Q2 2023 Mid-America Apartment Communities Inc Earnings Call

Is about to begin.

[noise] good morning, ladies and gentlemen, and welcome to the M. A a second quarter of 2023 earnings conference call. During the presentation of all participants will be in a listen only mode. After work. The company will conduct a question and answer session. As a reminder, this conference call is being.

Recorded today July 27th 2023, I will now turn the call over to Andrew Shapers Senior Vice President Treasurer, and director of capital markets of M. A a for opening comments.

Thank you and good morning, everyone. This is Andrew Shaffer Treasurer, and director of capital markets for Nia members of the management team also participating on the call with me this morning, or Eric Bolton, Tim Argo Al Campbell Rondel from Mary Jo <unk>, and Brad Hill before we begin with our prepared comments. This morning, I want to point out that as part of this discussion company man.

<unk> will be making forward looking statements actual results may differ materially from our projections. We encourage you to refer to the forward looking statements section in yesterday's earnings release, an R. 34 Act filings with the SEC, which described risk factors that may impact future results. During this call. We will also discuss certain non-GAAP financial measures a presentation of the most directly comparable.

<unk> financial measures as well as reconciliations of the differences between non-GAAP and comparable GAAP measures can be found in our earnings release and supplemental financial data earnings release of supplement are currently available on the four investors page of our website at Www Dot M. A C dot com a copy of our prepared comments and an audio recording of this call will.

Also be available on our website later today. After some brief prepared comments the management team will be available to answer questions I will now turn the call over to Eric.

Thanks, Andrew and good morning, everyone leaves.

Leasing conditions across the Emma portfolio continued to reflect our steady employment markets strong positive migration trends and continued low resident turnover.

As a result, we are seeing good demand for apartment housing and are absorbing the new supply deliveries, while supporting solid rent growth in.

In line with normal seasonal patterns, new lease pricing improved in the second quarter and the spread between new lease pricing and renewal pricing narrowed.

<unk> for new move in residence jumped 100 basis points higher on a sequential basis as compared to the preceding first quarter.

Renewal lease pricing in the second quarter remained strong growing by six 8% driving overall blended pricing performance and Q2 to 3.8%.

Which is ahead of the original projections, we had for the year.

<unk> remained steady with average physical occupancy in the second quarter at 95.5%, which is consistent with the preceding first quarter. This despite a higher number of lease expirations during the second quarter.

While we are working through a higher level of new supply deliveries your cross our markets for the next few quarters with the demands trend with the demand trends holding up as they are we expect to continue to drive top line resolved that will exceed our longterm historical averages as has been the case and prior cycles of higher support.

Hi, we see the demand supply dynamic holding up slightly better than our mid tier markets and this component of our strategy continues to bring support to overall <unk> portfolio performance. During this part of the cycle.

As described in our first quarter report, we do expect to see moderation in year over year growth and operating expenses as inflation pressures ease a bit.

And some of the efficiencies, we expect to capture from new tech initiatives increasingly make an impact.

Is al will cover in his comments, we do now also expect to see some relief on property taxes coming out of Texas, which further supports our ability to reduce our outlook for expense growth over the back half of the year.

The transaction market remains quiet, we continued to underwrite a few deals but the limited number of properties coming to market combined with strong investor interest continues to support low cap rates are strong pricing we.

We continue to expect that more compelling opportunities will emerge later this year and into 2024 and believe it's important to remain patient with our balance sheet capacity.

Our new Lisa New development and redevelopment of pipelines will all continue to make solid progress all continue to make solid progress and will provide attractive incremental additional earnings over the next few years.

Didn't want to take a moment and express my deep appreciation to our onsite property teams for all their hard work and great service to our residents during these busy summer months.

That I'll now turn the call over to Brad.

Thank you and good morning, everyone.

We say as we've seen each quarter over the past year or so second quarter transaction activity remains immunity versus normal levels.

Volatility and uncertainty and the dead market continued to cause the majority of sellers to postpone their sale processes, leading to a drop or sell inventory on the market for.

For high quality, well located properties in our region of the country.

<unk> to be strong investor demand, causing cap rates to adjust slower than interest rate movements alone would indicate.

