Q1 2023 Equity Residential Earnings Call
It was higher than we projected due in large part to the California storms that still left us with first quarter net operating income and normalized <unk> better than we expected.
In a moment, Mike will take you through our first quarter operating highlights the strength of our revenue results point to the durable nature of our business in the face of volatile economic conditions, we continue to see substantial demand from our affluent renter demographic and moderate levels of supply in most of our major markets with the new news in the quarter being the rapidly improve.
<unk> regulatory conditions in California.
Based on these continuing positive business conditions and the good prospects, we see for our business going forward during the first quarter, our board raised our common share dividend by 6% on an annualized basis.
Despite deadlines on layoffs demand feels solid the unemployment rate, particularly for the college educated remains very low which gives us a good feeling about the employability and earnings power of our affluent renter customer.
Our portfolio, we're not seeing increases in residents downsizing their units are giving us their keys because of job loss.
In terms of competition from homeownership monthly costs in downpayment requirements remained high in our markets, especially relative to rents, making running a high quality equity residential apartment a better value.
Only 8% of our residents who moved out in the first quarter bought a home and that's down from 12% in the first quarter of 2022.
On the apartment supply side as we have discussed with you on previous calls, we expect 2023 national apartment, new supply to run at record levels, but we generally feel good.
About the level of direct competition to supply will pose to us given our market mix and importantly, the location of supply within markets relative to our properties.
In our coastal markets, where we still have 95% of our NOI, we see very manageable competitive new supply in most markets with Washington D. C being the exception, though D. C is holding up remarkably well so far in.
In the Sun belt markets, including the Dallas Fort Worth Austin, and Atlanta markets in which we are increasingly investing and in Denver, we're seeing higher relative supply and more impact we anticipated. This when we acquired our sunbelt in Denver properties. These properties are generally tracking consistently with our underwriting.
As we look to expand our portfolio in these markets. We expect that these new deliveries will present buying opportunities for us.
Michael will also discuss first quarter same store expense growth, which was higher than we expected, especially in the repairs and maintenance and other on site operating expenses lines. We think this growth was inflated for discrete reasons that will pass and we continue to be comfortable in attaining our full year same store expense range in part due to lower.
And previously anticipated real estate tax growth.
Even with modest onsite payroll expense growth, we have created in our company our culture and system that uses technology and centralization to improve the customer and employee experience and to contain our payroll costs.
While the transaction markets remain unsettled, we did do a couple of deals to start the year. We sold a small collection of 25 year old properties that totaled 247 units in Los Angeles for about $135 million in advance of the transfer tax increase.
Also after the end of the quarter, we purchased a newly developed property in Atlanta for about $79 million that is currently in lease up.
The property is located directly on a portion of the Atlanta Beltline that is being improved and paved the beltline as a desirable amenity to our demographic and has been a catalyst for economic growth and densification across the area.
The property is economics benefit from various tax credits and we fully stabilized next year, we expect to attain a six 6% acquisition cap rate, removing the tax benefits, which will burn off over time, we see the stabilized fully tax acquisition cap rate at five 7%. We also love our basis in this property which is at.
$288000 per unit, and we see that as a 15% to 20% discount to current replacement costs Alec Brackenridge, Our chief investment officer is here with us to answer your questions on the transaction market.
And with that I'll turn the call over to Mike.
Thanks, Mark and thanks to everyone for joining US today. This morning, I'm going to review key takeaways from our first quarter 2023 operating performance in our markets along with same store operating expenses as Mark mentioned, we produced very good same store revenue growth of nine 2% in the first quarter. These results were ahead of our.
Stations, primarily due to continuing improvement in delinquency along with continued healthy fundamentals in the business before I get into more details on these topics I want to emphasize that as we sit here today. The early stages of the leasing season and it setup remained strong with year to date pricing trend improvement just above 3%.
The quarter percent, which is where we would expect it to be at this point in the year and is also consistent with expectations underpinning guidance.
During the quarter, we continued to see good demand and strong resident retention that produce low turnover stable occupancy and solid pricing power.
Fight some recent negative job headlines our average resident remains in great financial shape with rent to income ratios during the quarter for new residents.
<unk> to hover around 20%.
Resident lease breaks due to job loss and transfer activities to reduce rent often early indicators of resident economic stress remain below pre pandemic levels and in line with seasonal expectations.
<unk> labor market, along with a large number of young adults choosing the exciting attractive lifestyles are markets provide along with the convenience and cost benefits of running continues to result in application volumes that are on par with the same period last year and continue to grow as expected into the leasing season.
Couple this with the favorable supply position and lack of single family Homeownership competition that Mark outlined and we should be positioned for another good year results to date support the view we shared on our February earnings call that we expect pricing trends for this year to follow a normal, albeit slightly muted.
Seasonal trajectory.
Given the difficult comparison periods for 2022 for the back half of the year, along with the return to normal rent growth patterns. We expect that the first quarter will be our highest reported same store revenue growth with more moderate but still above historical growth in subsequent quarters.
While there may be some uncertainty about the economy, including increasing layoff announcement as I said previously we are not seeing this impact our day to day operations, while we acknowledge that we are generally a lagging indicator. So far so good as we head into our primary leasing season now.
Now, let me spend a few minutes talking about our market performance.
Let's start with the East Coast, New York and DC are both exceeding expectations. While Boston is in line New York was by far the top performer for the first quarter with same store revenue growth of over 19%.
With very limited an isolated supply the outperformance in this market is consistent across all sub markets occupancy is currently 97, 5% and all demand indicators continue to flash green, making this market the expected top performer for the year, earning.
Turning to DC performance has thus far been a pleasant surprise with the market continuing to absorb significant new supply while still delivering good revenue growth.
Emily to New York occupancy is strong and so far all sub markets remained resilient in the face of new supply.
Now for the West Coast, Southern California continues to post good numbers and most notably we are starting to see improvement in delinquency, particularly in Los Angeles, which has the highest concentration.
The eviction moratorium expired, we are seeing more of our delinquent residents figuring out the best option that works for them, which is either paying rent or moving out.
This activity started to pick up pace late in the first quarter, which was sooner than we expected and has continued into April while these move outs are pressuring physical occupancy it will benefit our financial results later in the year as we have good demand in the market to replace these residents with new residents that will pay their rent.
Our remaining two west coast markets of San Francisco, and Seattle have posted respectable quarter over quarter revenue growth with good demand, but pricing power remains less than desired, especially in the urban centers of both of these markets.
