Q4 2022 Avalonbay Communities Inc Earnings Call
In April we raised approximately $500 million of forward equity at a spot price of $2 55 per share which is still fully available.
As the year progressed, we pivoted from our original expectation of being a $275 million net buyer to ending the year is a $400 million net seller a shift of roughly $700 million in total.
We also ratcheted down new development starts given the shifting environment.
The $730 million from our original guidance of $1, one 5 billion.
Collectively these moves put us in an extremely strong liquidity position and fully match funded with capital secured for all of the development we have underway.
We also made significant progress during 2022 on our strategic focus areas three of which I want to highlight today.
First as detailed on slide five.
We continue to make very strong inroads on the transformation of our operating model.
Captured approximately $11 million of incremental NOI from our operating initiatives in 2022.
In 2023, we're projecting an additional $11 million of incremental NOI from these initiatives and looking further out expect meaningful contributions in 2024 and beyond.
This uplift is being driven by a number of initiatives, including our Avalon connect offering which is our package of seamless bulk internet and a new developments managed Wi Fi, which we have now deployed over 20000 homes and expect to be at over 50000 homes by the end of 2023.
During 2022, we have revamped our website and fully digitized our application in leasing process, what used to take 30 plus minutes of associates' time can now be completed digitally in about five minutes.
We also rolled out our mobile maintenance platform across the entire portfolio, allowing our residents and maintenance associates to interact much more efficiently and seamlessly.
As a result of these initiatives. We believe we are enhancing the customer experience, while also driving operating efficiencies, which over the past few years has resulted in a roughly 15% improvement in the number of units managed per onsite FTE.
Turning to slide six as a second strategic area, we are focused on optimizing our portfolio as we grow.
Our goal is to ship, 25% of our portfolio to our six expansion markets over the next six to seven years and.
In addition to diversifying our portfolio. This shift reflects the reality that more and more of Abb's core customer knowledge based workers are increasingly in these markets.
At the end of 2022, including our development currently underway, we increased our expansion market exposure to 7% and subject to the capital allocation environment. This year, we expect to be at 10% by the end of 2023.
We are funding a large portion of the shift through dispositions and our established regions, which also allows us to prune the portfolio of slower growth assets <unk>, those with higher capex profiles, which should lead to stronger cash flow growth in the portfolio in the years ahead.
Our third strategic focus area has been on leveraging our development expertise in new ways and in ways that drive additional earnings growth.
More specifically as detailed on slide seven.
Standing our program of providing capital to third party developers, primarily as a way to accelerate our presence in our expansion markets in 2022 and this included a project start in Durham, North Carolina, and a new commitment in Charlotte.
During 2022, we also successfully launched our structured investment business with over $90 million of preferred equity or mezzanine loan commitments made during the year. We believe that both of these programs will be increasingly attractive to third party developers in 2023. We're also fortunate to be building. These books of business now at today's economics and basis.
Versus in yesterday's environment.
Before turning it to Kevin to provide the specifics of our 2023 guidance I want to provide some additional context on our underlying economic assumptions for the year.
From a forecasting perspective, we are overlaying the consensus forecast from the National Association of business economists or nabe on top of our proprietary sub market by sub market research data and model the.
The name consensus assumes a significant slowing in job growth during the year down to about 50000 jobs per month by the third quarter and a total of approximately $1 million of net job growth in 2023.
Output of our models is a forecast of market rent growth of 3% during the year.
And a year in which we will need to be prepared for a wider set of potential outcomes unusual there are a number of attributes of our portfolio and particularly our concentration in suburban coastal markets that we expect to serve as a ballast in a potentially softening economic environment.
As shown on slide eight the cost of a median priced home relative to median income in our markets continues to serve as a barrier to homeownership and support demand for our apartment communities.
This is in addition to the repercussions of today's higher mortgage rates, which make the economics of renting significantly more attractive.
Other side of the equation of supply and softening times have an existing asset that is in direct competition with our recently built nearby project and lease up can be particularly challenging our portfolio has some of the lowest levels of directly competitive new supply across the peer group at only one 4% of stock, which we believes physicians as well and with that I'll turn it to Ken.
To detail our 2023 guidance.
Thanks Ben.
On slide nine we provide our operating and financial outlook for 2023 for.
For the year using the midpoint of guidance, we expect five 3% growth in core <unk> per share.
Driven primarily by our same store portfolio as well as by stabilizing development.
Our same store residential portfolio, we expect revenue growth of 5%.
Operating expense growth of six 5% and NOI growth was up 4% quarter percent for the year.
For development, we expect new development starts are about $875 million. This year, and we expect to generate $21 million of residential NOI from development communities currently under construction and undergoing lease up during 2023.
As for our capital plan.
We expect to fund most of this year's capital uses with capital that we sourced during last year is much more attractive cost of capital environment.
Specifically, we anticipate total capital to uses of $1 8 billion in 2023, consisting of $1 2 billion of investments, then and $600 million in debt maturities.
For capital sources, we expect to utilize $550 million of the $613 million in unrestricted cash on hand on hand at year end 2020 to.
$350 million of projected free cash flow after dividends.
And $490 million from our outstanding forward equity contract from last year.
This leaves only $400 million in remaining capital to be sourced, which we plan to obtain primarily from unsecured debt issuance later in 2023.
From a transaction market perspective, we currently plan on being a roughly net neutral seller and buyer in 2023 with a continued focus on selling communities in our established markets buying communities in our expansion markets, while being prepared to adjust our transaction volume and timing in response to evolving market conditions.
On slide 10, we illustrate the components of our expected five 3% growth in core <unk> per share.
Nearly all of our expected earnings growth of 52 per share is expected to come from NOI growth and our same store and redevelopment portfolios, which are expected to contribute <unk> 50 per share.
Elsewhere NOI from investment activity and from overhead JV income and management fees are expected to contribute <unk> 19, and <unk> <unk> per share respectively, while being partially offset by a headwind of <unk> <unk> per share each from capital markets activity and from higher variable rate interest expense, resulting in an expected <unk> <unk> per share net earned.
Growth from these other parts of our business.
On slide 11, we show the quarterly cadence of apartment.
Deliver deliveries from development communities under construction for 2022 and on a projected basis for 'twenty three and 'twenty four.
As you can see on this slide new deliveries declined in 2022 and remain relatively low as we begin 2023.
This recent decline in deliveries was due to our decision during the early days of the pandemic to reduce wholly owned development starts to $201 million in 2020 before resuming higher levels of development starts thereafter in 2021.
