Armada Hoffler Properties Inc. Q1 2023 Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Armada Hoffler first quarter 2023 earnings call.
Conference call.
At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.
At any time during this call you're acquiring immediate assistance. Please press star zero for operator. This call is being recorded in Tuesday may nine 2023, I would now like to turn the conference over to Chelsea porous director of corporate Communications and Investor Relations. Please go.
Go ahead.
Good morning, and thank you for joining Armada Hoffler is first quarter 2023 earnings conference call and webcast.
On the call with me. This morning in addition to myself.
Matthew Brian Smith, CFO and Sean.
The press release announcing our first quarter earnings along with our supplemental package were distributed this morning.
A replay of the call will be available shortly after the conclusion of the call through June eight 2023.
The numbers to access the replay are provided in the earnings press release.
For those who listen to the rebroadcast of this presentation. We remind you that the remarks made herein are as of today may nine 2023 and will not be updated subsequent to the initial earnings call.
During this call we may make forward looking statements, including statements related to the future performance of our portfolio our development pipeline the impact of acquisitions and dispositions, our mezzanine program, our construction business, our liquidity position, our portfolio performance and financing activities as well as comments on our outlook.
Listeners are cautioned that any forward looking statements are based upon management's beliefs assumptions expectations taking into account information that is currently available.
<unk> assumptions and expectations May change as a result of possible events or factors not all of which are known and many of which are difficult to predict and generally beyond our control.
These risks and uncertainties can cause actual results to differ materially from our current expectations and we advise listeners to review the forward looking statement disclosure in our press release that we distributed this morning, and the risk factors disclosed in documents, we have filed with or furnished to the SEC.
We will also discuss certain non-GAAP financial measures, including but not limited to <unk> and normalized <unk>.
Definitions of these non-GAAP measures as well as reconciliations to the most comparable GAAP measures are included in the quarterly supplemental package, which is available on our website at Armada Hoffler Dot Com I will now turn the call over to Lou.
Thank you Chelsea.
Good morning, everyone and thank you for joining us today.
This morning, we reported earnings for the first quarter of <unk> 30 per share.
In line with our expectations and consistent with our full year guidance.
As you can see from our press release the portfolio continues to deliver substantial growth in same store sales and re leasing spreads.
Maintaining occupancy of 97% portfolio wide.
As pointed out on numerous occasions best in market properties yielded impressive results in most any economic climate.
Later in the call, Sean and that will give you the details on the quarter as well as the current state of operations and financial metrics.
I will use my time to describe two very important post quarter events.
Last week's announcement of our planned acquisition and recapitalization of the interlock mixed use asset in West Midtown Atlanta is a game changing success on several levels.
We anticipate funding the acquisition with the $100 million of unsecured fixed rate financing.
<unk>, a relatively small amount of op units priced at $13 and.
And the conversion of our existing mezzanine loan on the property into equity.
At a six 5% going in cash cap rate.
<unk> is immediately accretive to earnings.
Although a significant majority of the NOI is achieved through retail and entertainment operations.
Georgia Tech, Georgia Advanced Technology ventures anchors that 200000 square feet of state of the art office space.
There are 50000 square foot lease serves as an incubator for technology developed at Georgia Tech several other tenants both retail and office have noted the proximity stability and involvement of the University as an important advantage afforded by the building.
We expect to quickly lease up remaining vacancy, which will bring the stabilized GAAP cap rate on this trophy asset to well over 8%.
With a single transaction.
We will accomplish several objectives.
Adding yet another trophy quality mixed use asset to the portfolio.
Along with the other assets in the area, creating a concentration of investment in some of Atlanta's premier growth markets. Thus complementing our existing dominant market position in Baltimore's Harbor point in Virginia Beach Town Center.
We also substantially increased property NOI, while right sizing our mezzanine investment program.
And that has proven to be a reliable source of investment opportunities.
The retirement of this loan removes the last impediment to our long stated goal of reducing the size of that program to more moderate levels that will focus on partnering on infill multifamily projects.