San Francisco market is performing in line with our expectations, which already assumed a slow recovery use of concessions mostly in the downtown Submarket remains common along with limited pricing power. Meanwhile, the South Bay Submarket is demonstrating signs of improving pricing power and stronger occupancy with <unk>.
Less widespread concession use based on a combination of factors that includes a greater variety of stable employers who are committed to the area coupled with just a better overall quality of life.
Heading to Seattle, the overall market continues to demonstrate a lack of recovery, which wasn't completely unexpected but is behind our forecast similar to downtown San Francisco downtown Seattle lacks pricing power with concessions being used in over 70% of our applications. The east side, which we felt may hold up.
A little bit better is still outperforming downtown but theres, a little more challenging than we thought based on supply pressure layoffs and overall just less hiring in the sub market.
Amazon's may 1st mandatory return to the office date has a potential to be a catalyst for this market.
Finally in our expansion markets, which currently make up a little less than 5% of our same store NOI revenue performance has mostly been in line with our acquisition performance and guidance expectations. As we expected we are being impacted by heavy new supply in Austin, Dallas and Denver. Meanwhile, Atlanta remained strong.
With double digit revenue growth for the quarter.
Now moving to expenses, we reported same store expense growth of seven 2% in the quarter, which was slightly above our expectations. We had always expected Q1 growth to be higher than our full year guidance range, mostly because the growth during the first quarter of 2022 was so low but also from pressure on a few.
Vic items that outpaced positives and a few other expense categories.
On the favorable side, we continue to benefit from good performance in real estate taxes, and payroll along with utilities, which were still elevated but lower than expected.
Unfavorable side incremental cost and repairs and maintenance other onsite costs and higher than anticipated insurance costs drove higher than expected first quarter same store expense growth for most of these costs, we had anticipated an increase but not quite to this degree elevated repairs and maintenance was in large part due to.
Increased outsourcing in the quarter much of which stemmed from our own internal teams in California, and focusing on the after effects of the severe rain storms, which resulted in incremental outside vendor of systems.
Higher legal and administrative costs related to faster progress in response to the exploration of the eviction moratorium the benefit of which can be seen in our bad debt met insurance expense was higher due to tougher conditions than the already challenging environment. We assumed on the renewal of our property insurance policy, which was completed.
During the first quarter despite.
This pressure, we remain comfortable with our existing guidance range on the full year same store expense growth at this point, we expect slower full year growth in real estate tax and utilities that we initially expected to offset the overages experienced in other categories in the first quarter.
Lastly, I want to spend a minute on our focus on innovation and the technology evolution of our platform in 2023, we have a positive NOI impact of just over $10 million included in our guidance with about two thirds of that coming on the expense side, primarily in payroll and repairs and maintenance this benefit will mostly be <unk>.
Realized in the second half of the year, which will contribute to lower expense growth for that period on.
On the revenue side, we will continue to focus on other income items like Wi Fi parking and pricing optimization, we will also leverage data and analytics to create opportunities to expand our operating margin. Our vision is to augment pricing and renewal strategies by combining our growing data science capabilities.
Streamline execution, while delivering self service solutions to our customers.
We will continue to leverage our mobile platform to create opportunities to share onsite employees across multiple properties.
With a fully centralized in mobile operating platform. We are in a strong position to create a seamless customer experience with a platform that continues to allow us to innovate experiment and rapidly scale what works across the portfolio. This uniquely positions our company to continue to create additional revenue.
Streams, while managing expenses to maintain and grow margins even in an inflationary climate.
I want to give a shout out for our amazing teams across our platform for their continued dedication to their residents and focus on delivering these terrific operating results with that we will turn the call over to the operator to begin the Q&A session. Thank you.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you're using a speaker phone.
Please make sure your mute function is turned off.
In order to reach our equipment again press star one to ask a question and our first question is going to come from Eric Wolfe from Citi.
Hey, Thanks for taking my questions.
Just looking at your same store revenue guidance, it looks like Youre expecting roughly 4% growth for the rest of the year, maybe a bit higher if youre counting for the better trends in bad debt.
But just curious whether it's sort of the majority of the drop off happens in <unk>.
And then sort of stabilizes, where if the drop off is a little bit more ratable through the year.
Eric It's Bob.
Would say that that the drop off is more ratable through the year, because what's going on in the 2023 kind of guidance is really more about what happened in 2022.
And the kind of core trajectory of the business. So we continue to expect kind of that sequential leasing component, but you start getting into starting in Q2 and really into Q3 difficult comp periods from 2022, and so youll see Q1 is the high point, and then a pretty consistent but above trend quarter over quarter rate of growth.
<unk> as you go through the back end of the year.
Got it thanks, and then I think you said you expect the peak leasing season play out as it normally would but I also thought I heard you say that rent growth might be a bit more muted.
<unk>, so just trying to tie.
Those two statements together and I'm, just trying to understand market months or sort of growing as they normally would during the peak leasing season.
Yes, Eric this is Michael So I think Theres two factors one.
The way that the rents are moving what I set out, albeit a little bit muted that's more indicative to when we think about normal rent patterns of pricing trend, we came into the year with our guidance expecting the sequential build we just didn't think we were going to see kind of outsized momentum anywhere near the pace that we saw last year in <unk>.
In terms of the setup right now I guess I would just say a portfolio sitting at 96, 1% today.
We've got great momentum the blended rate for April sitting right at four you'll get the sequential build in pricing trend at three in a quarter, which basically positions up right, where we thought we would be heading into the peak leasing season, yes, just to supplement that Eric It's Marc it's the difference between guidance when we gave our <unk>.
Guidance, we talked about the year being.
Kind of like a normal year of 2023, but maybe a little bit less of intra period growth and what's going on so far this year and so far this year, absolutely consistent with that expectation. So it's those two terms are being used to describe different things guidance versus so far so good this year.
Got it thank you.
Oh.
And our next question is from John .
From Green Street. Please go ahead Sir.
Hey, Thanks for the time, Bob. The first question is on real estate taxes I know this year is bearing well just be curious as you stare out. The next few years are you seeing any early examples or hearing any chatter that cities need attacks apartments, a little bit harder to fill the.
The hole left by.
Office and other commercial real estate sectors that are seen in patent valuations.
Yeah.
Yes, I would say that not a lot of chatter yet because we're really just focused on 2023 and to your point John 2023 is actually better than what we anticipated obviously, we have that anchor with prop 13 in California, which is helpful.
As you move beyond you always deal with that issue of revenue gaps and budgetary gaps and where people are going to get money out of what pocket.