As a result development NOI for this year is expected to be below trend at $21 million versus $42 million last year.
However, new developed new deliveries are expected to increase significantly later in the year and into next year, which should set the stage for more robust NOI growth from development communities next year.
And with that summary of our outlook I'll turn it over to Sean to discuss operations.
Alright, Thank you Kevin.
Moving to slide 12.
<unk> of our operating environment. After a very strong first half of the year. We ended 2022 with several of our key operating metrics, including occupancy availability and turnover.
Trend into what we consider more normal levels.
In addition, following two years of abnormal patterns, Brent seasonality returned with peak values being achieved during Q2 and Q3 before easing in the back half of the year.
More recently the volume of prospective renters visiting our communities increased in January as compared to what we experienced in November and December which translated into a modest lift in occupancy and reduce the amount of available inventory to lease as we entered February .
Additionally, asking rents have increased about 100 basis points since the beginning of the year, which is beginning to flow into rent change.
Based on signed leases that take effect in February we're expecting like term effective rent change to be in the low 4% range.
Turning to slide 13, the midpoint of our outlook reflects same store revenue growth of 5% for the full year of 2023.
Growth in lease rates is driving the majority of our revenue growth for the year, which includes three 5% embedded growth from 2022.
An expectation of roughly 3% effective rent growth for 2023.
Which contributes about 150 basis points to our full year growth rate.
We expect additional contributions from other rental revenue, which is projected to grow by roughly 16%.
Two thirds of which is driven by our operating initiatives and modest improvement in uncollectable lease revenue and slight tailwind from the reduced impact of amortized concessions.
We're assuming the uncollectable lease revenue improves from three 7% for the full year of 2022 to two 8% for the calendar year 2023.
Of course, this improvement is more than offset by a projected $36 million reduction in the amount of rent relief, we expect to recognize in 2023.
The combination of the two reflects a projected 80 basis point headwind from net bad debt for the full year 2023.
Okay.
Moving to slide 14, we expect our east coast regions to produce revenue growth slightly above the portfolio average while the west coast markets are projected to fall below the portfolio average and our expansion markets are projected to produce the strongest year over year revenue growth for the portfolio.
I want to highlight is the reduction in rent relief will have a more material impact on our reported 2023 revenue growth in certain regions and markets for example of southern California in Los Angeles.
We have footnoted, the projected impact for each region at the bottom of slide 14.
And enhanced our disclosure in the earnings supplemental so everyone has visibility into the impact of the change in rent relief as compared to underlying market fundamentals.
Turning to slide 15 same store operating expense growth is projected to be elevated in 2023 due to a variety of factors. The first is just the underlying inflation in the macro environment, which is impacting several categories, including utilities wage rates et cetera.
Second we're expecting greater pressure on insurance rates, given the increase in the number and severity of various disasters over the past couple of years combined with a relatively light year of claims activity in 2022.
Rolling all of that cost pressure into the organic growth rate of four 8% you see in the table on slide 15.
In addition to the organic pressure in the business about 170 basis points of additional operating expense growth is coming from the phase out of property tax abatement programs, primarily in New York City.
NOI accretive initiatives.
The phase out of the property tax abatement programs is projected at about 70 basis points to our total operating expense growth for the year, while we'll generate some incremental revenue during the phase a period the ultimate benefit will be the extinguishment of the rent stabilized program for those units and a particularly challenging regulatory environment.
The impact from initiatives reflects a few key elements of our operating model transformation, including our bulk Internet managed Wi Fi and smart access offering which has been referenced as bundled and marketed as Avalon connect.
While we expect to recognize an incremental $5 million profit from that specific initiative in 2023.
Adding about 150 basis points to opex growth for the full year.
There's a modest impact from our on demand furnished housing initiative, which is also generating a profit for 2023.
And finally, we expect additional labor efficiencies to offset some of the growth in other areas of the business.
As we continue to digitalize and centralize various customer interactions.
And then if you move to slide 16, you can see the progress we've made to date for each one of these three initiatives and the projected incremental impact for 2023.
As I mentioned, our Avalon connect offering is projected to deliver about $5 million in 2023.
Housing is contributing another $1 million and our digitalization efforts are projected to generate an incremental $5 million benefit in 2023 in aggregate, we're expecting an additional $11 million in NOI from these three strategic priorities in 2023 with a lot more to come in future years from these initiatives and others now.
I'll turn it to Matt to address development.
Alright, Thanks, Sean.
Just broadly speaking development continues to be a significant driver of earnings growth and value creation for the company.
At year end, we had $2 4 billion in development underway, most of which was still in the earlier stages of construction and.
The projected yield on this book of business is five 8% and it's worth noting that our conservative underwriting does not include any trending in rents, we do not mark rents to current market levels until leasing is well underway on this quarters release only four of the 18 projects underway reflect this mark to market.
But those four are generating rents $395 per month above pro forma which in turn is lifting their yields by 30 basis points.
We expect to see similar lift at many of the 14 other deals as they open for leasing over the next few years and of course. This portfolio is 100% match funded with capital that was sourced yesterday's capital markets when cap rates and interest rates.
Were significantly lower than they are today.
If you turn to slide 17, we do expect roughly $900 million in development starts this year across seven different projects with roughly half in our new expansion regions and we will continue to target yields at 100 to 150 basis point spread over prevailing cap rates. We expect the majority of this start activity in the second half of the year and are hopeful that.
We will be able to take advantage of moderating hard costs across our markets. As these budgets are finalized we have started to see early signs of this in a few of our latest construction buyouts as selected trade contractors have become much more motivated to secure new work as always we will continue to be disciplined in our capital allocation and our projected start activity could be.
Significantly from our current expectations, depending on how interest rates asset values and construction costs all evolved over the course of the year.
Turning to slide 18, while our recent start activity has been modest we have been building a robust book of future opportunities that could drive significant earnings and NAV growth well into the next cycle. We've increased our development rights pipeline to roughly 40 individual projects balanced between our established coastal regions and our new expansion regions.
Providing a deep opportunity set across our expanded footprint.
Are these development rights are structured as longer term option contracts, where we're not required to close until on the land until all entitlements are secured in addition in the current environment. We're certainly seeing more flexibility from land sellers, who are willing to give us more time as costs and deal economics adjust to all of the changes in the market. We continue to control. This.
The business with a very modest investment of just $240 million, including land held for development and capitalized pursuit costs as of year end for historical context as shown on the chart on the right hand side of the slide this is a lower balance than we averaged through the middle part of the last cycle from 2013 to 2016, even though the dollar value of the total pipeline.