That said.
As the interlock is a fourth major acquisition, we've achieved a significant discounts to our construction activities and mezzanine lending we will continue to strategically deploy these mechanisms where our underwriting indicates the opportunity for eventual acquisition of top quality properties.
Perhaps most importantly.
The NOI combined with the Gainesville apartment complex in the mixed use southern post gives us a platform for further growth in a dynamic greater Atlanta market.
The concentration of trophy quality mixed use assets in Virginia Beach, The Baltimore Harbor, and now Atlanta combined with a steadily growing presence in the Carolinas gives us solid positions in some of the most desirable markets in the southeast.
Before I mentioned in the second major post quarter development I'll.
I will give it the context of some near term headwinds, which are actually long term opportunities.
That make the announcement all the more impressive.
The interlock acquisition, while significantly accretive resulted in a material reduction in our previously projected guidance for mezzanine income for the year.
Add to that the long hoped for recapture of the bed Bath and beyond stores, which now appears to be likely will result in less rental revenue in those two locations.
John will give you some detail on the various options we are considering for those sites. However in the short term. This is another drag on 2023 NOI.
All that said despite these near term challenges due to the continued robust increases in portfolio income.
Strength of third party construction fee income strong liquidity and interest expense consistency, we are maintaining our previous guidance as we anticipate momentum to continue throughout the year.
Therefore in keeping with our policy of dividend payout in the 80% of <unk> range.
<unk> has acted to raise the quarterly dividend to <unk> 19 five.
A two 6% increase.
With this change the dividend will now eclipsed its pre pandemic levels on an annual basis.
The primary differences between then and now aside from a stock price nearing $20.
We're a much stronger balance sheet and a far greater percentage of income coming from trophy rental income properties.
I'll now turn the call over to Sean.
Thank you Lou.
As Lou indicated the company continues to perform well consistent with our guidance and with momentum following a record breaking 2022 results.
Our teams remain focused on value creation, while working against the backdrop of a tough economic cycle.
To reiterate we believe that the best in class performance throughout the portfolio safe and reliable construction services combined with seamless execution of high quality development projects will continue to create sustained shareholder value for years to come.
Please refer to the supplemental package to review our operating portfolio highlights I would like to call out a few of the noteworthy operational metrics that are contributing to our continued growth and sustained high occupancy across the portfolio.
2023 quarter, one year over year same store NOI for the portfolio was positive in all segments.
Was four 3% on a GAAP basis, five 3% on a cash basis with retail coming in at seven 3% on a cash basis.
2023 quarter, one year over year re leasing spreads and.
So on the commercial portfolio were positive 10, 1% on a GAAP basis, and six 6% on a cash basis, we have been producing double digit GAAP releasing spreads in the retail space for three quarters in a row.
Our asset management team continues to produce superior results as they are agile approach enables us to keep our buildings full with high quality tenants and residents. We previously discussed the post Covid era commercial tenant watch list and the process continues to serve as a useful indicator for tenants, who are or who may be.
Potentially at risk due to various economic factors in the market.
There are a couple of high profile tenants currently in focus.
As a result of recent press surrounding bankruptcy proceedings.
Tenant that is top of mind is bed bath and beyond.
As stated last quarter, we are in discussions with a popular high credit tenant who would like to fill the Durham, North Carolina space as soon as possible.
The announcement, we have also fielded six unsolicited calls from retail tenants, who would like to take immediate possession of our six acre Virginia Beach location.
As you May recall, we have long awaited multifamily development plans for the site <unk>.
However, given the level of interest we will use this opportunity to determine which option results in the greatest long term value creation.
In terms of office performance, we remain well leased at 96, 8% with a high quality roster of tenants. The retail segment is also experiencing sustained elevated levels of lease up at 97, 1% across the portfolio.
I had previously cited a comment made by DVR S Morningstar and our recent Triple B rated credit report that referred to high occupancy rates across our portfolio and issues. We are facing with accommodating tenant expansion specifically relating to office space.