Having said that we have seen the average buyer cap rates move up to 4.9% in the second quarter from 4.7% in the first quarter with most cap rates ranging between 475 and 5.25 per cent.

We continue to believe we're likely to see more compelling acquisition opportunities later this year and Internet. So we remain patient as we wait for the market to continue to adjust we are actively reviewing a number of acquisition opportunities, but with no potential acquisitions under contract at the moment.

We've lowered our acquisition forecast for the year to $200 million at the midpoint.

Acquisition team remains active in the market and al and his team have our balance sheet in great shape and ready to quickly support any transaction opportunity should've materialize.

Due to the lower funds needed for expected acquisitions, we've also lowered our disposition forecast for the year to $100 million at the midpoint.

Our priorities in their initial Lisa continue to outperform our original expectations, producing higher noi's and higher earnings and creating additional longterm value for the Cup.

These properties are navigating the increased supply pressure well and on average have captured in place range, 22% above our original expectations.

For the for properties that are either leasing it will start leasing in the third quarter. This rat outperformance, which is partially offset by higher taxes and insurance is estimated to produce an average stabilized NOI yield of seven 2%, which is significantly higher than our original expectations for these properties.

Early leasing is going well at novel day break in Salt Lake City and novel West Midtown in Atlanta, and we expect to start leasing it novel Val Vista.

In Phoenix in the third quarter.

During the second quarter, we also reached stabilization MAA loso in Charlotte.

Despite permitting an approval processes that are taking a bit longer than we anticipated predevelopment work continues to progress progress on a number of projects.

We expect three projects will be ready to start construction on the back half of 2023.

See sufficient adjustments to construction costs and rent to support our NOI yield expectations. These projects include two inhouse developments, one in Orlando and one in Denver, and one Prepurchase joint venture development in Charlotte, we've pushed back the start of the phase tune to our west Midtown pre development in Atlanta to 2024.

Due to the approval process taking longer than anticipated.

The team continues to work due to increased Prepurchase development opportunities that had been presented to us and we are hopeful we will be able to add additional currently <unk> development opportunities to our pipeline.

Any project, we start over the next 12 to 18 months would likely deliver in 2026 of 2027 and should be well positioned to capitalize on what we believe is likely to be a much stronger leasing environment, reflecting a significant slowdown of new starts expected over the balance of 2023 and 2024, Arkansas.

Construction management team remains focused on complaining and delivering our six under construction projects and you're doing a tremendous job managing these projects and working with our contractors to minimize the impact of inflationary and supply chain pressures as well as.

Labor constraints on our development costs and schedules.

During the corner of the team successfully completed and accepted delivery of a combined 249 units and novel day break in Salt Lake City and novel West Midtown in Atlanta, That's all I have in the way and prepared comments, so with that I'll turn the call over to him.

Thanks, Brian Good morning, everyone Same-store revenue growth for the quarter was essentially in line with our expectations with stable occupancy low resident turnover and better blended rent performance and what we previously projected.

Despite increasing supply furniture, and some of our markets when did Lisa release pricing of 3.8% comprised of newly screwed with a 0.5% and renewal growth of 6.8% was better than our forecast that expectations occupancy was slightly below are expected range for the quarter the.

The resulting higher blended lease growth performance as a favorable tradeoff, providing a greater future compounding growth effect.

As discussed last quarter, we expected newly surprising that showed a typical seasonality that is to accelerate from the first quarter and renewal pricing, which lag new lease pricing for much of 2022, it's a moderate some but still provided the catalyst a strong second quarter pricing performance.

As Eric mentioned this played out as expected with nearly as pricing accelerating 100 basis points as compared to the first quarter and renewal pricing remaining strong.

Alongside the pricing performance average daily occupancy remain consistent with the first quarter at 95.5% contributing to overall same-store revenue growth they 0.1%.

Various demand factors, we monitor remains strong in the second quarter was 60 days exposure, which represents all current vacant units plus those units with notice to vacate over the next 60 days.

Largely consistent with prior year at 8.5% versus 8.4% in the second quarter of last year.

More quarterly resident turnover was down on his two per cent from the prior year.

<unk> from markets outside of our footprint picked up slightly from Q1, 13% and written income take down slightly from Q1 to 22% the.