Trolls is larger today than it was providing tremendous leverage on our investment in future business.
And with that I'll turn it back to Ben for some closing remarks, thanks, Matt to conclude slide 19, recaps our successes during 2022 and highlights our priorities for 2023. All of this is only possible based on the tireless efforts of our Avalon Bay Associate base 3000 strong personal thank you to each of you for your dedication.
<unk> been making Avalon Bay, even stronger as we continue to fulfill our mission of creating a better way to live you are the heart and soul of our culture and we thank you for that I'll turn it to the operator for questions.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.
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Our first question comes from the line of Nick Joseph with Citi. Please proceed with your question.
Thanks for the call presentation that is always helpful. As a lot of additional info.
We always appreciate that maybe.
Maybe just starting on development in the transaction market you mentioned, the 100 to 150 basis point spread.
Can you quantify expected yields on the 23 starts.
What's the current transaction cap rates are you seeing any of your markets.
Sure Hey, Nick it's Matt.
As Im sure Youre hearing from others as well not a lot is transacting in the current environment.
So there is I think everybody is kind of interested to see how the transaction market evolves over the course of the year.
What is trading seems to be trading in call. It the mid to high four cap.
Mid to high 4% cap rate range, depending on the market.
And there are certainly assets that are not trading, but as best we can tell that's kind of where.
Most transactions in our markets seem to be settling out today.
And just as a point of reference the development, we expect to start this year those yields are underwriting to around a six low sixes today. So that's very consistent with the spread.
Right and very solidly in that 100, 150 basis point range that I mentioned.
Thanks, that's helpful. And then just on the I guess, we continued reallocation of that capital into these expansion.
Region.
Do you expect any difference in cap rates between the buys and sells.
That capital this year.
Where should we expect any asset sales to occur.
<unk> established market.
Yes.
I would say if you look back at what we've done over the last four or five years, we have rotated quite a bit of capital.
And it is kind of overweighted to the northeast and I think you can expect that to continue.
There will be continued asset sales out of the New York Metropolitan area, a little bit out of Boston and some out of the mid Atlantic and then selectively little bit on the west coast as well, but predominantly that kind of that northeast corridor.
The cap rate spread.
We will see I would say that that cap rate spread is probably tightened over the last year or two because there's probably been more movement in cap rates in the regions, where we are buying.
In the regions, where we're selling and Thats just because those were the regions that had more embedded growth in the rent roll and lower cap rates, a year or two ago that so as interest rates have risen basic.
Basically a lot of the markets, where we're selling the buyers were already kind of buying for yield as opposed to growth. So there's probably been a little bit less adjustment there side I think there might be a little bit of dilution, but I would say probably less than what we've seen in the last couple of years and then the other part of it is tactically we have shifted from kind of <unk>.
And then essentially doing a reverse exchange by picking an asset off the bench to sell to fund that mid last year, we shifted our tactics there to sell first so that we knew where that disposal pricing and then that in turn informed our view of how much we are willing to pay on the buy side. So we've shifted to a sell first by second.
And Nick in terms of the environment today, just want to make sure you have the right expectations for activity now versus later in the year, we're testing the market with a couple of potential asset sales generally on the sideline on acquisitions until we see how those assets one if we decided to trade on them and how the pricing is and then.
We will evaluate the potential trade into the expansion market through other acquisitions or potentially use those proceeds.
For other for other capital allocation decisions.
And those ones being catheter in the northeast.
They are one one in the northeast and one in the mid Atlantic.
Thank you.
Our next question comes from the line of Steve <unk> with Evercore. Please proceed with your question.
Yes. Thanks, good afternoon, I guess on page 13.
Kind of break out all the drivers of growth I was just hoping you could maybe tell me the areas, where you have kind of had the most confidence in the least confidence where there could be upside downside and if you also think about that by region.
Areas are you thinking there could be upside in your forecast and potential downside.
Yes, Steve This is Sean I'll take that one so in terms of upside and downside first across the various categories.
Reflected on slide 13, just a.
Couple of things I would point to first is.
The lease rent side as Ben mentioned.
We have a certain macroeconomic assumption job growth income growth et cetera, that's reflected in our models from nave to thrive.
Obviously to the extent that.
We see either more or less improvement in the economic environment, that's going to have an impact on that and then the timing with which that occurs. So if we don't see much of an impact in terms of a decelerating macro environment until late this year that it really would impact more 'twenty four 'twenty three and then as it relates to.
To the other areas I'd, probably point to bad debt has really been one of the other components that I think we're all trying to estimate the likely impact of what we.
We're going to see in certain markets.
But it is one of those items that is a little more challenging to forecast.
In the year at roughly three 1%.
Underlying bad debt here, and we expect to get down to about two 3% by the end of the year in terms of the pace of improvement and more of the improvement in the second half than the first half just given.
Some of the issues in leg and some of the sluggishness in the courts in the northeast.
The other thing I'd point to is a category that would likely move the needle one way or another depending on how things unfold there could be some upside there.
While there has been some extensions recently like in Los Angeles County, the extensions are getting shorter and I think people see this as sort of getting to the end of the tunnel on us.
So at the margin, we've incorporated that but maybe it improves its hard to tell.
And then geographically.
I'd say certainly it's been more sluggish than the tech markets in Northern California, and Seattle as an example.
Maybe to a lesser extent here in the mid Atlantic in terms of the government not being back in the office and things of that sort.
So depending on how the tech market unfolds here that would be the likely impact.
In those regions and then the other regions, we're seeing strong performance out of New York City Boston.
Pretty good in southern California So.
Now as you look at it is probably I'd say, maybe a little more risk on the tech side of things really decelerate, but we do have some stabilizers in some of these other regions. So on par it probably is kind of a net neutral when you add it all up.
Okay. Thanks, and then just on development, maybe for Matt as you think about construction costs and what's happened with inflation and I assume that that's starting to moderate but how did that gets factored into the $900 million of starts and presumably the yields are somewhere in that six to six 5% range, how much youre going to.
But I guess, what kind of cushion or upside could you, possibly see.
And placing continues to moderate.
Yes, I guess, it's a question Steve of which slows down more hard cost of rents.
At this point, we think hard costs are moderating more so.
I would agree with you that.
Sure.
It's very hard to know where hard cost truly are today until you have a hard set of plans to bid and you're truly ready to start so what we're starting to see is on a couple of projects that we started in Q3 and Q4.