To that end I am happy to report that we capitalized on one such opportunity during the first quarter.
Our team developed a plan to relocate and consolidate a portion of our own employee base to create greater opportunities for revenue generating space.
We were able to execute a long term lease with KPMG here in our headquarters building at Town Center, Virginia Beach. This new lease is yet. Another example of high credit tenants, taking the flight to quality demonstrating.
Demonstrating the strength and attractiveness of our mixed use ecosystems.
This brings the 800000 square feet of town Center office space to 99% leased.
The theme for our multifamily portfolio is consistent growth.
As we predicted growth has settled in at the mid single digit range for the quarter and we see this trend continuing in the months ahead.
Especially given our assets are in well located walkable and mixed use environments.
Our portfolio continues to stand strong against macroeconomic headwinds.
State of the art properties combined with superior locations create trophy assets that are virtually the best in their respective submarkets. The complementary property types outperform, especially during times of economic uncertainty and increased pressures.
Earlier in the call Lou mentioned acquisition as a means for growth and the interlock is demonstrative of that thesis.
As you know, we also create high value real estate through our internal development and construction processes.
To that end, our construction and development teams are currently hard at work manufacturing high quality assets.
Located within mixed use settings that will soon be added to our growing and robust portfolio.
The team is also highly focused on delivery of the largest third party backlog in our company's history further contributing to the earnings of the firm.
Our southern coast mixed use project in Roswell, Georgia continues to progress nicely and is scheduled for initial delivery early next year.
The retail space has seen quite a bit of activity and is 56% leased with another 31% under LOI.
The office has also experienced significant leasing activity as of late.
We are currently negotiating with a high credit tenant relocating from the West coast for a 37000 square foot strategic corporate relocation.
This tenant will anchor roughly 40% of the office space and we believe execution of this lease will aid in acceleration of the leasing activity within the asset we.
We are also excited about the lease up opportunities in the apartment space, especially given the barriers to entry and the high end sub market.
And our harbor site the T Rowe price Global headquarters project continues to progress we look forward to updating you with more details as we get closer to delivery.
Across the street, we are well underway with the 312 unit Allied apartment building.
Success at our <unk> five point.
<unk> Street multifamily assets continues to bolster our outlook as we develop this complementary high quality asset and the best location within the Submarket.
We remain on target for initial occupancy in both buildings during the third quarter of 2024.
Finally, we believe that amongst all of our assets our people are the most valuable.
Our talented teams continue to manufacture and manage the high quality assets that are our value proposition.
We appreciate all you do on behalf of the company and its shareholders.
I will now turn the call over to Matt.
Good morning, and thank you Shaun another set of strong results by our operating team demonstrating consistency and performance and the quality of our assets.
For the first quarter of 2023 re reported Ssi, a <unk> 23 per diluted share and normalized <unk> of 30 cents per diluted share in line with <unk> guidance estimates and coverage analysts consensus. Therefore, we have maintained our guidance range accordingly at $1 23.
<unk> to $1 27.
Diluted share of normalized <unk> and the board have responsibly increased our dividend to <unk> 19, and a half cents per quarter.
This modest dividend increase of just under 3% maintains our asset coverage ratio in the 80% range and cannot be attributed to our portfolio's performance, but also our strong balance sheet.
As we continue to transition our balance sheet towards long term fixed rate unsecured debt, we will maintain our liquidity and respectable financial metrics for the first quarter of 2023.
Our stabilized portfolio debt to stabilized portfolio EBITDA is at five four times in line with our stated targets our debt service coverage ratio and fixed charge coverage ratio reported two eight times and two three times, respectively. Once again, demonstrating the team's ability to manage and execute this transit.
Sure.
As market conditions.
Our liquidity position continues to be strong roughly $180 million more than able to cover the 2023 cash requirements for our development pipeline and any potential preferred equity deals. This combined with a well structured debt maturity ladder means that we continue to grow earnings without the need to enter the equity market.