So far we feel good about where we are very good about where we are in 2023 and it's too early to tell.
With these new municipalities, what they'll do in 2024, what those revenue gaps will look like and where what pockets they'll come to to get it.
So so far I would say too early to tell for 'twenty four.
Okay, and then last one from me Michael just curious if you can expand on the softness in pricing power you are seeing in Denver in your expansion markets I know, it's a small sample size of properties, but just curious how youre seeing fundamentals on the ground there relative to some softer west coast.
<unk>.
Yes, I mean, I think I would carve them out a little bit different. So Denver, you clearly have supply pressures sitting on top of us in the downtown Submarket, but yet the suburban portfolios are actually doing pretty well when we go into the Texas markets. We clearly are seeing just more concessions being used.
You have demand right, but when you look at across all of these expansion markets.
Any of the reported data, including our own portfolio, which again is a pretty small subset to less than 5% of the company's NOI. The occupancies tend to be running lower in these kind of expansion markets for us.
The one exception I would say for us as Atlanta seems to be doing a little bit better than even what we thought coming into the year. We just don't have quite as much supply pressure on us. So we see a little bit better pricing power than what we thought.
Okay.
Okay would you expect Denver, and Texas, NOI growth to lag or outpace your legacy footprint over the next year or two.
Well I mean, I think clearly our coastal markets right now are set up not even for this year, but just the entire setup. The demand drivers that we see the cost of housing in those markets is really position them to outperform but again as we went into the sunbelt, we knew like what to expect for these first couple of years.
So for US the positive is that the large majority of our acquisitions are trending slightly ahead of how we perform at them and clearly in line with our expectation for this year.
Okay.
Okay. Thanks for the time.
Next question is from Steve.
Evercore ISI. Please go ahead.
Yeah. Thanks, just a couple of follow ups on the top line growth Michael I know you don't guide to leasing spreads new renewals or blended but just any thoughts on kind of where spreads might be for the year and it certainly sounded like bad debts trending better I realize it might be a little too early but how much of a tailwind.
And could that be.
If things continue sort of on the path they're on today.
Yeah, well, maybe I'll start and Bob you can kind of build a little bit on the bad debt. So in terms of just the leasing spreads and kind of the guide you know a lot of that had to do with where we were with our embedded growth, where we were with loss to lease capturing the loss to lease and I think I said right as we were working through the call back in February we.
<unk> roughly two 2.25% on new lease change for the full year renewals right around 5% and blended right around 4% for the full year. When you look at where we sit today.
Set up going into our peak leasing season, where again, we're going to do 60% of the transaction.
We're set up right, where we thought we would be relative to the guidance, we have a little bit of pressure that we're doing more concessions in those downtown sub markets in Seattle, and San Francisco, but thats kind of being offset by some of the outperformance we're seeing in the east coast markets.
Yeah, and Steve on the bad debt side just to fill out question. We are we certainly did better in the first quarter, we expected the first quarter to sequentially be equivalents.
Excluding governmental rental assistance to the fourth quarter, and we're a couple million dollars better and that equates to a little bit under 10 basis points on a full year basis for revenue.
That trajectory is continuing into April so it's still early.
And so we would expect to perform better overall, but keep in mind. The 90 basis points assume that we are having improvement. So it's just how much that improvement is better relative to what we embedded in guidance, but we do think there is potential upside there to.
To the extent, we continue to see that same pace as we play out through April into May and the rest of the year and Steve. It's Mark just to help you with your models. The governmental payments are really key to the volatility because in the first quarter of 'twenty. Two we got about $9 $5 million of governmental rental relief in the second quarter, we got almost 50.
$15 million in 2022, so we need to make up that difference in terms of improved delinquency performance in the second quarter and then you drop all the way down a little below $6 million in the third quarter, and then only $2 million in the fourth quarter of 2022. So you can see that those rental relief payments are key to understanding so the.
Delinquency, we think will improve the whole year, but there could be quarters, where bad debt net because it's being compared to a number with so much governmental rental relief and it is just not as good as it appears to be and then the next quarter, you'll see it even back out.
Yeah.
Okay, and then just I guess second question is on sort of capital deployment. I mean, you guys did raise acquisitions and dispositions to still be net zero, but I'm, just curious what and maybe distress.
Seeing in the marketplace and what opportunities that might afford you thinking back to the.
Coming out of Dfc you guys were early to buy broken condos and did the macro transaction I'm just curious if youre starting to see things percolate and and I guess secondly.
Are you seeing a big slowdown in new starts or planned starts from maybe some of the competitors and merchant builders.
Hey, Steve This is Alec.
Well first of all transactions volume is down pretty dramatically. So.
Closings will be down about 60 plus percent across the country and that's pretty evenly spread among the different markets. So a lot less activity, but the sellers that do act now understand that cap rates are somewhere between five and a five quarter. So.
Eager to transact and that comes from really three different types of sellers.
The private Reits that have the redemption requests that they have to fulfill so we're seeing some activity from them. So our merchant builders aren't really capitalize to own property in the long run you always expect it to be able to execute and get out of the deal so a little bit of that and you'll some floating rate borrowers who have caps that are expiring.
That they are not able to cover so there are sources of opportunity, but it's really been slow so far but I would expect all three of those areas are more likely to pick up then not in the next six months. So we are excited to deploy more capital.
Opportunities arise and we as you mentioned in the past we've taken advantage of dislocation in the market. So we're certainly set up to that but in the meantime, we're trading in and out of properties, so selling dispose opportunistically and taking advantage of acquisitions that we see.
In terms of starts I mean that they're dramatically down.
Already this year, we were while we were thinking in our markets would be to say 110000 starts is now looking like it might be half of that today and I expect even more things that we thought might start will drop off the list.
Through the rest of the year, it's really hard to make a development work in an environment, where cap rates are as I said, five five and a quarter you need a yield at least around a six and you just can't get there with costs that may not be rising as high as as quickly as they used to a.
A year or so ago, but theres still going up and obviously financing costs are higher. So it's just really hard to make a development underwrite. So we expect to see more and more deals drop out development deals, yes, Steve It's mark just to supplement that I mean, all of the supply in the Sunbelt markets Denver places, we'd like more long term exposure, but we recognize that.
It's going to be tough couple of years, that's an opportunity for us I mean, we're going to sell low performing assets in the coastal markets or assets, where we have an over concentration in the sub market and kind of trade in and accepting that there might be a little near term decline in putting that in the pro forma but as you said I mean, I'm very hopeful I think we're in a really.
Good spot, where our numbers are going to show well comparatively in mature markets.