Once we actually start moving dirt and the subcontractor see the deal is real they are coming back with more aggressive pricing and we are starting to see some savings on the buyout, whereas a year or two ago, we were scrambling.
Number was going up a percent a month, that's definitely not happening and it is starting to move the other direction and its regional so it really does depend on the region, you're in and how much subcontractor.
<unk> there is.
So we've got something going on here.
But so but we.
Doing so we would expect.
That hard costs.
In many of the regions that we're looking to start business in over the next year or this year.
I would take the under on where theyre going to be relative to where they would've been say Q3 Q4 of last year and so what we mentioned at our starts are back loaded. This year. Some of that is just the natural evolution of these deals, but some of that is actually strategic as well on our part to say, we think it will have a better shot and it'll be a better environment to buy.
Some of these trades over the summer once they've.
Kind of felt the pressure of running out of work and starts decelerating pretty dramatically.
Great. Thanks, that's it for me.
Our next question comes from the line of Austin <unk> with Keybanc. Please proceed with your question.
Hey, good afternoon everybody.
Just going back a little bit to your comments on the capital recycling side I'm just curious how significant the volume of assets are on the market within your expansion markets that meet your underwriting criteria from a location quality perspective.
Also curious if that six to seven year timeframe you outlined.
That rotation into the expansion margins is that just a function of what you can sell in any given year.
Yes, thanks for that Austin, so on the on the transaction side as I mentioned and we're out in the market with a couple of assets for potential sale and where our transactions team is obviously staying close to the buying side of the market, but we're not currently actively underwriting any particular deals.
We do have very detailed market by market.
Analytics that are driving which submarkets.
Have our close eye on type of product across various price points. So once we're ready to.
And if during this year, we decided to get back into our trading activity will be ready to ramp that activity back up.
In terms of your kind of broader question.
<unk> time period, we've set the broad target of getting to 25% over the next six to seven years I think we've been making some good inroads over the last couple of years through trading through our acquisition activity and then increasingly through our development funding program.
We're hopeful that in <unk>.
Environment like this capital less abundant maybe some dislocation that there'll be opportunities for us to step in and potentially accelerate that activity.
Our cost of capital, obviously, we will need to be there to support that but we could be in a window. Later this year, where those types of opportunities start to present themselves.
Yeah. That's that's helpful. And then I'm also just curious with the available dry powder that you have exiting this year.
Curious, what's sort of the most development you'd be comfortable starting in a given year. As you guys highlighted you do have significant deliveries in.
<unk> 2024, which will accelerate the NOI contribution.
Just curious.
What kind of volume we could see you do maybe as you get into.
Next year and beyond if the environment.
Is sort of appropriate for accelerating starts.
Broad strokes Austin Guide you this is not a hard and fast.
Area, but in the range of 10% of our enterprise value that we want to have under under construction at a particular period of time, where light of that today and that's a reflection of that we have retrenched on development starts over the last couple of years.
Even given the operating environment.
Yes, we've got the opportunity that's there Matt described that so we have the pipeline we control that pipeline at a relatively limited cost spend.
We're spending a lot of time right now restructuring deals to our benefit because the land market has changed so that's there got a phenomenal team has been doing this a long time, so and element will be how do we think about the spreads right. How do we think about Matt was talking.
Rental the trend lines on rents relative to the trend line on costs, how do we think about maintaining a 100 150 basis points of spread to underlying cap rates and our cost of capital that will those will be the signals, where we start to lean in more fully.
Austin just to add this is Kevin here.
Obviously as we've talked about in the past the development activity in terms of what we started as a function typically are three variables the opportunity set our organizational.
The capacity and then our funding capacity and on that last point our funding capacity.
We're probably setup to be able to start and self fund through free cash flow.
Asset sales and leverage EBIT growth somewhere between 1 billion and $1 billion worth of development a year.
And of course, if the equity market is there we can flex that number up but thats, probably what we sort of aim for somewhere in the 1 billion 1 billion and a half from the funding side plus whatever we can Additionally fund from the equity markets today.
The opportunity set in the organizational capacity is also there.
But it's fair to assume with where leverages today that capacity may be a little bit greater.
Potentially if you can find yes, certainly from a leverage capacity standpoint, where as you know four five times net debt to EBITDAR target range is five to six times. So we certainly have borrowing capacity here to be to play offense quite a bit if we see opportunities in the development.
Side of the house or in the transaction markets of course, we all just have to look at sort of where the cost of debt is 4% to fund that activity and Fortunately, we have among the lowest cost of debt capital in the REIT industry and today, we could probably fund 10 year debt somewhere around four 7%. So that would be also a relevant factors, we think about the degree to which we want.
Lean into our leverage capacity to support additional investment.
Okay. That's helpful. Thank you.
Okay.
Our next question comes from the line of Jimmy <unk> with Goldman Sachs. Please proceed with your question.
Hi, Thank you for taking my question.
Sure Akshay for your structured investment program are you seeing any deals in the market that are in distress or might be in the need for capital.
And you know could be opportunities for you and then what gives you confidence in generating returns of 12%.
Yeah, I can take the first one I'm not sure I understood.
I heard the second one confidence in return.
Returns of 12%.
Okay, Yes, sure so yes, it's Matt here.
Are we seeing distress.
No, but we're not really in that market I would say in the sense that the site is really targeted at providing.
Mezz finance capital, either mezz or preferred equity for new construction and merchant builders building.
<unk> apartment communities in our markets.
No.
We're coming in at the beginning of the story when Theyre, putting together a capital stack to build the project and what we're seeing there is given where.
Interest rates have gone and given what's happened to proceeds there construction loan proceeds is coming down.
So developers are looking to fill that gap, where maybe they were getting $60, 65% construction loan before now they're only getting 50 or 55. So we have seen kind of our investment move from maybe 65% to 85% of that stack down to call it 55% to 70 or 75% and the rate has gone up and there are deals getting done.
And that 12% range.
There are folks out there looking for short term bridge money, who started jobs, two and three years ago and their first their construction loans are coming due and they don't have enough refi proceeds to pay that off and they're mez. So there is a little bit I have if I call that distressed, but theres, a little bit of a recapitalization of newly built asset opportunity.
You're out there that is not a market that we have gone to at this point, we're pretty much focused on the new construction side of this.
And in China.
Matt just to emphasize sort of the broader market and we do expect our capital through the through our <unk> to be more attractive to developers this year than it has been over the last couple of years, which inherently that means we're going to have the opportunity to be more selective about quality of the sponsor the amount of capital they are putting in our.