Until we feel that we are receiving appropriate value for.
For reference we have no debt maturities in 2023, and the small amount of debt maturing in 2024, and 2025 will be paid off at maturity.
Adding these assets to our unencumbered borrowing base.
You would have noticed from our supplemental financial package that we are currently over hedged. This is due to several timing factors and will self correct over the coming year as these derivatives expire.
As interest rates continue to fluctuate we will constantly monitor the environment to ensure we have a convert the variable rate debt to long term fixed rate debt in the private placement market or layer in new hedge positions when our current set of physicians Michelle.
One of the key themes over the last 12 months is the rebalancing of our portfolio with a reduction of our mezzanine book strategically selecting projects that we would look to tie the announcements of acquiring the mixed use in stock assets in west Midtown Atlanta replaces the mezzanine interest income with stable property NOI, increasing the <unk>.
Ali with these earnings we will take this opportunity to continue our balance sheet transition in place a two year 75 million unsecured term loan paying off its current construction debt.
The sofa plus 140 basis point line has been swapped at four 7% for the entire term, including extensions, providing us with predictability in our cash flows. The unsecured term loan has a one year extension option the capacity to be increased to $150 million and is a prime candidate for <unk>.
Debt private placement in the future when the economic conditions return to more favorable levels.
I'll now pass back over to Dave for his closing comments.
Thank you Matt.
Our shareholder focused mindset anchors our actions as a result of the natural alignment created by managements significant ownership stake in the firm.
Our team remains committed to the continued focus on consistent performance, while meeting and exceeding expectations, especially in uncertain times like these.
I'll now turn the call back over to the operator for questions and answers.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchtone cellphone, you'll hear three Donald Trump acknowledging your request.
I'd like to withdraw your request. Please press the star followed by the number of sale. If you are using a speaker phone. Please lift the handset before pressing entities. One moment. Please for your first question Okay.
Kevin.
Okay.
First question comes from the line of.
Rob Stevenson with Janney. Please go ahead.
Good morning, guys.
Looking at the revised guidance assumes roughly 900000 less in interest income for the year. What is the Mezz pipeline look today, given that youre going to be losing your biggest source of income out of that portfolio. When you closed the interlock transaction.
Rob I'm going to let Sean answer that specifically, but as you know we've long awaited this opportunity to rightsize that program and it's going to level off in the $80 million range.
We have a number of new opportunities, we're looking at focused primarily on the Charlotte and Atlanta market.
Our expectation is that mezz.
Net income for 2024 is going to be.
Roughly where it is today.
Yes, Thanks, Lou Rob I think the high level answer to your question is we want to continue as Lou said to look for the opportunities where we can jump in in Ireland, and obviously thats more of an art at times in our science.
As you know in the <unk>.
Couple of mental we kind of outlined the project's outstanding you see the interlock still there with that that kind of $55 million principle will come back and as well as the accrued so about $90 million to come back in the door, we do have to.
Deals out with our partners at <unk> is that a mixed used to lose point in the southeast one in Charlotte and one in a suburb.
Satellite of Atlanta, So what we intend to do is look for those opportunities that are attractive for us to check the boxes for our portfolio and potentially.
Put out for another one of those when it makes sense, but I think to lose point, we're going to remain pretty consistent kind of a steady hand on the wheel and if something comes across the transom, we're willing to pull the trigger.
How much on solar City Park two in Gainesville, too is left to put out it looks like on the supplemental you've put out the balance between those two is call. It just under $34 million is there a substantial amount left or to get to 80 billion ish or whatever youre really talking about doing somewhere in the name.
Out of $45 million of new loans.
There's 30 last.
Thank you to your point, we won't get to the 80 was just these two so we will have to flat to look for opportunities. There. If in fact, we want to hit that cap, but again.
Or kind of loose cap there is four guidance not in terms of financial guidance for guidance internally on how we're going to conduct business in the mezzanine platform. So I think to answer your question, where you could potentially see us take another one if it fits and if the timing works well for us.