The employment market remains relatively strong also particularly in the sunbelt markets.

Lead volume thrilled with record demand scenarios as we saw in 2021 and 2022. It is from 2018 in 2019, the last years, where we experienced a more normal demand curve.

Prospect engagement platform that combines AI marketing automation and scheduled human engagement has enabled us to engage with prospects more effectively.

July to date pricing remains the head of our original expectations with blended pricing of 3.2%. This is comprised of news pricing of 0.3% and renewal pricing a 5.5%.

Nobody's pricing is relatively consistent with the 0.5% for the second quarter and within five basis points of June newly surprising as expected renewal pricing is moderating to a more normal range as leases are beginning to expire that were signed in the period last year when renewal rats had connaught's newly threats.

Physical occupancy is currently 95.6% with average daily occupancy July month date of 95.3%. The current July occupancy Angela exposure, which is even with the prior year, so having a half percent puts us in a good position for the remainder of the quarter.

A key part of our portfolio strategy is to maintain a broad diversity of market submarkets asset types in price points.

As we compete with elevated supply deliveries, particularly in some of our larger markets. Many of our mid tier markets are performing well and bleeding in the portfolio and pricing performance. Both in the second quarter and into July Savannah, Charleston, Richmond, Kansas City Greenville in Raleigh are all outperforming the overall portfolio, we expect that.

This market diversification combined with continued strong demand fundamentals will help mitigate the impact of new supplier that we expect to be elevated over the next several quarters.

Regarding regarding redevelopment, we continued our various product upgrade initiatives in the second quarter. This includes our interior unit redevelopment program hour installation of smart home technology in our broader amenity based property repositioning program.

For the second quarter of 2023, we completed nearly 1900 interior unit upgrades and installed nearly 2300 smartphone packages. We are nearing completion on the smart home initiative and now have over 92000 units with this technology and we expect to finish out the remainder of the portfolio in 2023.

For our repositioning program leatham leases have been fully or partially repriced that the first 15 properties in the program and.

And the results have exceeded our expectations with yields on costs in the upper teens, we have another five projects that will begin repricing in the third quarter and are evaluating an additional group of properties to potentially be getting construction later in 2023.

And the way prepared comments now turn the call over now.

Thank you, Tim and good morning, everyone.

40 core SFO for the quarter to 28 per share was two cents per share about the mid one of our quarterly guidance.

<unk> performance was primarily driven by a favorable interest in overhead costs during the quarter and a large portion of the overhead costs favorability is tommy related with the cost now expected to be incurred in the back half of the year.

Overall same-store operating performance for the quarter was essentially in line with expectations does it as Tim mentioned blended least pricing continues to outperform originally expectations for your ear and build a stronger than expected longer term revenue, but was terminally offset in the second quarter average occupancy slightly below forecast.

Also is expected we began to see moderation in same store operating expense growth during the second quarter with the growth of personnel repair and maintenance and real estate expenses tax expenses excuse me, which combined represent 70 per cent of total operating costs, all reflecting moderation from the prior quarter.

We expect moderation for these items to continued through the remainder of the year, particularly for real estate taxes, which will discuss more with guidance in just a moment.

As mentioned in the release, our annual property and casualty insurance programs renewed on July 1st with combined premium increase of approximately 20 per cent, which is in line with our prior guidance.

And a quarter, we invested a total of 26.3 million a capital through our element repositioning and smart <unk> installation programs, producing strong returns and adding to the quality of our profile polio. We also funded just over 51 million of development costs during the quarter tore the completion of the current 735 million dollar pipeline, leaving 344 million.

Remaining to be funny.

That's why I mentioned, we also expect to start several new deals over the next 12 to 18 months likely expanding our development pipeline to be closer to $1 billion, which our balance sheet remains well positioned to support.

We ended the quarter with 1.4 billion in combined cash and borrowing capacity under a revolving credit facility, providing significant safety and future opportunity.

Ah leveraged remains historically low that David at 3.4 times and are dead is currently 100 per cent fixed for an average of seven and a half years at a record low 3.4%.

We do have $350 million of debt maturing in the fourth quarter, but a current plan is to remain patient and allow interest rates and financing markets to continue stabilizing over the next few quarters before we before refinancing with long term debt.