Views on the underlying real estate.
And we're not entering into these IP deals with the prospect of owning the assets at the end, but we do do very detailed underwriting to make sure that we're comfortable with the prospect of owning the assets if we need to.
Great.
Then.
Do you think about <unk> of headlines obviously January was a very big month.
We saw a big bump in layoffs in January and that was significantly higher than November , which obviously you know when you think about the impact of November December everybody, you guys talked about sort of see the slowdown, but then you talked about you know towards the end of January events.
Accelerated.
So as we think about the fact that we are only just coming off these headlines that keep hitting our screen every day. This morning, we saw from Disney.
You're seeing any early signs in your conversations with tenants you know be it around move outs or lease negotiations.
Any notices I mean, what gives you confidence that things are in sort of.
The right spot.
We are not looking.
Thanks, just falling off a cliff.
<unk>.
Yes, Jonathan that's a good question I'm not sure there is a noble answer to it.
I can tell you about what we're seeing but.
In terms of how it unfolds. Thanks, that's what everybody is trying to understand well what I would say, it's just based on the data that we collect from residents as it relates to relocation rent increase et cetera, et cetera, we're not seeing anything.
That's material at this point that would indicate that there is a.
Pick an issue underlying.
Yes.
The economy in some of the tech market so well.
Relocation has actually come down in terms of reason for move out.
Rent increase.
Is up a little bit, but not surprising rents have gone up quite a bit over the last 12 to 14 months.
So I don't think those are.
Indicators that are surprised us and there is nothing yet and the data that would tell us.
That there is a significant underlying issue now the question I think that a lot of people have is.
Sovran's unemployment et cetera, et cetera is that sort of supporting people for a period of time and they are in fact transitioning into new roles and other organizations and Theres a little bit of this sort of rotational effect from maybe some of the tech companies that.
Took on more employees.
Needed to during the pandemic another rotating into other organizations more mainstream corporate America, it's hard to tell all of that but we're not seeing anything specifically in the data and we're not hearing a lot anecdotally from our teams on the ground, saying that there is a significant issue there I was in San Jose last week speaking to our teams.
Talking to people on the ground and Theyre, just not seeing it yet the sandbox and the headlines are there in terms of layoffs, but it's not showing up in terms of the front door, yet so we're being proactive and some of those markets in terms of how we're thinking about extending lease duration I would look at lease termination fees and other things to hedge a little bit but.
Thus far it's not showing up in the data.
Excellent. Thank you.
Yes.
Our next question comes from the line of Adam Kramer with Morgan Stanley . Please proceed with your question.
Hey, guys.
I just wanted to ask about the same store expense guide.
I think we're really appreciate kind of the.
The deck overall, but anything specifically that slide in the deck kind of breaking out the different components, specifically on the tax abatements one degree.
Sure.
That's a one timer or if that's going to repeat.
In future years, and then again just trying to figure out what is kind of the proper recurring run rate kind of same store expense number to kind of use as a proxy.
Yes, Adam good question.
What I can tell you because things do change in terms of.
So we have in our portfolio, what we trade and sell out of etcetera, etcetera, but for the assets that are contributing to the phase out of the tax abatements in our 23 same store bucket.
One does phase out by the end of 2023 to phase out by the end of 2024 and then the other four extended out another two or three years.
So youre going to see a little lumpiness over the next few years and some assets slowly drop out of that that phase out now as I mentioned.
There are some benefits we get along the way in terms of an incremental fee each year of the phase out and then ultimately.
But people will consider us new yorkers are pretty challenging market.
Our regulatory standpoint, eventually will just get off that program at the end of the phase out and there should be a nice pretty nice lift there in terms of rents.
So that's sort of the way to think about it a little bit.
I can't give precise sort of guidance as to what to expect for years.
Years beyond 2024 in terms of what the headwind might be from that activity, but there will be some kind of headwind for the next few years.
That's really helpful. Thank you.
Follow up with your expansion markets, recognizing you know potentially better job growth. There I think that makes a lot of sense.
But just thinking about the supply the supply side of things right and look I think it's kind of well publicized Scott.
Market on belt broadly.
The supply call it maybe for the next 12 months or so.
How are you guys thinking through that is that kind of just to know whether the supply story, probably less supply on the other side given financing challenges today for kind of development starting today.
Others out there.
Or is it maybe the supply thing is overblown and you know actually the next 12 months is not going to have as much supply as people think.
Yes, let me handle at a big picture and others can add on the first comment I'd make our portfolio allocation objectives. These are long term objectives right. We're setting these because we think the appropriate.
Allocation to have over the next 20 to 30 years right not necessarily based on the.
The supply and demand dynamics out of the next couple of years with that said, we do expect the next couple of years and potentially with some reversion to the mean on the rent side and high levels of supply could lead to more muted growth in some of these high growth markets. We're fortunate we don't have any new deliveries were very limited deliveries coming online over the next couple of years. So.
Most of our activity that you hear us talking about including our own development, which we're now starting in our developer funding program. Those are projects that are going to be coming online in 2025, 2026, which currently looks like could be some lighter years from a supply perspective.
Yes.
One other thing to that which is we are conscious of sub.
Submarket selection as well as market selection as we build the portfolio in these markets. So if you look at I would point you to our Denver portfolio is a good example.
Been a great market our portfolio I think has been even better than the market and if you look at where we bought assets, it's mostly been suburban garden assets in jurisdictions, where it is more supply constrained theres a lot of supply in Denver, but the vast majority of it is within the city of Denver proper and we have not bought an asset in Denver, we completed.
Lease up development deal there in <unk> last year, and we have another one under construction, but we're balancing that out with with a suburban heavy acquisition strategy.
Thank you so much really appreciate all the time.
Our next question comes from the line of John Kim with BMO Capital markets. Please proceed with your question.
Thank you thanks.
Thanks for all the color and additional.
Disclosed uncollectable lease revenue.
It did strike us as surprisingly high in New York in Southeast, Florida, and I was wondering if you can comment on that.
This is due to affordability.
And could you see this potentially meaning high just given what's happening in the economy.
Yes, Josh Sean.
Yes, New York certainly has been high.
In certain pockets.
Even pre pandemic places like long Island took forever to get for the court process, So thats not necessarily a significant surprise.
As you might imagine the environment.
As relatively pro resident and friendly and so any opportunities I guess to sort of kick the can down the road for the court system.
We've generally seen that happened over the last 12 months 2014 months as I mentioned earlier I think a lot of that is slowly.