Okay. So just to be clear sort of 34 million. So the salt the two solid transactions that are on page 18 of the supplemental those are more or less fully funded at this point and then there is another call it $30 million coming from Charlotte and Atlanta with two earlier Pappas and then so to get to 80 you'd be looking at doing.
Something in the neighborhood of another 15 ish million on top of that I think I think close we're going to put out a combination of 30 more between these two solar city park in Solus Gainesville that you spoke of sheet and subsequent to that to get up to AED. We will have to agree to do another project with Twilio Pappas and <unk>.
That'll that'll.
<unk> will be a major factor there location kind of our underwriting and appetite to own that asset potentially will also go into the mix. So I think a lot has to do with underwriting obviously, a heck of a lot has to do with timing, but again, we will have to put down another project on the sheet here to get to the $80 million to answer the question Okay perfect.
And then bed Bath will be out of town center is that an either or is there a scenario, where you do ground floor retail with somebody with the apartments above it.
Yes.
You just hit the third option and so we're going to be looking at all three over the next month or so and try and pick a direction.
Hopefully, it's going to be compatible with bringing some new to market retailers into the area.
Which is our mandate from the city when we pull the trigger on retail.
But at the same time as we've said as we've long waited for this opportunity to do some multifamily there as well.
Alright, and I guess the question there sort of begs how are you guys thinking about demand for apartment units at sound Center you already have roughly 760 units there how much could you add there without sort of weakening pricing for your existing units.
With adding another whatever it's going to wind up being 150 to 200 300 units whatever that that youre thinking about how do you think about that as going from maybe 760 to 1000 units at town center is that too much right now.
That's a really good question and Rob It is something that we're considering as we speak and it's it's actually even broader than that.
Not only are we not willing to dilute ourselves as we get the highest rents in the region here at town Center, but also there is competition for these dollars so.
A new project here in Virginia Beach.
We know we'll be successful, but is that the best use of our dollars when they can be deployed in Charlotte or Atlanta.
Charleston or Raleigh.
And we have all of those opportunities so not only do we need to see that.
It would be.
Very accretive to add here, but we also have to be convinced that it is going to be better than a compete.
Competing projects that we can do in another region.
Okay, and if you choose to just basically take the bed Bath and re tenant.
As is what type how material is the key is that you would need to do on a per square foot basis in order for it to be ready for another tenant to move in.
Well a lot.
It depends on who those tenants are like I said, we really would gravitate towards new to market tenants.
And while.
Well that can be an expensive proposition.
We effectively have a feeding frenzy right now with people that are wanting us to deal with them in terms of getting first position on the new space. So it remains to be seen where that ends up in any event I can assure you it will be accretive versus the bed bath that was sitting there.
We just want to make us the best use of the dollars as well as add to the mix here at town Center.
Does that hold true for the Durham location as well.
<unk> got a little bit of a different story.
Traditional strip center.
And that has an awful lot of restrictions on it in terms of what you can and cannot put in there.
Fortunately the tenant that is.
Expert to get in there fits all the restrictions so that will probably be a one and done more type of deal.
Okay, and then last one for me any known move outs at this point in the office and retail portfolio for the 23 or 'twenty four exploration or on the office side any known material downsizings.
So.
Harrisonburg I would say in the Regal space is kind of a top of list, but as you as you know we have.
Yes, they are not known move out to be clear, but the terms ending we have a 10 acre site. There that we are also looking at with a similar I how do we best utilize that real estate. They are still paying rent and they are still.
Performing up in Harrisonburg, but that's one that's kind of top of mind are 49000 feet, but again or 10 acres sitting there that we want to get our hands on.
A couple of other retails, Rob, but other than that we're in we're in pretty good shape here. We expect most of these folks to renew.
And renew in place so we feel good about that Rob.
On the office side.
We're looking at potentially one move out.
And we are already negotiating a letter of intent to refill that really don't expect anything.
The app and materially on the office like I said here at town Center as John mentioned, it's 99% Paul.
