Q3 2022 Centerspace Earnings Call
I didn't even spoken to the center space Q3, 2022 earnings call.
My name is Lauren and I'll be coordinating youku today.
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I will now hand, you like choice J U K bus Vice President Finance begin Jai. Please go ahead.
Center space. This Form 10-Q for the quarter ended September 32022 was filed with the SEC yesterday after the market close. Additionally, our earnings release and supplemental disclosure package have been posted to our website at center space homes Dot Com and filed on form 8-K.
It is important to note that today's remarks will include statements about our business outlook and other forward looking statements that are based on management's current views and assumptions. These statements are subject to risks and uncertainties discussed in our Form 10-K filed for the year ended December 31, 2021 under the section titled Risk factors.
And in our other filings with the SEC, we cannot guarantee that any forward looking statement will materialize and you're cautioned not to place undue reliance on these forward looking statements. Please refer to our earnings release for reconciliations of any non-GAAP information, which may be discussed on today's call I'll now turn it over to Mark Decker for the companies.
Repaired remarks.
Thanks, Joe and good morning, everyone and thanks for joining US with me. This morning is Anne Olson, our Chief operating Officer, and Brian Patel, Our Chief Financial Officer.
Strong fundamentals continue in the rental housing business and 2022 will likely go down as one of the best years on record.
Against that backdrop center space has performed well and I'm delighted to report that core <unk> per share is up 17% quarter over quarter and 11% year to date I'm also happy to share that our guidance for the full year is for at least 10% core <unk> growth and the top line story remains encouraging.
The capital markets have been volatile with the 10 year up over 130 basis points since we last got together or almost 50% from mid twos to over 4%.
The speed of this move paired with the continued inflation in materials and labor as well as a return to pre COVID-19 seasonality have caused us to trim our guidance from August.
Finding ways to contain costs and improve processes, while maintaining strong customer service is a top focus for us today.
All that said, if we zoom out a little center space has an outstanding business and the housing we provide meets a basic need.
Our business is remarkably consistent.
Represented by 2022 being our fourth straight year of same store NOI in per share core <unk> growth, but.
But we do believe profitability and efficiency remain an opportunity to improve and drive value and its one of our key strategic pillars to do so I know we can.
Turning to investments we have been more active over the last few months than we were for most of the year, we invested $95 million and a brand new community in Denver called Lira, adding 215 homes in the Tech Center Submarket.
Through the end of October we purchased around $29 million of our common stock.
<unk> as a community we've tracked since pre development and we ended up with the opportunity to get a community that just opened in April and experienced a strong lease up at a price. We believe is below replacement cost.
Really the shares we purchased in late September and October were made at a historically wide NAV discounts and low multiples.
The market is in turmoil and we don't believe the fundamentals embedded in the business are reflected in the current price of our shares.
We feel great about both investments, which were executed through the lens of how do we improve the portfolio earnings quality and per share results.
Going forward, we expect to be in an opportunistic environment and we will continue to be aggressive while carefully minding our liquidity position.
None of these results would be possible without a strong team and I want to thank everyone at center space for their hard work and with that and would you. Please provide a quick operations update.
Thank you Mark and good morning revenues continue to drive growth with third quarter revenues, increasing 11, 1% over the same period in 2021 during the third quarter, our same store new lease rates increased seven 5% on average over the prior leases and same store renewals achieved average increases of eight 7%.
Blended basis. This is third quarter rental rate growth of eight 2%.
Well, we are starting to see seasonality in leasing velocity, our mountain West same store portfolios remained strong with double digit new lease rates in Denver billings in rapid city during the quarter. Our non same store portfolio achieved increases of seven 7% on average over prior leases with renewals up 9%, while retaining over 60%.
<unk> of our residents as.
As we move into the fourth quarter and have lower explorations occupancy is trending positively.
Our expense guidance for the remainder of 2022 reflects the volatility we are experiencing in areas, such as utilities and uninsured losses as well as our experienced year to date on labor and material maintaining our communities remains a top priority for us and inflationary pressures have driven cost of repair and maintenance significantly this year we.