<unk> our usual good expense control and then we'll turn around and deploy capital and Alex kind of big team of very capable experienced people out there ready to buy so I think we will be active and as soon as those opportunities are more substantial.
Great. Thanks, that's it for me.
Okay.
And our next question comes from.
Sure.
From Goldman Sachs. Please go ahead.
Hi, Good morning. This is John Melo Chuck Goldman. Thank you for taking my question.
Could you guys help us understand what the collections process would look like from here and what the magnitude and timing of the company from Boston.
Could shape up to be like do you have to go to court.
To get trains from tenants, who are perhaps no longer activity you are seeing now and what kind of experience are folks witnessing with the court processes. These days.
Yeah, Hi, Chad its Michael.
So we clearly have evictions filed right now with the core you are seeing a little bit of momentum pick up I would tell you across the country right now it feels like most of this stuff is set up at about a six month timeframe from the time you file to the time, you actually get to you're proceeding with a court date, but.
What's happening on the collections front is twofold. So one you have individuals that you are filing on that have a lot of past balances with you, but if they start paying you current month's rent those past balances are somewhat protected still to date and go out and do like 'twenty four.
I think maybe some of them even stretch into 25. So you have a little bit of a longer tail to go after the previous balances pick a lot, but we are starting to see this resident behavior, where they're making decisions either to move out in front of any kind of eviction proceedings or actually just start paying us their current month.
Rent.
Knowing that we're ultimately going to have to come to terms with what happens with his previous balanced and areas where those balances are not protected we have sent much of that over to the collection agencies and let collection agencies start working that's a slow process because typically what you need to see is a lie.
<unk> style change you need to see somebody needing to go buy a car or a home or some other thing that then causes them to come to terms that they've got to clean up that balance. So I think what you should expect to see is the court system is going to continue to move at this pace of call. It the six.
Six month window, and Youll see us gradually just start chipping away at this delinquency and gradually start to improve the recovery of this band of the past balance.
Okay.
And then Kim there'll be Navarre center to some write offs some reserves. Thank you Steven.
Asked as we sort of think about the.
The magnitude going forward.
Yes, certainly to the extent that all of those historical balances that Michael just described had been written off so to the extent that you collect them.
You would see that as a current period pickup offsetting bad debt. So those collections would flow through but as Michael mentioned, we would expect that we don't Havent really incorporated much of that overall that we would expect that to really trail.
Got it very helpful.
Follow up question is on any mention tax obviously, you guys sold a property ahead of that.
No tax change on April one, but as we think about the composition of your portfolio and you know what you've laid out in the past that you want basically.
33% of your portfolio is sitting in front of each of.
Of course, and then 33 in the Sunbelt, how do you think about the impact from this policy change too.
Affect how you think about selling properties and any going forward and reaching towards that optimum mix off.
Geography that you've laid out in the past.
Well.
Clearly it has an impact.
It's a big move in the rate from one 5% to five 5% and it was designed to raise capital.
Raise money for cities to build affordable housing I think that probably have the reverse effect and that there won't be that many transactions. So they're not going to collect very much. So it may be that this gets reduced over time. So I don't know that it'll be around forever, because it doesn't seem to be well thought out public policy, but in.
In the meantime, there are other ways other properties that arent subject to that tax within California that we can transact on and we can also consider joint ventures as an opportunity to lower exposure in a market like L. A where selling a property may not make a lot of sense, yeah, John It's Marc and just to supplement Alexandra.
It certainly impacts the tactical way to get to the success to lower that exposure, but we remain committed to the goal and we're just going to figure out different ways to do it and again, maybe youre selling properties in Ventura County, instead or an outside the city of San Francisco and the county of Los Angeles, and we have plenty of those too. So we've got other levers.
To pull and we will be thoughtful about that.
Great. Thank you so much.
Yeah.
Next question goes to Michael Goldsmith from UBS. Please go ahead Sir.
Okay.
Good morning, Thanks, a lot for taking my question on the concessions have they gotten better or worse as the year has progressed and as the gap between markets is it getting wider or narrower.
Yeah, So hey, Michael this is Michael so the concessions for US right now are really concentrated in those urban centers of Seattle and San Francisco I think what you saw when we turned the corner into January and we were getting on that first or the fourth quarter call. I was telling you that the demand was picking up and you saw the concessions start.
Going to slow down across most of the markets that absolutely held true almost all of the markets now have wean themselves off of the concessions.
What we saw in somewhere around that Middle February and into March you really saw the concession use pickup in those downtown urban centers in Seattle, and San Francisco and they've been fairly constant I'll tell you. The last couple of weeks, we see a little bit of hope right now that the demand is picking up application volume is picking up in those.
Areas and you could start to see us get to a place where we could start pulling them back again, but for the most part just in the rearview mirror they've been constant for the last couple of months for us.
That's very helpful.
Second question is on the transaction market does this.
Slide seven presents stabilized cap rate on the Atlanta, Joe does that represent a motivated seller or a function of the actual market is this where deals are going forward and maybe just maybe.
Broader terms.
Are you starting to see a reopening of the transaction market now that you are guiding to a modest amount of activity in the year.
Michael This is Alec.
The $5 seven really isn't a reflection of market, it's more a reflection of the property being in lease up right. Now so we're taking it over in the middle of a lease up and we're going to finish it off so we're getting compensated for doing that so I would say as I said earlier on the call you know the rates are somewhere between five and five in a quarter for typical deal and so yes, we're getting a little bit of a boost there because we're taking out a little bit of a.
Lease up, but that's not an indication of market.
And then in terms of other opportunities I mean, well, yes, we're obviously always looking for other opportunities and it has been pretty slow so far.
Yeah.
Yeah.
And our next question will come from Nick.
From Scotiabank. Please go ahead Sir.
Thanks, Good morning, So I want to go back to the topic of job losses, and I know you said is you're really not seeing that much of an impact but.
Are there any indications yet of job losses of residents.
Packaging expected turnover I mean is there anything you're learning now as youre, sending renewal notices out for the spring.
And I guess.
If there's any differentiation you are seeing on this topic.
Between Tech heavier markets like San Francisco Bay area Seattle.
Where there has been more high profile job losses.
Announced versus other markets of yours.
Yeah, Hey, Nick it's Mark I'm going to start and Michael is going to supplement excuse me with some market specifics.
When we look at the General Economics professional and business services. For example, still has positive job growth in that scenario, where we do have a lot of our residents employed.
