated hard costs are likely to keep the renter. This rent delta between class B at other trade up options at historically wide levels. These.
These factors keep us constructive on our portfolio growth over the near to intermediate term.
Turning to transaction activity no surprise here, but the transaction market has cooled significantly due to credit market volatility and negative leverage in most commercial real estate property types. Most institutional owners have put off disposition plans until later this year unless there is a fund of life issue or a pending loan maturity deals.
Deals under contract pre may have seen 10% to 15% re trades on valuation sending spot cap rates to 375% to 4% in our markets. We recently seen some some capitulation from sellers at 4% cap rates as well as buyers being able to underwrite growth to positive leverage in years, two or three.
Thus this has has as has been the case since our first earnings call. We've been transparent on our view of cap rates and NAV as Dave said have adjusted our NAV downward to a new midpoint of $88 per share.
At today's prices, our implied cap rate is north of 5% and as we routinely done in the past and to the extent we stay at these levels, we will look to sell assets, namely, our our Houston portfolio and buy back our stock.
In closing the first half of 2022 has been exceptionally strong for the company, we're expecting to see further strengthened fundamentals for middle market rental housing, particularly in our sunbelt markets and we maintain optimism that 2022 will be one of our best internal growth years ever.
And that's all I have for prepared remarks, thanks to our teams here at next point N V H for continuing to execute and now I'd like to turn the call over to the operator for questions.
Ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad do keep in mind, if you're using a speaker phone. Please make sure. Your mute function is released two laggards signal to reach our equipment.
Once again, if you have a question. Please press star one we'll pause for just a moment to assemble the queue.
Yeah.
And we will hear first from Tayo Okusanya with credit Suisse.
Yes.
Hi, yes.
Good morning, everyone congrats on the quarter.
Or and I guess, the first question is kind of guidance related again, a good solid beat into Q dresser asbestos dispute of about five 6%.
But are you guys didn't raise the midpoint of the guidance. So just curious about what that implies about the back half of 'twenty two.
Nothing operationally is great question, Tyler, but nothing operationally, it's more of timing around the Houston.
Dispositions on the assets and holding those on.
A little bit longer than we otherwise would have as you recall we were.
Tempting to take them out yeah, right as the as the downturn in the credit markets.
Yeah, like I said put those off until probably after labor day. So that's.
That's that's the quote unquote hesitation, if you will but again nothing operationally, it's just that delay sort of a timing issue.
Yeah.
So the delays it in that kind of helped the numbers because I used to do you still have that NOI coming in yeah. You have the NOI, but you also have they're being held when we increased the revolver on the interest expense is going to is going to basically offset the NOI.
Okay Gotcha, Okay. So that's a that's number one and then number two again just again with the backdrop of rising interest rate again you guys.
More leverage you have a lot of swaps.
And please could you.
Kind of help us think through that and the potential impact of the rates keep rising.
How that ends up impacting numbers not just in back half of 'twenty, two but kind of going into 'twenty three with given a lot of the swap maturities.
Yeah, I mean, the swaps don't mature until another call. It four years or so so yeah. The near term as favorable what we're really talking about is the revolver.
Some things were looking to you.
To address the revolver with us.
We're in talks with the agencies to potentially lower spreads on the impending maturities in 'twenty four.
That we take the spread differential could be about 50 basis points and largely offset any yeah. I guess any increased interest expense actually fundamentally save us anywhere from 1 million to $2 1 million to $2 million a year starting next year, if we're able to get that done.
Feel pretty good about it. So that's that's kind of an active balance sheet maneuver that were in talks with now to mitigate.
The <unk>.
<unk> piece of the of the book.
Yeah.
Gotcha, and then one more if I may be if you could indulge me again, just the M. A V meet fast.
Again with the right with the kind of higher interest rates higher cap rates you guys are using.
It sounds like again, you are actually seeing that in the transaction market right. Now you kind of confirming that cap rates are moving full kind of began the affordable housing type multifamily could you talk a little bit about on the class eight side, if you kind of seen a similar change.
Even though it's not stuffy traffic in but just given it's your market.
Yeah sure, though we definitely are I mean, the reason why youre going to have lower cap rates and be as because you can underwrite growth and even even at the lower lever lower Levered class a core type buyer.
There is still basically at parity or negative leverage.
Ongoing on a going in cap rate with less growth.
So we've seen.
Really class a unless of course, you know some air.
Irreplaceable location or something special with the asset, but those cap rates are moving also into the four range as well.
Gotcha, Alright, I will I'll get back into the queue. Thank you.
Thanks, Tom.
We'll now hear next from Michael Lewis with <unk> Securities.
Yes. Thank you.
Firstly I just wanted to follow up on the question about about the guidance it sounds like it's really.
Interest expense, that's keeping you from raising that because you did $1 58 in the first half of the year.