And finally, given the second quarter's earnings performance and expectations for the remainder of the year. We are revising our core SFO instead of several other areas of our guys previously provided with a blend of pricing outperformance achieved through the second quarter. We are increasing the midpoint of our effective rent growth guidance to send an accord percent of 25 basis points increase and this is all.

Set by a decrease in our physical occupancy goddess, which is now projected average 95 and a half for the full year.

<unk> 30 basis points decrease.

This tradeoff support slightly higher rental earning going for a total revenue growth guidance for this year remains unchanged at the midpoint of 6.25%.

In early July the Texas State legislature passed attacks overhaul was significantly rollback property tax rates across the state to a fed affectively redistribute a budget surplus given aggressive property valuations. We had previously anticipated rate rollbacks in Texas, what we have now added a specific reduction for this legislation, which lowers our overall scene.

[noise] store real estate tax growth rate for the year of 50 basis points to five and three quarter person at the midpoint and as two cents per share to cough a vote for the year.

They're still limited information regarding exactly how individual counties and municipalities will push this changed through but regardless now includes our early estimate of this overall impact which is expected to be ongoing.

And suddenly we are increasing our course without projections for the full year to mid point of non dollars 14 cents per share, which is an increase of three per share. This increase is primarily comprised of a carry through one set per share from the second quarter performance outperformance as well as the two cents per share addition related to the Texas legislation.

But I mentioned, we also revised our transaction volume expectations for the current year to reflect current market conditions.

So that's all we have in the way of prepare comments, so and we will now turn the call back to you for any questions.

Well now open the call up for questions. If you would like to ask a question. Please press Star then one on your Touchtone phone.

Draw. Your question you May press the pound.

And we will take our first question from Eric Wolfe with City. Your line is open.

Good morning.

Apologies if I missed this new remarks, but could you just tell us the the blended rent grow with that you're expecting sort of for the full year now that's been revised upward and then what that would be in the back half of the year as well.

Yeah. Eric This is al we had started a year if you remember with three per cent for the full year, but the outperformance we've seen through the first half that's a increase that so I think for the full year, we didn't put that in our guidance, but if you could do the math on Mr. About 3.5% for this year and that means largely sticking to the 3% for most of the back half, though we started with July as Tim talked about <unk>.

And that so you're probably average in 323132 for the back half and that projection now.

Yeah that makes sense and then you mentioned that new lease rates did come up as he expected in the second quarter as you would expect seasonally but they're still pretty wide gap between new lease and rental rate grow so as I'm trying to understand what you're sort of expectation would be for for new lease growth the back half of the year and then take you through.

Whether that's actually a good sort of proxy for market rent growth ship it to the to kind of be around the same.

Hi, This is Tim.

With newly Scribed, we did as you said, we saw it accelerates thumb as we expected it didn't accelerate quite as much as what we would see in a normal in a normal environment I do think there's a little bit of supply of pressure impact and that having said that I don't really expect it.

Decelerate as much as it normally might would in Q3, it's typically come around this time that you start seeing nearly surprising moderate a little bit as demand starts to moderate so I don't I don't expect the volatility if you will to be quite as as large on the newly side on.

The renewal side, we talked about it from the beginning of the year. There was a sort of unusual scenario last year, where for the first call at seven eight months of 2022 newest pricing outpaced renewable pricing quite a bit. So we knew we had some opportunity kind of mark to market those that were on the renewal rates as the <unk>.

First part of last year. So we've kind of reached a point, where we're we're laughing nose and starting to reprice knows that's that's where you've seen the renewal pricing moderate a little bit, but we still expect it to be quite a bit stronger than the new lease rates, which is typical and really just kind of returning to the to a normal seasonality.

Scenario.

Alright, thank you.

And we will go next to Jamie Feldman with Wells Fargo is open.

Great. Thank you for taking my call.

Forget your comment.

To your market.

The entire portfolio.

More about.

And how those are performing within your market.

Yes. This town is the bees are still outperforming a little bit I would call. It kind of Ah 40 to 50 basis point gap between what how we would define a verse bees and that's pretty consistent on the newly side in the renewal side. So I think it's.