Coming to an end and things are opening up but it is moving slowly and you basically have the same phenomenon happening in Florida things are moving along obviously, it's not as kind of a pro tenant friendly.
Places like New York by any stretch.
Courts are back to US is a lot of cases that have just been on the docket for months and months and has taken time for things to move through the system at this point in time.
Just a bunch of longer than average so in terms of yours or particular reason in Florida, I wouldn't say necessarily that the case, it's a market that has had a higher bad debt historically.
So we're not necessarily surprised by that.
And John from an overall portfolio perspective.
You know this but just for the broader audience.
Pre pandemic right our traditional bad debt number was in the 50 to 75 basis point range.
So still have significant runway from the types of figures, we're assuming for this year over the next couple of years. It may take a while given shawn's comments, but we're hopeful we'll be headed in the right direction.
Okay. My second question is on page 11 of your presentation you show the NOI contribution from development completions, which.
Which is very helpful. I'm just curious why you estimate that 23 NOI will be about half of last year, just given the if you look at the first half of this year and deliveries for example last year. So it looks about the same.
Yes, John this is Kevin I'll take a crack at this others may want to.
Chime in essentially as you build out.
The mall for forecasting.
<unk> from <unk>.
Communities undergoing lease up obviously you have to start with when we began to put shovels in the ground.
And as I mentioned in my opening remarks, we did start to ramp back up in 2021.
And usually most developments take eight to 10 quarters to complete and then that results in deliveries and then that then thereafter results in Occupancies, which is where you start to see revenue growth.
So there was a little bit of a lag when you play. This out. So this is the bar charts here on <unk>.
Slide 11 in our deck are not meant to be up.
Coincident proxy for when we expect NOI to ramp rather it's showing deliveries when they ramp and so therefore, you will have to have occupancies that fall that NOI that falls that so it tends to create a lag effect as you as you move it through the P&L.
I'm sure. The next question will be earning on deliveries from last year, but I'll save that for later call.
Thank you.
Yes.
Our next question comes from the line of Alan Peterson with Green Street. Please proceed with your question.
Everyone. Thanks for the time just had two quick questions on the transaction market side, Matt in regards to the asset sale commentary being out of the North Sea northeast corridor as well as California.
When you think about dispositions in California are they wholly owned dispositions or would you look to enter into a joint venture for property tax reasons on the West coast.
It's a good question, we have so far the only partial interest sale. We've done was the New York JV that we did back in late 2018.
So the disposal, we've done out of California, and there haven't been a lot over the last couple of years wholly owned dispose.
We're just fee simple we have talked about that that obviously, if you sell a 49% interest except for the prop 13 reset.
The prop 13.
Overhang of reset was probably a lot larger last year at this time when you think about where asset values were then where they are today. There has been some correction there so the spread isn't quite as wide as it was but that is something that we have talked about that we might consider at some point.
I appreciate that and then I'm curious, whether you're starting to see a portfolio premiums of old potentially swing to a portfolio discounts with the financing market is becoming a little bit more challenging.
And whether it's acquisitions start becoming more attractive to us at ABB team there.
Yes, I would say there is.
The portfolio discount today is 100% right there just their own portfolios transacting today for the most part because the debt markets. So what we are seeing is poor.
In general right now, what's transacting, our deals with assumable debt or deals of modest.
Deal size of 100 $150 million or less so.
You are right a year or two ago, the efficiency that was so cheap and the efficiency of being able to buy a large portfolio.
Put a lot of debt on that all at once that's gone into reverse I think the expectation is that the debt markets stabilize you will start to see some more sizable asset sales come to market later in the year Thats kind of what everybody is waiting for I know there was a lot of talk with <unk> about are you going to go or are you going to go so.
But yes, I would say that I would certainly expect that.
This year, a much higher percentage of the total transaction volume will be one offs as opposed to portfolios.
I appreciate that commentary thanks for the time guys.
Our next question comes from the line of Rich Anderson with <unk>. Please proceed with your question.
Thanks, Good afternoon.
So back to slide 11.
Can you.
I got what you said about timing to Johns question, but.
Yes.
Kind of trend upwards in deliveries does that.
Inform us at all about what Youre thinking about in terms of the overall macro environment and the economy and potential recession.
Sumit.
Prefer to deliver into strength so.
Can you comment at all on this image and what Youre thinking broadly about what the overall landscape will look like by the time 2024 rolls around.
Yeah, Hey, Rich this is Kevin I'll start here, others may want to join <unk>.
In terms of slide 11, just to sort of recap it shows the timing of apartment deliveries from completing development over 'twenty two through 'twenty four.
And that is really a lagged effect of what happened in eight to 10 quarters previously and if you kind of just step back and look at the last few years for us and tight with a comment that.
That I made in Austin's earlier question about kind of our typical start capacity as you know, we typically try to start somewhere in the $1 1 billion and a half range. If you look over the last three years on average I think we started about 7% or $800 million. When you include the 200 million or so in 2020, and a $1 billion and 700 or so last year. So it's been a below.
Low trend level of starts over the last few years, which with a lag is created in the last year or so and then probably for maybe the better part of the next year, a little bit of a below average trend NOI.
NOI realization from the lease up portfolio. So thats, just sort of how the mechanics work in terms of your question about what does this say I think really are lower levels of starts is more reflective of the volatility in the uncertainty.
The environment over the last few years, when we were looking to start jobs as we look at where we are today certainly the company is in a terrific financial position to start not just the $875 million that we have in the plan for this year, which as an aside is a below average level of starts generally but we.
We're in a position to start a whole lot more not only because of our lower level of leverage today, which gives us that capacity. So.
So we are looking to lean in and increased development starts in the next two years. If the environment is broadly accommodate accommodative are doing so and as a reasonably stable environment from a capital markets perspective.
And a macroeconomic perspective with respect to the likelihood for realizing decent NOI growth. So that is kind of our our general look at the macro environment.
And our capacity is there to really ramp things up as we want to do so as things stand in terms of what's already underway. We are well positioned just on the $2 2 billion of development under construction Thats essentially paid for to deliver robust NOI growth.
Irrespective of what we started in the next year or two so I don't know if you want to yes.
Just to clarify those deliveries the way there so that is already cast so.
Right.
They will deliver into the market that it is at that time, we're not we're not smart enough to say yeah. We deliberately planned to have fewer deliveries in 'twenty three because we thought there might be a recession.
Two years ago, just playing out that way because we had less start activity a couple of years ago as Kevin said, but.