We actually could stand to have somebody move outs you can just create a little breathing room for some of these other tenants.
And that move out is at town center or is that elsewhere in the office portfolio is at town Center.
We'll have an announcement enter in a replacement tenant here in not too distant future.
Okay. Thanks, guys I appreciate the time this morning.
Thanks Robert.
The next question comes from Wes Golladay with Barrington.
Hey, good morning, everyone can you talk about how peak leasing season is shaping up for multifamily where you're sending out renewals.
Sure.
Said peak season for multifamily is shaping up well.
We are I would say performing better than the cyclical historical kind of cyclical curve that we watch.
We are seeing as I mentioned mid single digits in terms of renewals, if you will and we think thats where kind.
Kind of where we predicted last year the norm would would hit this year. So we feel good about that all of our properties are performing strong and continuing to ramp up and to the second and third quarter.
First quarter, obviously, it's a little damp across the board so second and third quarter look good mid single digits.
And when you look out to next year do you see any supply pressure coming in.
Not necessarily in our kind of submarkets in our ecosystems again, we're kind of protected in certain cases by these mixed use <unk>.
Facilities, not only protected but also kind of supplemented ore turbocharged. If you will by our ecosystem arrangements, we feel good about submarkets.
There are certainly more supply coming online, but again, we don't see we haven't been underwriting double digits as folks who are last year were in the mid single digits and intend to remain there to be conservative.
Got it and then maybe just switching over to retail it seems like demand is pretty strong can you confirm the dura box for bed Bath. It doesn't look like it will be a box split there and then maybe overall can you talk about the <unk> and retail they seem to be picking up on the renewals.
And on the bed Bath, I think I said it.
The most likely candidate it will take the entire space.
We've had inquiries from a couple of others to divide it up and we will see that it doesn't hold as much appeal for us, but again never say never and we will see what rents are.
As far as <unk>.
We're pretty happy with what the re leasing spreads that we're getting in the double double digit same store growth.
We're happy to invest Ti for credit tenants that are going to be with us for a long time.
Okay, and then maybe on the acquisition front, you mentioned that you want to wait for a better cost of capital what could you do more O P unit deals above the stock price to get some acquisitions done.
We could.
Again.
We're not.
As you know Ross, where we're far and away the largest shareholder.
In the company and so we don't we don't take the deployment of OPE units lightly.
Even at the premium that we can charge now we think they are there.
<unk> undervalued, so we're going to be very selective about that happening.
At the same time, we're going to continue to be opportunistic.
The market.
As obviously mispriced high quality real estate in general and.
In our equity in particular.
Not going to dissuade us from adding trophy properties when possible.
Great. Thanks for the time everyone.
Next question comes from Pizza, and Brahma with slid Jefferies. Please go ahead.
Thanks.
I just wanted to follow up I know there were some questions here about the Ti is on the bed Bath <unk> beyond the two spaces are you able to quantify what.
What do you think the mark to market is on those spaces today.
Peter its hard to say right now.
Bed Bath that we refilled, we refilled on an as is where is basis.
And so strictly by the metrics that people follow of releasing spread that look bad I'll tell you that we will do that deal every time.
For the right tenant.
Hey.
It's too early to say right now.
Can say that if we deploy new capital, it's going to be at a substantially higher cap rate than what we were looking at.
With bed Bath is a value.
Yeah.
Okay got it and then.
Also on the Ti Brian I guess can you just talk.
Talk about the tenant you are talking to you.
For the office space at Southern post I know, it's probably not easy for them to necessarily flying new.
New development in a suburban submarket.
But overall it is a tough office environment. So could you talk about <unk> for that.
Just trying to the rent levels.
Youre looking at relative to your underwriting how that's kind of shaping up.
Yes.
Actually a bit above pro forma rents.
Sean do you have any stats there, yes, I was going to say the same thing I think we're performing at least specifically in that lease like I said at least would be 40% kind of anchored 40% of the office space and we are above where we thought we would be from our pro forma rent standpoint, as you know OTI has continued to increase but to lose comment on the last question.