As part of the part of the portfolio structure that we expect those markets.

It can it can be more of the b s's perform well and some of the supply or or in most markets the supply coming in hasn't been quite as impactful on some of the more be assets typically been much higher price more urban style assets and a much higher rent then, particularly some of the assets.

Okay. Thank you.

And then.

<unk> you're talking about.

The man.

Maybe even better than units of expectation mitigating climate.

Can you do for a color or maybe put the numbers around that.

Maybe.

Indifference detail, but like what percentage is that what you need.

The mitigate that apply to raise more color and lucky to be.

Making that statement and what you're seeing.

Yeah. So there's there's a few things that we typically look at.

As as a leading indicator of demand you, obviously have job growth at a macro level, which continues to be pretty strong and and certainly stronger than a lot of the sunbelt markets and then more granular when we look at exposure lead volume what we call lead her exposed unit, which is really a combination of those two.

Matrix and then also looking at what our renewal except rates are so ennuied volume in Leeds for expose it's not at the level. It was in 22, which was record demand but.

As I've noted in the comments you'd go back to kind of the 2018 2019 time frame when we saw more normal if you're middle demand scenario. We have our lead volume leads for exposed is quite a bit higher than those times. So that's that's encouraging that are renewing separates remains strong and hired of that period as well we.

Have 60% except rate for July 58 for August and forty-three for September which is at or above where we would expect I really would like to see it and then a couple of other metrics sprint income continues to stay consistent stay let them actually dropped a little bit from what it was in Q1.

Turnover remains low reasons people moving out to buy a house is way down. So you know all those various factors while not quite at the level, we seen with the record performance last year still healthy and stronger than a typical year. If you will and Jamie. This is Eric I'll add what Tim just said, which.

Covers a lot of reasons why we see the demand staying healthy. The other thing is just the continued positive migration trends you know 13% of the leases that we wrote in queue to where for people moving into the Sun belt for the first time and you know that compares to 15, 16% during the peak of Covid. So while it's moderated is moderate just.

A little bit and it's still well above where it was before COVID-19 started so these positive migration trends are still there.

Any thoughts of some kind of reversal.

After Covid was over you know I think we've just spell that fear at this point. So there's just a multitude of factors that sort of go into it and.

We're pleased with where we see demand continuing to hold up.

Okay, that's very helpful color and and bad for me you know your comments about expenses moderating into the back half of the year.

Encouraging as you think about 24 and the key line item.

<unk> like you think all of them will be down in terms of your expense growth rate.

I think as you talk about I mean too early to really get to refine the 24, but certainly we would expect some continued moderation just.

I'm, an inflationary pressures begin to wane. The three main areas you, obviously, the personnel repair maintenance and taxes taxes, I would say being the biggest certainly.

It's going to follow the moderations at the top lines. So it's a backward looking thing. So you would naturally think that's S. 24, looking back 23, which is a good year, but a more moderate year than it was 22 that you should see some moderation there so probably in those three to make up 70% of our expenses, you'll see some moderation at some level.

Can you ballpark it.

Hard to ballpark at this point I don't think it would be probably yet a longterm right, but somewhere between me or stay in that.

Okay, Alright, great. Thank you.

And we will move next to Austin worse Schmidt with Keybanc capital markets. Your line is now open.

Good morning, everybody.

You're finding that you are having a trade off.

Some of that new leading to drive traffic.

The 95.5% level it seemed like.

Racking and I'm just wondering.

Sort of seasonal.

Seasonal demands.

Does that concern you as you move to the latter part of the year and heading into 2004.

I often as Tim.

Occupancy front, we've kind of been hanging in 95.5% range for the for really all of the first half of the year, which we've been comfortable with as we as we mentioned with pricing been a little bit better than we thoughts are willing to make that trade off with with the compound and growth we can get from rats.

We moved into July .

I can see moderated a little bit there is some unique circumstances in Atlanta, then we can talk about that's driving that down a little bit if you kind of pull Atlanta out of that number we'd be right back in 95.5% on occupancy which were are comfortable being in that range. So.