Let's see the impacts in plumbing flooring and painting.
Internally salary and benefits costs of increase year to date at six 7% over the prior year, which is in line with CPI increases for wages and salaries through June <unk>.
Expense trends vary widely by market, but across the board, we need to advance efficiencies and contain expense growth as we head into 2023.
It remains a great year for us year to date net operating income has increased 10, 3% over 2021 as we manage to optimize revenue during the last 18 months of historic rent increases were up to the challenge of providing great homes. During times of expense pressure now I will turn it over to Brian to discuss our overall financial results.
Thanks, Anne and good morning, everyone last night, we reported core <unk> for the quarter ending September 32022 of $1 15 per diluted share an increase of 17 or 17, 5% from the same period last year.
The growth in earnings was fueled by another strong quarter of same store NOI growth, which increased by 11, 4% versus the same period last year.
G&A and property management expenses for the quarter were $4 5 million and $2 6 million respectively for a combined total of $7 1 million.
That included 234000 related to software implementation, which was excluded from core <unk> as the implementation is expected to be completed by the end of the year.
Excluding the implementation costs on a combined basis, G&A and property management expenses increased by $1 million or 16%, which was mainly a result of selling our support functions to service a larger portfolio, mainly due to a significant acquisition of the <unk> portfolio.
This acquisition and other acquisitions since the third quarter of last year have increased our revenues by approximately 25% on an annualized basis.
At the end of the third quarter, we acquired lira apartments for $95 million.
Funded the acquisition by drawing down on our line of credit increasing the balance on the line to $171 5 million at the end of the quarter.
As of the end of the quarter the weighted average maturity of our debt was six three years and weighted average interest rate was 345%.
As of October 31, we had repurchased a total of 427000 shares or approximately two 3% of our diluted shares at an average price of $67 25 per share for net consideration of approximately $29 million.
Turning to guidance, which is presented on page S 17 of the supplemental.
We are updating our guidance for both same store NOI growth in core <unk> per share mainly driven by continued expense pressures across the portfolio.
Despite increasing our same store revenue growth guidance by 25 basis points at the midpoint. Our same store NOI guidance is now lower by 75 basis points driving a <unk> <unk> reduction in the midpoint of our core <unk> guidance. We saw similar expense increases in our non same store portfolio, which was a larger contributor to the reduction of our core <unk>.
Guidance.
Large portion of the increase however was driven by a larger than projected unreimbursed little losses of 450000, and turn costs, which were significantly higher as some of these units turned for the first time under our ownership.
The acquisition of <unk> contributed another <unk> <unk> worth of reduction to the midpoint of our core for a full day.
Offsetting these reductions were lower than projected G&A expenses, driven by reduced incentive based compensation and lower interest expense.
Information that changes are discussed resulted in a reduction of <unk> to the mid point of our core <unk> guidance to $4 46 per share.
As I complete my first year at center space I'm continually impressed with the commitment to constant improvement across the organization.
Confident in our team's ability to navigate the challenges of the coming months and look forward to the years ahead.
And with that I will turn it over to the operator to open it up for questions.
Thank you.
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Our first question comes from Brad Heffern from RBC capital markets. Please go ahead.
Thank you and good morning, everybody.
On the Lyra acquisition, what is the expected stabilized cap rate there.
I think you mentioned that.
Do you think it's a discount to replacement value. So any any sort of quantification you can give there and then when to expect it to stabilize.
Yes, so we bought that at a going in plus or minus four and a quarter on our underwriting which has some pretty conservative.
Rent growth rates.
And it is stabilized so.
It's over 90% occupied.
Okay, I guess why is that fair.
Two pennies of dilution there in the fourth quarter, but stabilized already.
Hey, Brad this is <unk>.
So with respect to the two pennies that's driven by the rate of interest on our line of credit, which we drew down.
To fund the acquisitions of that rate of interest is higher than the stabilized cap rate that Mark mentioned thats whats driving the dilution.