That would imply at the midpoint just $1 43 in the back half, but it sounds like you're in a hole Houston longer maybe thats, a wash because of the financing on it but.
Is it fair to say, it's really just the threat of interest expense, that's keeping you from raising the range.
Yeah. It's just the it's really the curve is what we're trying to.
Monitor.
On the revolver and then yeah like I said, we're doing a couple of things to mitigate that as those items as well as if we're able to sell Houston.
You know earlier. So those are those are some mitigates tonight I'd like to remind everyone that we've we've raised guidance twice to from initial guidance of.
$2 and change.
Yeah, $2.90 and change and then the 301 and so yeah.
Yeah, I think we're I think we still feel pretty pretty comfortable with the strength in the portfolio.
Yes, I understand you already put the bar up there right, 24% growth isn't too shabby.
Yeah. So thanks for that and then.
I wanted to ask a question a little different I noticed you had quite a few communities that had a handful of units that are down due to casualty events. I was just wondering if that was that like one weather event is that sort of a you know is that normal to have units out of service that youre not earning on.
I guess youre collecting casualty.
Anything to talk about on that anything notable.
Yeah happy to who knows I mean, unfortunately time from time to time, you have portfolio and in communities experienced fires and that's and that's what you're seeing we've had some some kitchen fires and a couple of the assets that have taken down units and so we're actively.
Mediating and trying to get those back up as soon as possible, but any any operator or landlord thats over one the garden.
B B style deal well.
What kind of feel our pain, so to speak but but that's what that is.
Okay. Thanks, and then last for me.
I saw the same store expenses were up quite a bit in the second quarter you.
You raised the guidance, but not too much.
Whats kind of the outlook.
I guess, what drove that increase in the second quarter and then.
The guidance kind of implies that will come back in a little bit in the second half.
Yeah. That's a great question, Yeah. Most of that is R&M and turn so repairs and maintenance expense that we don't we don't capitalize because yeah.
It's not a capital item with with ROI components are a lot of that is quite.
Quite honestly during the second quarter was HV AC.
And contract Labor, where we had to fix and cool Calder properties during the during the heat so that was a spike yes, we do.
Expect that to continue or to accelerate but that's what it was sort of the second quarter plus plus we were churning.
Like I said to.
To capture or close the gap on loss to lease and renovate.
Okay. Okay. Thank you.
You bet.
Moving on to our next question, which will come from Buck Horne with Raymond James.
Hey, good morning, guys.
A question about supply in your markets and kind of what Youre looking at coming to the market over the next few quarters I know a lot of that product.
It may not be directly competitive to your price points, but im.
Curious, how you're thinking about how that may affect cap rates or asset pricing.
As investors kind of digest that that product and or.
You think it could get to a level, where you know it does begin to you Paul renters potentially away from your properties.
Yeah.
Good question. There is there is some supply coming online I would say that that those were existing deals in motion.
If you're trying to start something today like I said on the prepared remarks, it's hard to.
Hard to generate a yield on cost north of 5% to justify the development, but markets like like Phoenix. For example are you seeing.
Seeing some high.
Some high supply.
You have some obviously Dallas as always.
So on a go in but I still I still don't think it's going to have a dramatic impact on our portfolio is so to speak because I think the new developments or need to achieve 1900, yeah 2000, $2100 in rent to justify that justify.
Justify that Newbuild and that's you know roughly seven to $800 from of headroom from our unit. So while we're while we're continuing to push rents in the teens to low 20% of.
The end of the year, our effective rent for US is I think 4500 $20 or so so still enough headroom in our estimation to still be competitive you add to that some move some move outs, you know moving expenses et cetera.
Kind of a trust is our underlying fundamentals and thesis.
But we think we're okay.
Got it got it I appreciate that.
You know in terms of like leasing traffic you know just as kind of fears of recession seemed the drumbeat of economic concern seem to be building out there have you seen any sort of change in.
Renter traffic or behavior around.
Current leasing and in terms of.
Interest per available unit and I don't know, if its web traffic or or or.
Walk in traffic any other.
Indicators.
That might suggest that kind of be.
The demand level is starting to taper off.
No no not for or not for the bees, we are seeing some of that in class C where were.
Renters, nothing we own class C, but just observing.
Class C assets renters or more on a fixed income basis.
Rents are growing at a plus percent class C.
Obviously.
That that wage growth is hard to sustain those types of increases so you might see some bad debt and some delinquency tick up.
And in that space, but as far as class B, we havent seen any demand abatement, yet and obviously still pushing through.
Great new leases and renewals so on traffic still healthy obviously, you know during the summer months in Phoenix or Dallas or something.
Yeah.
It's little bit difficult, but.
But but everything still feels good.
Great I appreciate the color thanks, guys.
Thanks, Bob.
Yes.