Finance and insurance kind of flat information services, certainly down, but not down that dramatically in the unemployment rate remains very low, especially for the college educated so I guess I just want to point out again on the macro the macro picture is very good for our company and for the markets. We sit in not just in the long term.
In the near term in the here and now so.
Certainly there can be another shoe that drops but the current numbers. We're all seeing are certainly declined from the COVID-19 recovery numbers, but they're still pretty good and people, losing jobs are finding them and thats been the experience. It looks to me like in the general economy and I'll, let Michael comment on what he's seeing in the rest of our portfolio, yes, and I think one.
<unk> got to put it into context that the reported turnover for the first quarter was really low I mean, it's not quite record low, but it's really low number so the absolute number of move outs that we're having is clearly below any kind of historical norms and when we start drilling in and we look at those reasons for move out were really not.
Seeing anything indicative of changes youre, not seeing kind of job loss or job change pick up anything different than what you would expect for the first quarter of any given year spin.
Specific intellect, or Seattle, or San Francisco, where you saw kind of more of the headlines and we said on the last call. We thought a lot of those layoffs were being dispersed across the country not just heavily concentrated in those markets.
Think what <unk> seen we have not seen anybody really give us keep telling us they are breaking the durability of lease or theyre not renewing because they were laid off what we do notice in those two markets is the in migration, meaning what percent of brand new residents are coming to us from the outside of that.
Say the in migration in those two areas is less than what you otherwise would have expected, which I think makes sense given not only the layoffs, but more importantly, like the hiring freezes that had been taken places. So youre just not seeing them draw into the market like they used to.
Thank you that's very helpful. My second question is going back to Los Angeles.
And.
It's a market that doesn't look like it has much supply except for downtown.
And.
You did talk about delinquency.
Dealing with delinquent units going forward right and in some cases, it's impacting occupancy right now or at some point.
It will and I guess, what I'm wondering is how how you think how do you feel comfortable with this it's almost like a shadow supply type of scenario, where you and other landlords are finally getting tenants out in L. A and <unk>.
You feel confident that there is enough demand to fill tenants, leaving.
Yeah.
Yeah again, it's Marc maybe to start and Michael May have something to add here, but I'll start by just talking about the employment base of our residents as we see it in the market. So we looked at sort of the big Tech majors, and we said what percent of our residents who stated that they are employed by those big companies.
In Los Angeles, and Thats something on the order of 3%. So I think we just have very low exposure to those sort of tech folks in the very diversified la economy. So I think <unk>, just frankly is stronger than San Francisco Bay area and stronger than Seattle, right now, where we have higher numbers of our residents employ.
I'd buy those sorts of people and probably bigger local economic impacts. So I think we are in your opinion, it's almost like we have to empty buildings in Los Angeles, we're delivering into same store over the rest of this year and that we're going to fill up and we've got the demand for it. So I think when you look at the local economy that matches up very well.
With our portfolio there in content creation, there in other businesses some of which feel some pressure, but this disproportionate tech layoffs that isn't a los Angeles phenomenon thats occurring all over the country and the extent there is any concentration it's more San Francisco and Seattle than it is la.
Yeah. Thanks, So I wasn't specifically really wondering about tech in la I just meant the issue of delinquent units coming back to market for you and other landlords right as youre getting people out there, it's almost a supply issue in the market.
Yes, but the supply is being met by people that have jobs that was the point of my comment it isn't a lot of these people are in diversified industries. So it isn't like everyone's losing their job down in Los Angeles. There is it's very well employed down there a lot of people looking for housing a lot of demand Michael sees good demand numbers in terms of.
<unk> and alike. So that's the source of our confidence of diversified economy in which like I said us and others are effectively delivering empty buildings into that but I am confident that demand will need it given what we see on the ground and given the composition of employment in the market.
Okay. Thank you.
Thanks, Nick.
Yeah.
Yeah.
Okay.
Next please go ahead.
Thanks, Good morning, everyone.
Back to the bad debt questions.
If you were to sort of magically.
A switch and you'd be back to 40 basis points bad debt like you would see normally.
With that recovery be less.
Less than the rent relief number that you.
That you you gathered last year or about $32 million I'm wondering how much the rent relief over compensated U.
Or maybe under compensate you for the bad debt that you took on I'm, just trying to understand that that math.
Yeah. So.
The government you are right the governmental rental relief in 'twenty, two was $32 million.
You would have to get back to a pallet 40, 50 basis points normal Thats a million dollars a month of bad debt.
If you look at kind of the disclosure for Q1, we were averaging like probably around certainly in January and February are more like four so it's like a $3 million spread so you'd have to get 3 million times. The 12 months or so is about where you'd be at which would be a little bit more than what the governmental rental relief.
It would be but youre getting youre getting there if you got back to call it that $1 billion a month.
Right away, that's obviously not what's happening yet we're hopeful that that happens and the sooner the better.
From a growth perspective does that help rich yes, yes. Thanks, that's great and then my second question is Michael I think you mentioned youre running at a three and a quarter.
Market rent growth at this point.
If memory serves I think you said your guidance presumed 3% market rent growth for 2023.
I know you guys are trying to be careful about over over promising having not updated guidance, yet and thats coming later, but.
It seems to me Youre ahead of ahead of schedule from a market rent growth, particularly at this point.
And in the year Shouldnt three in a quarter barring a major disruption from some sort of recession should that really be maybe significantly bigger number as you get into the heavy leasing season, and maybe that will be another driving force to you.
Up tick in your guidance, just a better market rent growth trajectory than you expected.
Comment on that please.
I think rich you can look at that and say the three in a quarter sequential build from January one is about where we peg where we should be of what a normal cycle is the three for the full year remember you got a blend in what happens during that first quarter in the fourth quarter. So when you put it all into the blender could you be up at a four four and a half.
And the peak leasing season, sure and you still could average to the three for the full year. So I think I would just look at the trajectory that we see the sequential build of application volume and the sequential build of this net effective pricing trend is basically resulting in us being <unk>.
On top of where we thought we would be from the blended rate growth, which is what manifests itself to the P&L.
Okay, great. Thank you.
Yeah.
Our next question comes from Brad.
From RBC capital markets. Please go ahead.
Yes. Thank you morning, everyone circling back on bad debt. So it was one 7% of revenue in the first quarter, excluding the assistance payments, but you obviously mentioned that improved in March and April . So I'm curious if you can just compare the whenever leading edge figure you have to that one 7%.
Yeah.
Yeah, so that would probably be the one 7% would probably be something call. It 20 basis points better.
<unk>.
Maybe a little bit more.
Maybe 30.