Okay, and so do you have an expectation that there's going to be really strong rent growth of that particular property.
Kind of the lease up leases roll off rate I guess, how does that transition from being dilutive to accretive.
Yes, we do believe it will have strong growth again, we didn't underwrite, particularly strong growth.
But that is what we're seeing in Denver are broadly.
And we do believe this asset is well positioned in the sub market. So.
When we look at it on a <unk>.
More than 90 day basis, and we think about driving margin portfolio quality long term earnings growth. We're quite confident this asset will run faster than many of our other assets and we may sell some of those assets to fund this over time, but.
We also think we bought it at less than it would cost to build it so.
I am mindful I think your question is spot on.
Earnings as a consideration, but long term.
Earnings growth is also a consideration.
Okay got it.
Then you mentioned in the release the non controllable on Reimbursable expenses I guess can you walk through exactly what that is.
Are there any quantification you can give as to how much that picks back and thats affecting overall expense growth.
Yes. This is Ralph.
So the non reimbursable losses, the reference to that was particularly.
In regard to the non same store portfolio, where we've seen more incidents.
In the third quarter as well as at the beginning of the fourth quarter overall, I think just the impact of those incidents.
Would be about 400000 or a couple of pennies.
That would impact the core <unk> guidance as you kind of think about it on a full year basis.
Okay. Thank you.
Thanks, Pat Thanks, Brett.
Okay.
Thank you. Our next question comes from John Kim from BMO two markets. John . Please go ahead.
However, one Robin, England here with BMO capital markets.
One of the graphs are building blocks of 23.
What's the current loft leaves an earn in and could you perhaps walk me through how you calculate earnings.
Yes, good could.
Could you say the last part of the question against that what's earn in and what was the last part of the question.
Yes.
It appears to have differently just wanted to ask if you can walk them through all your calculated I guess Vernon.
Yes, I can take that part first I mean overall when you look at the loss to lease and we're modeling all of our leases as they kind of come up for exploration. So.
Pending on whether its being renewed or we're kind of rolling into a new lease.
We were just assign the market rent at that point.
Depending on whether we believe thats being renewed or it's a new lease we roughly use about 50% renewal rate and thats, how we kind of.
Run that through the model.
And with respect to the loss to lease.
I mean as of September it was at about six 5% to 7% we've captured a lot of that loss to lease as we kind of went through the summer months, but the market around kind of keeps changing so as we kind of try to project out 2023, we run a curve based on seasonality and that would be expected to increase.
As we kind of enter the summer months.
And this is again given that we still have a pretty significant non same store portfolio. If we look at the whole portfolio. The last release is closer to 8% that six five to seven is on same store only.
Okay.
Okay.
Looking at repairs and maintenance.
What were some of the major driver for the increase cost did perhaps turnover have an impact.
Okay.
And you want to take that.
Yeah sure. Thanks.
<unk> turnover was one of the main drivers of our <unk>.
Our overall expense increase.
R&M separate then turnover is also a big driver of what we're seeing there is really.
Increased costs related to skilled skilled trades and specialized services like pool.
Cool servicing HVAC plumbing.
We have we operate in very tight labor markets and this is a lot of demand we have over 40% of our leases turning and so when we look to our vendors. It's a lot of work for them and and they're having trouble finding staff and costs are increasing really pretty significantly on the repairs and maintenance side. Another driver that we're seeing.
Is security cost.
Particularly in our urban assets, we've increased security as a way to enhance the resident experience and really make sure that we can keep our lease.
Rates rising and retain our residents. So we are seeing some increased costs on the security side and repairs and maintenance.
Okay, and just given the higher turnover at Airbus is there anything that stood out as far as move outs move out reasons.
Yeah. The largest reason that we see for move outs is relocation.
That's really outpaced buying a home, particularly in the third quarter.
There are we did have a pretty significant amount of move outs, a little bit over 5% of our move outs were eviction related.
If you recall, particularly in Minnesota, we have now.