And now we'll move to our next caller and that will be Rob Stevenson with Janney.
Hey, good morning, guys, Matt how has pricing been for any similar quality Houston assets to yours that you've seen traded recently.
Four.
For the quarter I would say yes.
We softly got unsolicited bids.
On an old farm in stone and Stone Creek before.
Before the before the market fall. They were just bad we can transact on during the timing, but those that was kind of 370 538.
And then those buyers have come back and they are in the four in a quarter range. So that's the best kind of apples to apples comparison that I can give you. So we could get we could transact at that level today, if we wanted to.
Okay, I mean and from your standpoint, I mean, when you look forward is there any urgency with you know oil prices, where they are to transact Houston in the near term or if the pricing doesn't you know.
Is it where you want it to you guys hold that into 2023, how are you guys thinking about that or is there never could it be a better time to really sell.
Yeah, I agree with you and we share that I'm, absolutely. We think it's a good year to do it oil.
Oil demand as you as you said is strong and that's helpful for the the.
The investor kind of optimism within the market and it's also Houston.
We wanted to do a lot of things with eastern we will sell the assets to buy back our stock Delever et cetera, but those are the assets that are also the slower same store NOI growth assets within the portfolio. So there's a multiple multitude of reasons to sell.
Okay, and I guess, how active are you guys in the acquisition market I mean, you bought stock at just under 74 in the quarter stock.
Stocks down in the low sixty's versus of high Eighty's N V are there any acquisitions that you guys could see out there that would make sense versus your own stock at this point pulled those stocks price is much higher.
No no not at all.
Alright, and then last one for me so if I look at the same store revenue growth you guys were 11 three in the first quarter and then surprisingly jumped up to 14 two in the second quarter is the third quarter really when your year over year comps get their toughest and so you start to see the the aggregate growth come down because you're at 12 seven in the <unk>.
First half and then the midpoint of guidance is 12 and even the high end of the guidance is only 12, four so it's suggesting coming down but is there any likelihood that you can maintain you know 14 ish high thirteen's.
Same store revenue growth in the third quarter or is just the law of big numbers on a year over year comps kind of get in the way of that.
No. It's again, it's a good question and you're right. The third quarter comp is going to be the first kind of tougher one that we see but.
Right now our revenue I mean, it's one month, but July where we're in that high teens.
I think it's sustainable as I sit here today, and obviously things could change, but I do think we can push through.
<unk>.
Through the third quarter and as we build occupancy.
Maybe tend to 10% to 12%.
13, 14% in Q4, so that's what we're forecasting at least.
We think that we can do.
Yeah kind of 14% to 15% really is kind of our income forecast for Q3 and Q4.
Okay, and I guess last one for me then.
Are you seeing any.
Material incremental pressure or relief on.
Material and labor cost to do the the upgrades.
Not on the not on the material cost in terms of costs, we are having greater accessibility to two the durable goods like Washington drivers like the supply chain. There is has.
Loosened a little bit so that has caused us to be able to.
Reduce the turn time on an non renovation from kind of 35, 40 days, which was pandemics.
Less than 30, so that's where we're seeing the I guess, the best improvement, but still.
Contract contract labor and goods pricing is still is still elevated.
Okay. Thanks, guys appreciate the time.
You bet Thanks, Rob.
Well now hear from Michael Gorman V T I G.
Yeah. Thanks, Matt could you just spend a minute and talk about Vegas, and kind of what youre seeing in the market there I noticed quarter over quarter.
It was the only market with the with the negative rental income, but it seems like I don't know what happened there the 50 basis points of occupancy decline up against a pretty decent quarter over quarter rent growth can you just walk us through kind of what happened there and what youre seeing in the Vegas market.
Yeah, Thanks, Michael it's really isolated to.
One asset, which is bloom and yeah, we've had.
Kind of a niche for us late payers and delinquents delinquent renters, there throughout the pandemic area and.
We're able to clear out quite a bit of evictions.
<unk> five to 100.
It's in that range in and renovate as many of those and try to turn the demographic profile of that asset, but largely it was it was the washout.
Those evictions, where the courts opened and we were able to push through a lot of these a lot of these slate payers as skips.
And hopefully that that you won't see that again.
Going forward.
Okay, and then I guess just with those.
With this higher rental.
Units are so because I'm just trying to figure out if I compare the vegas numbers with like the Atlanta numbers and they're in the same ballpark for effective rent growth same ballpark for occupancy change, but Atlanta saw a 5% increase in rental income quarter over quarter in Vegas saw a one 5% decline or I guess I'm just.
I'm not quite clear what drove that but.
Anything you could add there would be helpful.
Yeah, I mean, I think apples to oranges, there because the Atlanta job market's a little bit more diversified.
Less leisure.
And while it might be the same same whole dollar rent.
It's a different market different tenants.