Okay perfect. Thanks, and then.
Then going back to next question you gave the 3% employed by Big Tech MLA figure.
Curious if you have the figures handy for the Bay area and for Seattle, and if there are any other markets like New York that have a larger number two.
Yeah, I've got some numbers, probably I don't have the east coast, but the Bay area is about 14%.
Seattle is about 30%.
Okay. Thank you.
Yeah.
Next question comes from him Delta from Mizuho. Please go ahead.
Hey, good morning.
For me I guess first question is can you provide the new and renewal numbers for March specifically and where are you sending out renewal rates today for may and what's the loss to lease in the portfolio today.
Yes, Okay. So let me just start with loss to lease so we snapshot that on the 15th of every month that April 15th we were three 4%, which basically compares to I think we are one and 5% on January 15th again trending in line with where you would've expected it to be in terms of like the March eight.
I will tell you both new lease and renewals are basically flat when you look at it sequentially.
You look at the blended rate and you can see that we're moving from a three 8% in March to a 4.0 expected in April So again right in line with what we would think based on the sequential build heading into the peak leasing season. If I look forward to think about transactions that are on the books for may So we have renewals.
On the books, we got some expected move ins for leases that just Havent started yet those are also trending in line with what you would expect with Youre starting to see that improvement kick into gear on new lease change and you got that consistency on renewals in terms of the forward view on renewals, we've got quotes sitting out there for the next 90 day.
Days.
I think I said in the prepared remarks, we really do expect a lot of consistency here, we're renewing about 55% to 60%. We don't see any reason not to expect that in the next several months going forward, we're achieving somewhere in this five 5% to 6% achieved renewal rate increase each month, we don't see a.
It can change there we have a lot of confidence in this renewal process.
My expectation is we'll be turning the corner to the second half of the year, we do expect to see a little bit of moderation on renewals, probably more like in that 4% to 5% range, which is just a function of the top period and what we see as we return to more of a normal pricing trend.
Very helpful. Thank you.
Another question on I guess some of the charges in the quarter it sounded like the property legal and admin charges tied to the infection process, but can you comment on the other charges of $5 million environment settlement and the $2 million data transformation project and if we should expect those in future quarters too. Thanks.
And I'll start Bob will help you a little data transformation project is something we're working on we mentioned this before in prior calls it is a big data analytics project with an outside vendor you can expect a couple million dollars more there and then that should be it in and all of our internal employee hires and all of that that's in our normal overhead load so continuing.
Costs are in the run rate of the business the sort of discrete one time sort of events are are separately categorized as we've said on page 24 of the release and I own Bob If you want to comment on on the risk yes. The other components are adjustments to various kind of regular course litigation reserves that we made during the <unk>.
As we got more information and adjusted our outlook.
Okay. Those are all case by case dependent and depend on facts and circumstances at the moment.
Got it got it and one more question on costs is there any part of the property damage from.
The cost in California, rainstorms, any any part of that recoverable perhaps from insurance.
Now this all falls, it's marked below our deductible and so this is all covered by us.
Got it okay. Thank you.
Okay.
Our next question comes from Alexander Goldfarb from Piper Sandler. Please go ahead.
Good morning, and thank you. So two questions first on the insurance you guys mentioned that and we've heard from others that insurance has become more challenging expensive, especially in like Florida and Texas.
Two parts to this in your experience do you you would expect that the insurance providers will rapidly adjust new capital will come in and that this won't really be a problem or do you think that that's actually could give you some opportunities to buy deals where the existing owner can't get insurance on their property and therefore provide you guys with some opportunities.
Entity to buy some of those and some of the expansion markets.
Yeah, It's mark it's a good question.
The insurance market typically has as you suggested when you see costs go up as much as this capacity has gone up we don't yet see that in the difference now is that fixed income is a real alternative I mean.
That our reinsurers can invest in a lot of different things in the fixed income market and maybe even these beaten down equity values may be more interesting to them. So theres a little more competition for those reinsurer insurance dollars net investment so in the off season here because we just renewed our policy program excuse me our property program.
Last month, Alex we're going to be out there looking for other capacity in other places.
Because I'm not sure given the severity of this named windstorm risk that we're going to be able to find additional capacity for that risk now EUR doesn't have Florida exposure and we don't have that risk, but it has impacted other spots in the market now that folks have much larger increases than we add ours was about.
20% on our property program. So I would say I would expect normally for the market to get bigger I Wonder. This time, how quickly that's going to occur given concerns that these sort of wind storms, especially are going to be more continuous than they've been in the past and just alternatives that insurers have and reinsurers have to <unk>.
And vast elsewhere so.
So hopefully that's helpful.
That is the second question is the tax deal that you did in Atlanta, you guys had previously spoken about the 420 <unk> here in New York and the drag it caused to earnings when those tax incentives.
Or sorry matured off burned off do you see similar with the Atlanta and in General are you looking to do more tax deals or your preferences to shy away from them, except where on a case by case basis.
Yeah, Great question.
We certainly like not to repeat.
Things like that.
Look at the IRR on the deal you'll start with these elevated cash flows youre getting a little bit better cap rate because of the fact that later on youre going to be paying these higher taxes. So for us in year eight or nine taxes are going to go up and youre going to really have this flatten out but it's not the order of magnitude of the $4 21, a program so and we.
We also keep track Alex of these so we're not allowing any one year to be overburden. So we don't feel like were you know robbing Peter to pay Paul as long as we're comfortable with our IRR. So as our overall IRR, we being paid upfront for the cash flow growth flatness that'll occur eight 910 years from now and I think we feel like we were.
And we will do deals like that and most of the new product is going to have stuff like this so we will also buy some stuff that's a little bit older.
Alex and his team are looking at those kind of deals as well, where you wont have that but if you have an older deal remember youre going to be putting in a lot more capital. So it is not possible to avoid some sort of cost here because if we bought something 10 years old that had fully stabilized taxes in Atlanta, It probably would require more capital and that would affect the IRR. So we're going to look.
At the IRR and use that as our check on that and in some cases, Alex This is alec.
As the abatement burns off or when it burns off some of the units might go to market, so you're going to pick up there too. So it's not it's not all downside.
Okay. Thank you.
Yeah.
And Jamie Feldman from Wells Fargo. Please go ahead.
Great. Thanks for taking my question I guess, just big picture.
Your comments on maybe acid from the market for investment.
You leverage tick lower in the quarter it looks like you've been met.