This year was the year the eviction moratorium came off and also all rental assistance has now dwindled and tapered off and so we have seen a pretty significant amount of addiction related move outs. Those typically do drive turnover cost as well because those units are usually not in very good condition, we have a lot of dam.
Write offs related to those and also we saw a pretty big spike in legal fees connected to those evictions and in the third quarter in particular.
Okay. Thank you for the color.
Thanks.
Thank you.
Next question comes from Rob Stevenson from Janney Montgomery. Please go ahead.
Hey, good morning, guys and can you.
Talk about your ability to contain utility costs as the weather gets colder how successful you guys been in.
Sub metering, Rob's et cetera, and what's your have you guys hedged on gas prices and stuff like that.
Yeah, I can and then maybe Brian can talk a little bit about how we're looking at utility costs and potential of the hedge.
We have broad across our portfolio. However that is water sewer gas and common area electric we had not included and rubs.
<unk> costs are gas cost historically, however that is being rolled out across the portfolio. Now. So you know there there's always a trade off there we operate in a lot of markets, where it's not common to have rubs at all much less not include heat in the rent so.
We are rolling that out right now in new leases starting in November we will see the renewal leases come on so as we work through 2023, we think that there's going to be.
A much less impact on increased utility costs and also an enhancement to our other revenue line as we offset those but for this year you know that takes time as we go through the lease role and given that we.
We ramped that up this year and are starting it now we really won't see those full impact until 2024, but arps.
We're planning on doing everything we can to bring those down.
Enter into 2023, Rob do you want to comment on the hedge.
Yeah, I mean I think.
You know as we kind of think about controlling utilities cost I mean, the most effective strategy is what and laid out in terms of being able to pass some of these along in certain markets. We aren't we are not able to hedge it just based on the regulations in place in those markets, but mostly.
As we kind of think about.
Utilities.
Offsetting it with.
Passing it down would be the most effective strategy plus hedging in this environment with volatility being where it is even if we were able to hedge the cost of doing so would be extremely high in this environment. So that's something that we can evaluate but it's unlikely that it's something that we will be able to.
Implement in the near future.
Okay, and then are you guys seeing any absent the eviction stuff, which probably you have been on your radar screen for a while but are you seeing any uptick in normal delinquencies and bad debt throughout the portfolio or in certain markets.
Generally no I mean, and you wanted to give some detail on that.
Yeah, I would say generally no in fact, I think where we're fairly pleased with the way that our delinquency and has come down.
Post Covid and really feel like we're returning to kind of pre pre COVID-19 levels.
Our income.
Continue to be very high on our new applications across the portfolio and so those rent to income numbers are good we feel really good about the credit quality of our of our tenants.
Okay, and then last one for me any changes on returns or.
Volume of redevelopment that Youre planning on doing here given some of the cost pressures that you've talked about on the repairs and maintenance I assume thats flowing through redevelopment as well.
The returns that you need to get there or want to get there or is it.
Situation, where you put a pause on that how are you guys thinking about the redevelopment process.
And you want to take that one.
Yeah I can.
I think our thought on redevelopment as we want to remain nimble. So we are constantly looking at as costs rise as you know unforeseen circumstances happened during those projects what the rental rates are how it's impacting vacancy how you know how long, it's taking to renew those units and our go.
Paul is to be able to kind of turn it on and off as as the market will bear it so.
So I do think that going into next year, we're going to really have heightened scrutiny on whether or not we can continue to get the premiums.
We feel very good about the project you've undertaken year to date.
And what has been completed this year in fact during 2022, we did kind of accelerated a couple of our projects and with non renewals and you know really took back a lot of units, which had about a 60 basis point impact on our overall occupancy in the third quarter So right.
Now, we feel really good about it but with the cost of capital where it is and also the potential for some moderation of overall market rent growth I think we're gonna have to be very careful headed into next year. We have very good plans in and great underwriting that we feel good about that that that underwriting can change quickly and we wanted to be.
Well to change with it.
Okay. Thanks, guys I appreciate it.
Rob I'd just add on top of that if you think about work from home and folks can't buy a house that maybe they were planning and <unk>.