It hasn't it hasn't moved the needle I don't think I'm, a newly tried a little bit I mean, there is some some supply of pressure that we've talked about but outside outside of that I don't think there's anything specifically tied occupancy necessarily.

Austin I'll also add a couple of points on that.

The.

I need to keep in mind as we have a pretty extensive sort of redevelopment.

And some of the new technology initiatives that were particularly smart home initiative that continues to fuel the opportunity for positioning the portfolio at a higher rent level, particularly as a compares to some of the new supply coming into the market. You know one of the benefits for new supply come into the market, particularly when it's coming into the market on that.

He was 20% higher than the wrench that were charging it creates a more compelling value play for our portfolio to the rental market.

And so that that that's working to give us some momentum.

On the rent growth that we might otherwise not have both of those things and then you know the so I would just tell you that and the other thing that I would tell you we track pretty actively by people leave us and when you look at move outs that are occurring because people don't want to pay their rent increase let's take down a little bit from where it was last.

Last year as a percent of our turnover, but it's still you know running higher than it has longterm and Tim says you know, we're okay with that trade off for.

For a slightly lower oxy right now because that that revenue growth associated with rent is really.

Much more impactful in terms of compounding value over the long term so.

We sort of like where we are right now will continue with this sort of trying to manage that that tension.

Between pricing and Oxy, where it is right now.

No. That's that's helpful date sounds like symptoms as to occupancy and maybe even some of the frictional vegan.

Redevelopment was picking up a little bit from where you had originally expected.

Yep.

When you look across some of your larger markets, obviously new lease growth.

Positive, but when you kind of look across the large markets, where you're feeling some of the supply.

Right.

Notable gained at least today that you'd kind of highlight that.

We should be a little bit more focused on.

Moving forward.

And also it's town when you say gained luis meaning where there is a threat.

Threats for <unk>.

Worse or noticeably above market rents.

You know not I wouldn't I wouldn't say anything.

Significant even we do have some negative new lease rates on on a couple of those larger markets, but none of them are are are getting to Alabama, I mean, they're kind of not negative one 5% range. So it's not a huge huge variance. So what we're seeing overall, so nothing nothing significant that I would point out.

Those that are at that.

Negative one percentage range, so you've got a point.

Out Austin's one that's been a little softer also in Phoenix, and we've talked about those two markets here for awhile or are kind of the two that I would point out that have been are weaker performers and certainly have some supply impact so great about a longterm, obviously have great demand fundamentals, but those those have been two that probably Lee.

The list in terms of our higher concentration markets.

Very helpful.

Alright. Thank you very much we will go next to Brad peppered with RBC capital markets to your line is now open.

Yeah I have her body for some of the markets that are lagging their normal seasonal trends like you're obviously just mentioned to Austin in Phoenix, but some of the other ones as well do you think that that's entirely due to elevated supply or are there any other factors that you would call out that might be driving that.

Nah I think it's I think it's primarily supply I mean supply is somewhat widespread across several of the larger markets in particular, and then it's nuance to buy market, obviously and depending on where our portfolio is relative some others I mean Charlotte to get.

[noise] example, it's getting a high level of supply of similar to some of these other markets, but it's performed well and you know, it's just kind of where our portfolios position versus what are the supplies coming into Jenny.

Generally I would say, it's supply again going back to the demand side. If you look at like a job growth across our markets compared to national averages were pretty consistently higher than the average across all those markets.

Nuances by market, but but nothing notable outside of that.

Okay got it and then on the balance sheet, obviously, <unk> been setting record low leverage numbers every quarter for awhile now.

What do you think the likelihood is that we'll see these south for X number of stick around for the long term or I guess, what are the circumstances, where you would potentially take leverage back up to a more normal level.

This is Alan and we've talked about for four takes several quarters now certainly we loved the strength or balance sheet, but our leverage is is really below where we want it long term at this point we've been patients allow.

Opportunities come to us. So you know in our credit rating at a monastery for to have would be something that can be very comfortable answer where it where a full turn below that right now so significant opportunity, there, but but willing to be patient allow brad to find the right investments and we do we do think that as we get later in this year and particularly into 2024.

That we are seeing early indications that would suggest that opportunities are going to start to pick up his bread alluded to we have seen.