Those are all underway and we will take those deliveries as soon as we can get it okay fair enough.
And the second question is on the developer funding program could you talk about the economics of that relative to everything being done in house.
Assuming a fee paid to the third party developer in the.
The different moving parts there and if this program is sort of like a stepping stone for you to get into these markets more efficiently and that over the course of time, you kind of would revert back to the.
A more conventional approach to development.
Longer term is that the way to think about it.
Yes.
Rich this is Matt I can respond to all of them they want to as well.
The way, we think about that program is the returns are somewhere between a development and an acquisition because the risk is somewhere between a development and an acquisition. Okay. So the developers taking the pursuit cost risk the construction risk, we're taking the lease up in the capital risk.
<unk>.
So the yields on that are a little bit less and in AVB straight up development. Because we are paying fees and then there is an earn out based on how the deal does.
But we think it's a good risk adjusted return and I guess.
It does two things for us one it accelerates our investment activity and the expansion regions because it does take time to get the teams on the ground.
<unk>.
And we're further along in some markets than others, where we're doing the DSP. So far has been more like say North Carolina, where we just started there a year or two ago not so much in Denver, where we've been there for five years already.
But we also view it as an as a supplement to our our own development activity in the sense that it's a dial we can dial up or down.
More quickly and more opportunistically in response to market conditions, and our own cost of capital. So even when we are fully established in these expansion regions. It may well be an additional line of business for us, but it may be a line of business for us that we are more nimble in terms of turning it up and down and then our own development.
That's well put in.
The last piece I would add we definitely also see synergies within a market being able to talk with third party developers could be somebody who may have just completed and theyre looking to sell can be a deal they're wanting to develop a piece of capital right <unk> places, where they need a full our capital stack and we have an interest in owning that asset long term. So that also helps kind of flywheel acts.
<unk> in these expansion markets.
Yep got it thanks very much.
Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.
Good afternoon. Thanks, a lot, particularly my question can you talk a little bit about the gap in performance trends for your suburban portfolio relative to the urban and then kind of connected to that there is.
Suburban supply growth is one 2% while urban supply growth is 1.8% how does that compare with historical norms.
Yes, so good questions as it relates to performance.
In terms of suburban versus urban as an example.
Certainly urban as we move through the pandemic took the greatest hit so as we've continued to recover from that we have seen stronger growth to date.
In terms of our urban assets, but they are recovering to keep in mind. So give you. An example, like in Q4 rent change was a blended 5% that's about four 5% in our suburban portfolio.
Just north of six and the urban portfolio and I think that's.
As a function of the decline and people coming back to the office slowly and steadily and various urban environments.
As it relates to the urban suburban supply mix.
Suburban.
Submarkets within our regions have always been difficult in terms of development.
Martin MBS.
Local jurisdictions concerned about impacting school districts.
For et cetera, it's always been challenging.
Coming out of the GSC there was a little more of a Renaissance in terms of the urban environment and all of a sudden economics for urban development made good sense and there was demand there in terms of millennials flocking to urban environments. So that's why you saw a significant pick up in urban supply.
Over the course of the last cycle as you look at it today and where we are.
From a development standpoint, almost everything we're doing right now is suburban but given some things that are happening in the urban environments, there will likely be at some point in time.
Opportunities to play urban development suppliers.
Right now if you look at it from an economic standpoint, there's not much of anything and it makes sense in an urban environment. So things may over correct. There in some cases and there will be opportunities for us to play there, but the demographic wave. This sort of supported that is moving on at this point. So we'll probably be more selective than we were in the last cycle in terms of urban development opportunities.
That's very helpful and as a follow up you started a cancel project in the quarter, how do construction cost per unit different for this type of development relative to a fully amortize development, how do the rents compare so essentially how does the yields compare.
And how is the resident reception been to the cancer development has been a project that will more likely the pencil and maybe just last.
Certain macro economy. Thank you.
Yeah sure. This is Matt I can speak to that one a little bit.
We only have a little bit of it out there the customer reception has been strong and the brand really started with our customer research insights that there are a lot of customers.
Out there.
Who want a nice new apartment and don't that we're over serving as an industry today that don't value necessarily all the onsite service don't value all the amenities and the other <unk>.
<unk> of the offering and Avalon provides in a lot of our competitors provide so.
Our goal is to be able to bring that offering in at a rent that is 10% to 15% below the ramp of a new fully monetized Avalon or comparable in the same submarket in the same type of location.
I think so far the little we've done would suggest that the discount might actually be a little bit less than that and it might be more like seven or 8%.
And the cost there is really there are savings in the upfront capital cost because youre not building a pool, you're not building a fitness center.
Et cetera, and then there is also savings in the ongoing operating expenses because you are not operating in cleaning those spaces and then ultimately in capex, because youre not re merchandising those spaces.
The upfront hard cost savings.
It's not I mean, we typically spend 7% to 10000, a unit on amenities at a community at a newbuild, maybe a little bit more than that so youre saving most of that.
And then on the operating expense side. The savings is at least a couple of thousand a door and controllable opex. So actually the yield winds up being about the same but it serves a different customer and it kind of gets us further down the pricing pyramid. So it expands the market.
Thank you very much.
Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Hey, and thank you for taking my question. So two quick ones first.
Initially on the GP I think in response to one of the questions. You said that your intent was to own the DLP and but then subsequent question you referenced you know it's a good way to accelerate into the market. So maybe I misheard or maybe it's just a way of how you look at deals in different markets, maybe they're markets that youre looking to more ROE in UCP to actually own.
Deals versus other markets, where it's more of just an investment because you already have an establishment. So just wanted to get some clarity.
Yeah, Alex It's Matt I think you are referring to we really have two different programs. The DFT. The developer funding program those are assets that we own.
Really from the beginning we fund the construction and those were taking into our portfolio day, one the <unk> construction investment program. That's the net lending program. Those are the assets that were that's really about generating earnings and leveraging our capabilities and that's the program that was referring to where we do not expect to own those assets, although we're prepared to if.
We need to.
So what's the difference I mean, because you guys are pretty thorough in your underwriting.
And how you pick deals why have two different buckets. It would seem like basically it's sort of the same bucket you are picking assets that you'd want to own so why the difference between the two.
It's a very different investment profile of the <unk> lending.
$20 million to $30 million for three years call it at 11% 12%.
And then we're getting paid back and we're actually focused on doing that in our established regions, where we're not necessarily looking from a portfolio allocation point of view to grow the portfolio, but we have the construction and development expertise to underwrite it.