Rents going up everywhere, so perception of value the value add tends to still work, but it is something we're looking at carefully.
Across the board as an outline.
Okay.
Thanks, guys.
Thanks, Rob.
Thank you.
Our next question comes from Colin Mitchell from Piper Sandler. Please go ahead.
Hi, good morning, Thanks for taking my question.
Two questions. The first one relates to the repairs and maintenance.
You guys mentioned that it's pretty tight labor market. So are there any additional steps you could take maybe break in outside.
Outside teams other.
Then or outside of your markets to maybe help with the labor pressure and.
Helped by the cost a little bit or any other steps you can take to lower the repair basis cost.
Yeah.
Yeah, I'll start and maybe you can tack on but I would say.
Generally.
In particular in the mountain West you just have more.
I would call them.
Islands for labor. So if you think about let's say Dallas versus Denver, I mean, one Dallas has 10 million people in it in two.
If you draw a circle or a four hour drive around Dallas you're into several other large metros. If you do that same thing in Denver.
Your you can't find another similar sized city and that would get worse. If you wanted to say rapid city or billings, which are our other two mountain west market. So.
I think the difficulty in labor there is.
I mean, those are super tight markets on an absolute and relative basis and it's exacerbated by.
Some of those kinds of factors, but.
So I would just ask you to consider that but with that and why don't you.
To elaborate please.
Yeah, we actually have used labor from other markets to try out travel into excuse.
Excuse me into markets, where we're having difficulty, particularly on the value add side, we might use a contractor for one of our la and team from one of our larger markets and send them to the smaller markets simply given the cost pressure that that's less expensive to do than higher end market. So that is something that we look at it as a way that we have been able to either.
<unk> get large projects accomplished which otherwise may not have gone forward and reduce costs across that but you know our vendors and contractors are having the same issue with labor that I think everyone is which is very hard to find skilled workers.
And a lot of the R&M costs are related to things like you know we talked about plumbing.
Hello maintenance HVAC. So specialized services are there's a really high demand on those and we've seen costs in those area you know really skyrocket.
Okay I appreciate the color and then my second question is for the current use of capital.
Hey, you guys mentioned, some acquisitions now maybe tough to potential with the rising rates. So should we expect any further acquisitions or maybe turn to additional stock buybacks or other uses of capital.
Yeah, So I guess, a couple of thoughts on that counter first.
We're clearly headed I mean.
Discovery is a very real an evolving thing and that's driven by really.
Pretty significant lack of volume in.
If you think about how.
Assets are sold in the apartment space I mean, a lot of them are kind of flow oriented. So funds have timelines what have you most of that flow oriented business is gone.
And it's really about situational.
Deals, where there is some sort of circumstance or situation that would cause someone to sell right now because while there's a lot of capital on the sideline, it's all kind of waiting and seeing.
So I think what that means is there will be some interesting situations where someone's.
Inclined to do this inclined to go to market.
And those might be good opportunities to take advantage, but theres not going to be I don't think a lot of volume at least not in the next little while.
What is coming out for sale I mean, we're seeing what we think are pretty good prices.
You went into like Rumpelstiltskin mode, and just fell asleep in 2017, and I told you those prices they would feel great and they would probably feel high but relative to where we've been the last few years.
They are off quite a bit 75 to 100 basis points, probably so.
I don't think it's the case that multifamily is going to start trading at seven caps because long term capital is currently trading.
Fetching six's.
Because there's just too much capital out there and this is a relatively good asset.
When you are considering alternatives and if you are a believer in inflation, which which I am and I think our numbers would evidence that it's real.
So answer to your question.
We're going to be as opportunistic as we possibly can be and we're going to really.
Mind, our balance sheet, which which was in great shape coming into this and we hope to exit in great shape as well.
Okay. That's helpful. That's all for me. Thank you.
Thanks.
Thank you. Our next question comes from Wes Golladay from Beth West. Please go ahead.