When we when we baked this all in we are happy to see a higher yield and with a high credit tenant happy to lock that in and the office space on a long term lease so I think.
All in all we are better than we pro forma Ed at least thus far and we'll continue to look for those types of opportunities.
Peter.
I know you.
You're talking to an awful lot of companies.
We're just not seeing with most people are seeing.
I guess as with most people are seeing.
We are demanding higher rents and when someone's demanding higher Ti then they pay rent fully for it.
And as you at 97% or whatever it is least we can be awfully selective with who we who we want to bring in.
The KPMG deal is a great example of it.
Sean mentioned earlier.
We really wanted that tenant and there is no space here. So we actually spend some extra money to move folks around so we can create 15000 feet for those folks.
But thats a tenant that's going to be here forever.
Got it.
We have a just a different paradigm than what.
What I think is happening or at least what you've read in the headlines what's happening in the market.
Okay got it and then one last one.
So.
Do you have the interlock lined up here for I know that kind of.
We've taken a lot of your attention here and as the big use of capital. This year I guess generally could you talk about.
I think maybe there was some discussion before in the guidance.
Some kind of more traditional.
Grocery anchor shopping center deals.
While they are off market are marketed could you talk about that space are you seeing any kind of distressed.
From sellers and potential opportunity.
And if you do see that.
How would you be able to address that.
Obviously that will be.
Correct.
That's the balance that against against capital gains.
Sure.
Again, I'm not sure what's happening nationwide and with what the headlines are but I can tell you in an hour markets high quality neighborhood retail.
Is not being offered at any kind of discount.
So.
We're still in a position where the kind.
The kind of things that we want to own we're probably going to have to create.
Because there is still.
Still trading at the ones that are trading and trading or at various diff cap rates. So.
That does.
The horror stories that you're hearing and seeing just aren't happening.
And the belt from <unk>.
Maryland down in Virginia, and the Carolinas and Georgia.
Got it.
Thank you.
Ladies and gentlemen, as a reminder, should you have a question. Please press the star followed by the number one.
Next question, we have Chris Sakai with singular research.
Yes, hi, good morning.
Can you talk about.
Pricing on the construction side of things.
Has it moderated still and what do you what are you seeing as far as.
Commodity pricing is concerned.
Sure.
Okay.
I guess, the best way to characterize it is that we're no longer seeing double digit increases across the board in construction prices.
Commodities have moderated a bit.
Labor has not and there is still a shortage of highly qualified.
Qualified contractors to go around.
So what we're seeing year over year is that prices have stabilized, but they've stabilized at a very high level.
I think thats going to continue to choke some new development off.
With regard to our construction company.
Doing aside from the T Rowe price building its almost exclusively in the multifamily space that our third party clients are remaining very active partially because wood prices have come down substantially over the last six months or so.
Okay. Thanks, and then as far as your guidance is concerned.
Can you talk about expectations for occupancy.
And that guidance.
Yes.
Obviously, we're at a very high level right now nearly 98% portfolio wide and as Sean mentioned, 99% leased here at town Center.
Sure.
Our expectation has always been that our properties stabilize in the mid nineties.
Don't get overly excited when they get to the high Ninety's.
Our historic lows are in the low nineties, so it's going to fluctuate in that in that area. When you have a portfolio that is not overly large.
One substantial tenant can move that needle a bit. So that's why we just we just want to be in that range, it's great to be at $97 90 899.
But I can't.
We wouldnt say that thats going to continue indefinitely.
I say, what I can say, we believe we will continue indefinitely as that will continue to move rents northward.
Okay. Okay. Thanks for that.
Okay.
Okay.
And there are no further questions at this time I'll turn the call.
Tim Leach for closing remarks.
Thanks, everyone for your attention this morning, and we appreciate your interest in the company.
We look forward to more announcements over the next couple of months.
And stay tuned thank you bye bye.
<unk>.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your line.