Sure you plan to match fund acquisitions with dispositions to the extent you want to put incremental capital to work beyond asset sales just because you see so much opportunity can you just talk about the sources of capital to do that you're having conversations with potential JV partners and if so what kind of capital that's interested in and what would you be willing to do in terms of leverage and how do.
You think about your liquidity position today for investment.
So first off there isn't such a significant opportunity out there that it's worth using up precious leverage capacity or issuing a bunch of equity below what we think the intrinsic worth of the businesses. So I haven't been presented yet with that issue talking to the board. We're certainly willing to take leverage up we have a stated leverage Paul.
Let's see about five to six times net debt to EBITDA.
Approaching three so.
Each of the three so I would say to you that there are several billion dollars of capacity in the system to buy great assets at great prices using that when and if we see those opportunities.
We're looking hard for those we don't see them, yet, but I would start with that but certainly the JV market as another source of capital. We're very aware of that the private market continues to love the apartment industry, even if the public markets are being buffeted a little bit by some of these crosswinds. So we're out there looking for other sources of capital for sure.
Thank you and.
And can you talk about the returns that private market is looking for those sources of capital are looking for how are they underwriting apartments today and what kind of things are they looking for.
Generally they are this is Alex.
Generally they are looking for the same kind of return a cap rate of say $5 5 million a quarter depending on the asset.
That we would see in the transactions market.
Okay, and then finally I mean.
And your comments and everyone's comments I mean, there's so much talk about supply.
When you just think about the next.
Six months nine months 12 months 24 months like when do you think the supply chain really starts to kick in based on the delivery schedule.
Just to make sure I understand the question when do we think supply will start going down based on deliveries I'm, sorry didn't hear the end of that.
No I mean I know in your comments.
You feel somewhat protected from supply based on where your assets are located but clearly a very large pipeline.
Set to deliver over the next two years.
When do you think that supply really starts to be felt.
National Lee.
And it certainly doesn't feel I think you've got the stuff thats going to get completed I would say your youre looking more in late 'twenty five 'twenty six I mean stuff you start now I mean, if you've got your capital stack and Youre able to start you're going to deliver I mean, you may deliver a quarter late because of the supply chain, but youre going to deliver so I think the starts Alan referred to.
Will impact 'twenty fives, count that will be lower in.
In 2006, as count will be lower but stuff for this year and next thats expected to deliver will deliver and I think some of the numbers and some of the markets some of which we're interested in like Denver, and Austin are really large and thats a terrific opportunity for us to buy than to sell some of these assets were were over allocated and some of them.
Close to markets.
That's going to be an attractive play for us.
Okay. Thanks for your thoughts.
And John Kim from BMO.
Capital markets. Please go ahead.
Thank you good morning.
I realised unemployment remains pretty healthy it seems like demand is going very well for you guys.
There have been some reports of employers delaying start dates for new hires and I'm wondering if you've seen any softness in demand as it pertains to the upcoming graduate pool.
Okay.
Yeah, Hey, John This is Michael I don't I Havent heard that I mean, I did hear a few kind of comments from prospects around what time, they're looking for so typically theyre showing up taken tours and these folks were thinking more like the June July timeframe, there's definitely a little bit of pause in the <unk>.
Aspects decision, making process right now around are there going to be more layoffs will they actually get the offer to start when they want it but its nothing of a material nature, because again, our sequential build of application volumes or foot traffic year over year all of those things are trending in line with what.
What we would say is a normal seasonal pattern, but we haven't seen anything like that.
Okay.
Question is I think for Bob but on the litigation reserves.
That you incurred this quarter is this something that may be ongoing and is this related to real page.
Yeah, It's Marc I'll take that so.
Being in a consumer facing business, there's always some level of litigation costs are widely varying theres no significant amount of real page related costs in there, but they are in there, but it's relatively small the reason for that is that the case is in its early stages and you should think about that going on for a longer period of time.
They arent resolved in weeks or months, it's more like years, but again, we feel very strongly about our position. We think these claims are without merit and we're going to defend ourselves.
We continue to feel really confident in our prospects. There. So there is some small amount, but it's small most of that just relates to just continuing legal costs from being in a customer facing business in an industry that as regulation.
And then let's say just society as well thanks, a lot mark.
Thank you.
Yeah.
Next question comes from Adam Kramer Kramer from Morgan Stanley .
Hey, guys yeah. Thanks for thanks for taking the question.
I just wanted to ask about the California storm damage.
Cost look I appreciate the disclosure around <unk> impacts wondering just on.
If there will be further impacts in particular, if you could kind of quantify maybe the <unk> impacts or any other impacts going forwards.
Yeah. Thanks, Adam it's Bob our expectation is that there won't be anything material going forward into Q2 related to these specific storms, obviously, if theres a different events then we don't know.
But as it relates to this there's nothing material that's moving the numbers are assumed for Q2.
Yeah.
Great. Thanks, and then just on.
Through occupancy and kind of the occupancy versus renewal renewal kind of pushing renewals kind of trade off.
Look recognizing occupancy theres some drivers there in terms of physical occupancy rate and kind of what's happening on the on the bad debt and eviction side, but just thinking through how is that kind of.
That trade off that you guys are going through right now.
Occupancy versus pushing renewals.
How is that conversation maybe evolved from <unk> to <unk> to today or changed how you're approaching that and how much youre kind of where we are able to push renewals.
Yeah, well I think you could see just that sequential build that we have right now and we achieved renewal increase shows that we are pushing on that front. I mean every market is a different balancing act that's going on between the trade offs of occupancy and renewals I mean for us the preference clearly would be to continue to renew as many residents as.
Hospital, because one we avoid the turn costs until we avoid the vacancy loss with that so youre seeing us do a little bit more negotiation across many of the markets right now.
But again, we're well positioned which gives us the confidence to keep pushing on that rate in the marketplace that not only fuels the new lease change, but also helps the future months renewals as well. So I think this tradeoff is constantly balancing honestly, we're looking at these markets every week going through that conversation.
Now that we have the centralized renewal team, which is which way are we leaning.
That's really helpful. Thank you so much for the time.
Yeah.
And Linda Tsai from.
Jeffrey Please go ahead.
Hi, Thanks for taking my question.
I know you emphasized IRR individual appeal at the higher taxes and insurance occurring in the expansion markets.
The attractiveness of these regions long term.
There is no risk Willis apartment market and it's Mark I'll start now like May supplement it I mean, if you are buying in some markets youre going to have higher insurance cost, but maybe lower political risk and then another market you may have slightly higher political risk in a lot better resilience than maybe.
Better supply picture, our whole investment thought process of being diversified is premised on the idea of kind.