Hey, good morning, everyone do you have any plans for dispositions to lock in this arbitrage I know you said the market is not quite as robust as it now with the public equity versus private is probably still a pretty wide gap and then the second part of the question is with that mindset that inflation is high and is likely to remain higher are you going to look to permanently finance.
Turns out that line of credit.
The simple answer to the question is yes to both but.
To elaborate a little bit.
Yes, I mean, we're looking we look every quarter at our assets.
And we really try to.
Discern what we think long term capital expenditures are going to be and kind of look at and after everything cash flow.
And it is often the case that a newer asset like lira might look quite attractive and that was just completed in April versus some of our older properties.
Which might have a much higher stated cap rate, but a much lower kind of after everything tax or cash flow.
And it's also the case that some of those assets might trade at cap rates that are that are pretty high and can get.
Neutral or positive leverage so when we consider <unk>.
Some of our older assets it might be the case that that that works well for us. So yes were evaluating that we'll continue to evaluate that.
And I would also expect us to put on.
Some longer term financing for lira and candidly it won't be as exciting as I thought it would be because when we agreed to price on that asset.
We were looking at 10 to 12 year money in the high fours call at four and three quarter range and today that money.
From the agencies is probably mid fives, plus mid five to six and it changes every day, because treasury is moving around and the unsecured market, which would be our favorite market is is kind of priced.
Priced out of priced in a way that would discourage you from going so I think for us unsecured capital today would be.
Yeah.
Mid sixes and Thats, if you look at the rated.
Investment grade rated.
Multifamily bonds there.
And the mid sixes. The ssrs are low to mid sixes. If you look at kind of UDR to <unk> and.
And we would be off of those so.
All of that would probably drive us to the secured market.
And I would expect got it yes.
Fixed some debt there.
Got it okay, Yeah, and I think this move quite a lot of the soft guard.
And we've got to go back to the non controllable unreimbursed full expenses. This quarter do you have typically every year I guess, what's the delta that is truly abnormal when you look to model next year, we should probably look to take out some of that 400000 and then on the other revenue once again, it's a little bit outsized. This quarter can you elaborate what's going.
On there and what should we not pull forward to the next year's model.
Sure.
I'll take that on.
On the unreimbursed losses again as I said.
Those were on the.
Non same store portfolio, the $400000 number that I quoted and that truly seems to be.
Over than what we had expected so truly.
No unexpected on Reimbursable losses, driven by incidents in that non same store portfolio.
Coming back to your question on revenue.
This quarter. In addition to the scheduled rent growth, we've seen growth across all the categories.
Collections are much better and alluded to a much more normalized collections.
Right that we have hit upon in the third quarter and overall year to date, so that contributed.
Back to the revenue increase year over year last.
Last year in the same quarter, we actually had lower collections. So that's driving the year over year increase.
Concessions are have been lower that's also driven some of the year your year over year increase in other revenue is higher but some of it's driven by rubs and on some of its driven by some door fees and revenue sharing agreements W signed.
And <unk> had higher application fees and administrative fees and all of those things that are driving other revenue as well in the third quarter.
Got it thanks, everyone.
Thanks Ross.
Yes.
Thank you.
One more and just ask a question. Please press star one.
Pat.
Our next question comes from Buck Horne from Raymond James. Please go ahead.
Hey, Thank you very much I appreciate it good morning.
I guess mark.
I'm still struck on.
On the acquisition timing, a little bit and I guess my question is really kind of why now on lira and kind of also why now on stock repurchases. When there's a lot of signs out there that rent growth is decelerating pretty rapidly at a market level, maybe more than just normal seasonality.
Year.
<unk> got a lot of recessionary type indicators flashing warning lights out there.
You said there is just a huge amount of.
Kind of price discovery, that's still evolving right now.
What gives you the confidence to kind of go ahead and go forward with Leer up.
And also to kind of lever up to do stock repurchases.
Yes, Im just kind of.
Wondering why now and was there something specific to the to the deal.
Good good question I guess, the truth of it is we will know the bottom in hindsight and.
We certainly weren't trying to call the bottom, but it is our goal to be inactive participant kind of throughout the cycle and.