These are the this asset in particular, it doesn't have as much of a diversified.
No job basis, as as Atlanta asset or the other Las Vegas assets.
Yes, I think it's.
Like I said I think it is just attributable to this one asset in changing the.
The demographic profile.
Okay, Great. That's helpful. And then maybe just more holistically as you look at the portfolio and we get deeper into the housing cycle, obviously, there's pressure kind of across the board with with rents going up in almost every product type have you seen any change in terms of where the move outs are the non conversion renewals where there.
Wing when they leave leave your properties.
Yeah, I mean, I think it's you know I think it's for another kind of competitive.
Garden deal most most likely we haven't.
We spent a lot of time with real page yesterday and the good news for our for our markets is that while our gateway.
And maybe that's what you're getting at while gateway traffic and rents are accelerating San.
San Francisco, New York and other.
Places like that is not coming at the expense of the sunbelt markets. So we're not seeing we're not seeing a.
A flight back to New York So to speak.
What we're seeing is that people are just moving for for personal reasons, obviously not to buy a home, but they either had a job it's like a new job relocation or in some cases, a doubling up with a roommate now.
As kind of the more likely option that we're seeing so that's that's really where it's going we're still seeing net.
Net migration data.
We are very positive at 20 plus percent inflows from California, and Illinois. So that's that's a trend that we're continuing to see also.
But but otherwise that's yeah.
I think I think that's the story.
Yeah. That's that's helpful and we noticed the same trend that the improvements on the coast not not having not coming at the expense of the Sun belt.
Last question for me.
I think you touched on it.
Briefly, but when you're thinking about the cap rate shifts.
You know how much of that.
Do you think you can attribute just to the disruption in the capital markets versus are you seeing buyers change.
They are underwriting for future rent growth is that having an impact on pricing as well or is it almost entirely just due to the cost of capital.
Yes, I think I think it's the cost of capital.
Yeah.
We had had good meetings yesterday with.
With some of the large brokerage houses as well.
And it's you know, it's it's largely just the shock to the system that was so quick.
And quite frankly, the lenders, whether it's banks that are.
Charging more for balance sheet warehousing or are the agencies, they can't seem to find them.
Yeah, there are beholden to the credit market to with with the Freddie K Securitizations and spreads in demand from bond investors. So all of that is trying to find a place in <unk>.
Colin place to sit and settle for a while and it just hasnt happened yet.
So that's.
We know where kind of floating rate spreads are kind of for normal highly levered.
Buyers, it's 200 or.
So for on top of that plus cap cost.
You are a negative leverage.
So unless you have a growth a growth story.
And.
And underwriting 10 plus percent. Then then just didn't work right now fixed rate is the buy and hold long term fixed rate buyers.
Yeah that that's at four and a half to four three quarter percent all in and so obviously that doesn't work unless you can pair in per cap rate and the floor for a quarter to four and a half range and have growth.
Yeah, Greg everyone seems to be liking the same assets and is constructive but I think they are waiting to have a credit market settle down a little bit.
And hopefully hopefully does.
Great. Thanks for the time.
Thanks, Michael.
And as a reminder, if you'd like to ask a question. Please press star one.
Follow up from Tayo Okusanya, Yeah with credit Suisse.
Hi, yes. Thank you.
Margin improvement during the quarter talk a little bit about what drove that and then again long term, where we can expect NOI margins to be.
As you guys start to do more with prop Sag Angus again relative to <unk>.
Comping you guys are such a peer group of care group tends to have NOI margins in the low to mid 60% range.
Yeah, I mean, that's that's been our aspiration right.
And we're continuing to do it I think.
Yes, I think largely the improvement.
This quarter.
And really the first half of the year was on the non controllable side. If you recall over the past few years, we've just gotten hammered on property taxes and insurance.
The team has gotten we've changed consultants and several on both of those fronts.
And we've we've honed in better.
You have better control on all the non controllable expenses. If you will so those are those are a couple of the categories that we that we see.
I'd also say on the payroll and leasing front, we're taking a.
You know, we're taking the lead of of some of the gateway and other and other Reits and operators in terms of virtual leasing and.
Having.
Maybe a call center leasing agent instead of having onsite employees at the.
At the sites, so I think youll continue to see that.
You know that cost can come down and be more efficient on the on the property management staffing side and so I'd say those are the primary two two.
Category drivers of same store NOI margin improvement that we hope to continue.
To execute on.
Gotcha. Thank you.
You bet.
And at this time there is no additional questions in our queue I'll turn the call back over to your host for any additional or closing remarks.
Yes. Thank you I appreciate everyone dialing in today and look forward to.
Next quarter and.
Have a good to have a good rest of the day. Thank you bye bye.
And with that ladies and gentlemen, this will conclude your conference for today, we do thank you for your participation and you may now disconnect.
Yes.
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