Understand what it takes to do that kind of lending. The DSP is very similar to the way, we would underwrite development or an acquisition that we expect to own for the long term.
And Thats, a 100% focused on the expansion regions.
Okay second question is.
On the on the Avalon and connect and be launching Wi Fi and other productivity, obviously, we're all familiar with what the White house.
Extra fees, having the regulators look at fees et cetera, whether it's hotels or apartments et cetera.
Obviously, you guys feel pretty comfortable with what these programs, but do you feel like the regulators are going to look harder at these types of additional fees or your view is that there's already regulation covering this stops and so it's already sort of covered under existing.
Regulations.
Yes, Alex this is Sean happy to take that one and a good question.
What I would say its two things one is it's hard to know exactly.
Where regulators might go in terms of what Theyre looking for but this has been addressed by the FTC a couple of different times, including last year in terms of what's appropriate what's an appropriate with telecom providers.
And people that are providing this kind of service. So at least now I think it has been addressed.
That doesn't mean something might not change in the future, but I think we all have.
Sort of a playing field that we felt comfortable with has been blessed by the regulators and we're all moving forward under that that particular regime I guess the way I'd describe it.
Okay. That's helpful. Thank you.
Yep.
Our next question comes from the line of Joshua <unk> with Bank of America. Please proceed with your question.
Yeah. Thanks, everyone.
I wanted to touch base on that Avalon connect and furnished housing.
Same store expenses.
Got it on page 15.
How should we think about the associated same store revenue from those programs.
Yes, no good question based on.
And I mentioned this in my prepared remarks remarks, as it relates to other rental revenue growth, but if you look at it overall for 2023 on an incremental basis, roughly 60 basis points or so of our revenue growth is associated with those various initiatives that identified.
So does that include Avalon connect furnished housing and labor efficiencies.
That included and I have a lot to that and furnished housing there is no labor efficiencies and revenue.
Okay. That's all thanks.
Okay, Yeah that makes sense.
Sure.
The Avalon connection furnished housing or those kind of.
One time bombs same store expenses or is that something that kind of carries through on a go forward basis.
Offsetting same store revenue growth as well.
Yes, no. Good question I mean, the expectation right now is that for both Avalon connect and furnished housing.
And also even on the labor side as well.
We're going to continue to see.
Additional enhancements for those programs over the next couple of years, so you'll probably see them stabilize around 20 to 25 or so and at a high level. The way I would think about it is our expectation is that these programs overall will probably contribute about $50 million of incremental NOI to.
The portfolio of which if you without getting into the detail on the accounting about $18 million is projected to flow through the P&L for 2023. So we're about 35% of the way there there's still a lot to come but you will see some pressure on opex for the next two years, specifically for furnished an Avalon connect.
Until it stabilizes, but again.
Really profitable activity.
That is contributing meaningfully to earnings over the next couple of years when you look at it in aggregate.
Okay I appreciate the color. Thank you.
Yes.
As a reminder, its star one to ask a question. Our next question comes from the line of Sam Choe with Credit Suisse. Please proceed with your question.
Hi, guys I'm on for Tayo today, just one question.
I know your portfolio strategy too.
Investment expansion regions, but just wondering if the.
The rent control and regulatory.
Yes noise has contributed to any strategic changes in how abb's. Thank you Bob portfolio construction going forward. Thank you.
Yeah. Thanks, Thanks, Sam.
Short answer is when we arrived at our portfolio allocation.
Decisions a couple of years ago. It incorporated in the prospect of the regulatory environment.
And so it continues to be a motivator and why we want to get our exposure in the expansion markets at a minimum for diversification as it relates to various regulatory dynamics.
Got it thank you so much.
Our next question comes from the line of Jamie Feldman with Wells Fargo. Please proceed with your question.
Great. Thank you I guess sticking with rent control I mean have you factored in at all any changes in your 'twenty guidance.
Where do you see the most risk.
Whether at Dominion level or state level.
Hey, Jamie this is Sean.
Probably a very long answer, but I would say.
Yes.
Obviously housing.
Housing affordability.
As a significant issue in the country, mainly as a result of just the lack of new supply. So we continue.
Our peers in the industry and various industry associations.
Both federal state and local governments about what will work in terms of trying to ease some of the issues.
They are hearing about from the electorate.
So it's going to take <unk>.
Continued efforts to make sure that people understand it in terms of what might happen in 2023, that's purely speculative at this point and wouldn't be appropriate for us to necessarily go there.
Okay Alright. Thank you and then if I heard your discussion it sounds like you've got the $600 million of unsecured you plan to take those out.
And replace with $400 million of new unsecured is there a price point I mean, we will probably see some volatility here on rates and pricing I mean is there.
That price point at which you have to think about other sources.
The new the new $400 million or maybe a comment on what do you think of pricing today or where it may head.
Yes, I mean, I guess, Jamie at some level when you put.
Put together capital plan you always have that debate about what your uses are and then how what's the most efficient source of capital to address those juices and <unk>.
The budget, we had today reflects a few that raise.
Raising that $400 million, primarily through the issuance of additional unsecured debt is is today and is likely going to be the most cost effective source of capital for us.
<unk>.
Certainly there could be other sources that might arise with basically our choices are relatively straightforward, it's its asset sales or common equity and common equity is unattractive we price today.
That sales could be a potential source, but.
As we've just discussed there is less transparency and liquidity around pricing in that market. So that's why we ended up with unsecured choices are as our likely expected choice and so.
We've got some time and room to figure that out and we've got a bunch of liquidity with essentially nothing drawn on our two and a quarter billion dollars line of credit that gives us a blended time and room to figure out what the right.
Capital is to take that maturity out.
Okay that makes sense and then how early can you take out the 600.
Okay.
Is it 600 is consists of two pieces of that $250 million in March.
And then $350 million in December .
And so their bond offerings that typically can't be prepaid materially before they are do absent some yield maintenance payments. So it's just part of our business that is an unsecured borrower, we typically have $6 million to $700 million of debt coming due in any given year. This is a typical year for avalonbay. So it's not a particular concern.
It's just part of the business.
Our financing our company and we typically have two pieces of debt that usually.
<unk> totaled about $600 million, so kind of a regular way year from our standpoint, where we've got the first part coming in the March and the second one in December .
Okay, great. Thank you.
Yes.
There are no further questions in the queue I'd like to hand, it back to Mr. Schall for closing remarks.
Alright. Thank you. Thank you for joining us today, and we look forward to visiting with you in person over the coming months.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.