This was a sub market, we really like in Denver and asset quality.
That we feel confident and we are.
No. This group, who built this well and looked at financing it on the front end.
So we like the asset and felt like we understood it very well and felt like we understood that there wouldn't be a lot of surprises who knows the risk when you buy something is.
You learn after you close, but so far so good on that score and <unk>.
And we were quite confident that the pricing had really moved from kind of earlier in the year now it may continue to move I.
I don't actually know I mean, there's a whole lot of equity out there kind of in wait and see mode and my guess is though.
If you have lots of negative leverage youll use less leverage and theres lots of buyers out there that can do that.
So why now was we like the asset we like to sub market. We felt great about it candidly, we would have locked the price the pricing of our debt better and it wouldn't have been.
Dilutive as it currently is.
But.
We're not really playing in 90 day game, we're playing a multiyear game and on that basis. This made a lot of sense I'd say similar on the stock I mean.
We have a view of what our NAV is.
We update that quarterly we talk about it nearly daily.
And.
We have confidence in the business and believe that over the long term.
These assets are worth more than we're currently paying for them. So.
Okay.
Appreciate that sort of why now.
I appreciate that very much just a couple of quick follow ups.
On an as the portfolio stands today and with some newer assets. How do you think about the recurring capex run rate of the portfolio of now it looks like.
Our capex was still elevated even with R&M.
R&M and turn costs also growing up.
Is there a higher level of capex to expect out of the portfolio or where do the newer assets kind of bring down that run rate.
Yes and no.
As you know we added that older portfolio, the <unk> portfolio, which has been.
Ah well has worked very well relative to how we expected from a cash flow perspective, those are very old assets that have real capex needs and there'll be in the same store next year. So.
When you think about what we've talked about over time.
In particular with respect to NOI margin with shrinking that capex and lowering the age of portfolio.
Just mathematically the reality is kms is.
Is a bit of a step back there now are other goals our distributable cash in <unk>.
Patiency of the enterprise from a G&A and property management perspective so.
We're serving a lot of masters there but.
But I think and Rob can probably comment in detail, but the capex affiliated with KMF coming into the same store pool will certainly overwhelm.
The other assets, we bought the min three assets Newco and obviously lira are all built in the last five years. So they should have relatively low capex in the near term, but but the kms 2700 units. So.
Holmes and plus we have budgeted some acquisition capital.
This portfolio. So as you look at same store capex year over year as we enter into next year with <unk> in the portfolio. Some of it will be covered as part of acquisition capital. So the run rate Shouldnt go up materially as we kind of start spending some of those acquisition capital, yes that number was $40 million. So.
Which we've gotten less of it out this year than we than we planned because it's been hard to get work schedule.
Got it got it very helpful guys. Okay. Thank you very much.
Thanks, Bob.
Thank you we now have a follow up question from perhaps some sense with RBC capital markets. Please go ahead.
Hey, Thanks for the follow up I was just curious and if you had any leasing stats and the occupancy numbers that you could get for October .
Yeah, not not quite yet I mean, we did see I will say, what I'm seeing so far as we call. It out October and get the final documentation into the system as you know.
It's still really strong renewals, we did we have seen you know.
Seasonal drop off in traffic, we were down <unk> <unk> from <unk>.
Against this September .
Close to 20% and traffic again into October down about 15% in traffic that is absolutely completely normal for us and what we're seeing is just routine seasonality. There. So what we're expecting given some of the preliminary October numbers is that the new lease rates are going to come down they always do in the fourth quarter.
<unk> and that the renewals will remain strong for the first couple of months.
Okay. Thank you.
Thanks, Brad.
We call rehab notice to ask a question. So I'll now hand, you back over to Mark Decker for closing remarks.
Super Thanks, well, we appreciate everyone's continued interest in the company and albeit NAREIT in San Francisco in a few weeks and hope to see somebody there. So thanks very much everyone.
Have a good week.
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Today's call. Thank you for joining you may now disconnect your lines.
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