Kind of accepting these risks in small doses across the whole country and staying tied to these affluent renters.
So it doesn't change our mind, we just underwrite it and the deals will either work or they won't I do think that some of the markets that have outperformed lately in the sunbelt that have resilience challenges are really going to be pressed by these insurance costs and frankly, maybe even the availability of financing if insurance is unavailable at some niche on issue lenders are.
Very sensitive too, but from our point of view I mean, we're just going to run the numbers I think these markets continue to have other subjective factors that are valuable to us and I think they're going to remain investable the ones that were interested in for sure.
Okay.
Yeah.
Thank you for that and then just on the strength Youre seeing in New York and Atlanta could you talk about that a little more.
Yes.
Okay.
Yes.
Michael I said in the prepared remarks, I mean, New York the strength is really kind of widespread across all of the Submarkets, where you have good demand you have pricing power you have the sequential build the demand and rents moving up with really strong kind of results both on the retention as well as the achieved renewal increase and Atlanta.
I think right now relative to our expectations, we feel really good we're not having that direct supply pressure Ana we're not seeing kind of heavy use of concessions in our portfolio and we have demand and even the deals that we're looking at one that we have to go through the lease up of finished the lease up on we got a lot of confidence in the <unk>.
<unk> city, the weekly velocity of application volume, there that theyre going to perform really well.
Thank you.
Okay.
Okay.
Okay.
Okay Doyle.
From Credit Suisse. Please go ahead.
Yes, good afternoon.
Thank you for the color on just the capital recycling.
Dated guidance there.
Get it or buying assets at higher.
Higher cap rates and so I think as I said Miller calculated kind of creating value that way.
But I'm curious with your implied cap I'd like 6%.
Point, according to our math.
You did make some comments earlier on about development starts flowing because development doesn't pencil out how do we kind of think about that on the other side of the story, which is the acquisition side or still is the IVF. So things are not going to be able to kind of pencil out for a while.
And unless you're kind of matching assets.
Versus acquisitions, you don't expect to kind of be doing much out there on the acquisition side as well.
It's really as you said Ed Tayo this is Alex.
Matching the sales in the <unk> and the acquisition. So we keep track of that we don't get ahead of ourselves on either side and just match them up and it's a neutral bet, but we feel like we're accomplishing our goal of diversifying the footprint.
On the focus from an acquisition perspective remain in your in your newer markets rather than some of your more established market.
Primarily but also in the suburbs of our established markets and as we've talked about being opportunistic there may be opportunities that come up but theres more that dislocation that are billing anywhere and we would chase those.
Gotcha, Okay. That's helpful.
<unk>.
Would there be any interest in doing something in regards to office to revenue conversion.
From your end or just the development risk and everything is just way too great.
Well I'm going to split it up because there is the urban conversion of these office buildings that are really.
One block floor plates, it's very challenging in urban locations to take a property in Lasalle Street in Chicago or in Midtown Manhattan. It spans a blocked and doesn't have a lot of windows relative to the total floor space doesn't have a lot of plumbing fixtures. There has been work done by engineering firms in Boston for.
Example, on this and there's relatively few of these buildings. These large buildings that are going to work as repositioning plays they may work, if the building isn't there anymore, but they're just taking that building in semi reengineering. It is going to be tough in the suburbs you may and this has been common in the bay area and in suburban Washington, You May scraper.
And office Park in build departments, there and we've been involved in those sort of plays but those are different altogether, because youre not reusing. The building. So I think we're using an office building is tough in an urban situation just because of the need for plumbing fixtures in the unit and the need for Windows that these larger office buildings.
Don't allow very well, but I would say.
Urban owners, we we'd like to see the central business District office districts thrive when they pay taxes that support transit that support public safety.
We want those to be repositioned, it'll just take more time and likely be more costly and extensive than some observers seem to think I. Just don't think you can snap your finger and take a 40 year old office building and turn it into a livable awesome apartment building in the center of whether it's Manhattan or the center of Los Angeles. So we'll.
Kind of play a wait and see on that but urban repositioning for us are not likely place and in New York downtown where it was down a lot that was on the back of a tax abatement that since since expired. The 421 G that was specifically to promote the conversion. So if that doesn't happen easily and it does need to generally does need a public policy support.
Fair enough. Thank you.
Okay.
And our next question comes from Josh Stirling from.
Bank of America. Please go ahead.
Yes, hey, everyone.
Just wanted to touch base on new lease change in April relative to <unk>. It looks like it kind of stepped up 30 basis points.
How does that compare to.
Typical acceleration in April <unk>.
I don't know if I looked historically back I will tell you it's sitting right on top of what we modeled at the beginning of the year, which is what we would say more like a 2019 2018 kind of curve and expectation.
Some of this just has to do with the timing of who moved out what was there previously so when I look at the 30 basis points growth I would just tell you anytime you look at these statistics are these metrics on such a short time period of time. It does create some volatility with it. So we tend to look at this.
Over the longer stretch and right now I've said this a couple that were sitting right, where we kind of modeled for the year and what we would expect based on just a normal sequential bill.
Okay.
It sounds like concession you picked up in March and April .
Yes, that'll in San Francisco.
Those two markets.
How is kind of a new lease.
Great.
I think the impact on the overall portfolio was like 20 or 30 basis points on the net effective new lease change.
So if you just pulled out kind of those two markets with the heavy concession use I think that was what the impact to us.
Okay, and then just digging down into same store expenses I don't think we've touched on other onsite operating expenses on the call.
Sure.
Got it.
Hello.
Actions.
Kind of the expectation in that line item going into Q2, just given the move outs.
Yeah.
Yeah, Hey, Josh Bob our expectation is that that could be pretty bumpy.
If you think about the expense the expenses really in advance oftentimes is in advance of the actual move out so it depends on how quickly and how fast the cases get filed.
We've made a good amount of progress faster than what we thought in the first quarter. We will have some go into the into the second quarter that line item is normally a line item that barely grows for us and so it will be bumpy because of this elevated.
This elevated activity, but it will be lumpy. So just expect it to be kind of grow above trend relative to history and be lumpy quarter to quarter, hopefully tailing off as we get to the back end of the year.
Got it I appreciate the color.
Yeah.
And there is no further questions in the queue I'll turn the call back over to Mark.
Additional and closing remarks. Please go ahead.
Okay.
Alright, well. Thank you all for your time on the call today and for your interest in equity residential good day.
Yes.
Everyone else has left to come.
This concludes today's call. Thank you for your participation you may now disconnect.