Cap rates move just a tad on a sequential basis quarter to quarter and we're talking he he and his team were talking to another a number of <unk>.

Merchant builders right now about some opportunities. So we continued to feel confident and comfortable that.

More opportunity is around the corner.

I appreciate it.

And we will move next to Michael Goldsmith UBS. Your line is open.

Good morning paper for taking my question.

In response to an earlier question and the Q&A you talked about new leaf.

Celebrating as much as you expected does that mean that.

New leases.

Rent growth has peaked earlier in the season than it has in the past and then the second part of that question talked about.

You don't expect it.

Decelerate as quickly why is that.

Well, one one nuance there the new lease pricing.

Is done what we expected.

It didn't decelerate or it didn't accelerate less than we expected it accelerated a little bit less than what we've seen in the last couple of years, but in line with if not it's slightly better than expectations and so what we've seen is.

New lease pricing.

Accelerate just not quite as much as it may do in a in a in a.

Lower supplied environment. So I think at the same time, given given all the fundamentals we're seeing in the various metrics. We talked about earlier don't quite expect that newly is right to drop off quite as much as it might normally are kind of the same reasons accelerate as much. So.

That's that's kind of how we see it playing out, but but really been as if not better than expected.

And then.

Follow up.

There's a lot of new supply coming in your market.

10 or potential tenant of a lot of options.

Options to choose from.

Are you seeing a longer time for attendance to make a decision or.

Mm.

Maybe like between your traffic to visit in the time between that and when they sign or conversion rates being what are you seeing in the trends there.

What are you seeing in the trends from that perspective.

Not really anything.

Probably taken a little bit longer for us to get the answer on the renewal side, but ultimately as I mentioned or renew except rates are better than they were a coupla years ago in a similar environment and kind of where we expect to see them or conversion rates are are in line with with that period as well so.

Nothing nothing notable other than you know I mentioned the leads were are down a little bit from what we saw last year, but.

We would have expected that with the growth we saw last year.

Thank you very much.

And we will go next to Alex Goldfarb with Piper Sandler Your line is open.

Hey, mourning mourning down there. So just you know trying to put a bow on the supply, it's obviously been a big topic.

Hear correctly from what you're saying it sounds like it's really only Phoenix in Austin, where it's really an issue. It Lana has has maybe is another market just given the occupancy that you talked about but otherwise the balance of your portfolio. It sounds like yeah their supply, but it's not really competitive with you guys you feel comfortable with the.

Migration, the economic growth the job growth to be comfortable with your rent. So that's sort of the main takeaway that the supply is really limited to maybe two or three markets for you guys and that that all the other markets are fine I, just sort of wondering capsulate that's.

Yeah, I mean, Austin in Phoenix for the two that are the worse I mean, I wouldn't I wouldn't say, we only have two or three that are feeling any supply impact I mean, I think it is impacting several of our markets at some level, but what we've we've always talked about is with the <unk>.

Man being their supply just sort of moderates things it doesn't it doesn't put it in a ditch it says shocked.

Shocked on the demand side that really sin rent growth negative for its.

Extended period of time, and we're not seeing that so I mean.

Like I said I wouldn't I wouldn't say, there's only two were feeling some slight pressure, but those are the most notable but otherwise demand is is doing a pretty good job of mitigating things.

And then the second question is your guidance for the second quarter is rather wide and advocate and you guys are pretty conservative group, but 218 on the low side.

Low obviously, so should we expect.

Cline quarter to quarter or are there some oddball things that could come up that would drive like I'm just trying to think why would <unk> go down you know.

Maybe you'll say hey, it's the one time item, there's some sort of tax impact or insurance or something like that that we're going to say.

That was just as al you see in the second and third quarter offense. Some things that are below below same-store NOI, whether it be overhead whether it be.

Some items that are that are that are more that are not in your operating costs are so second third coordinated to be chunky. What we're seeing is some of those costs. We talked about that we outperform in the second quarter on G&A that that would be timing relate to someone that's gonna come back to us seeing some of that in the third quarter, which expects out a little bit. So nothing unusual you see that second and third quarter B a little.

<unk>, but the important point is just a projection for the year continued strength.

Okay. Thank you.

And we will take our next question from Nick you Lico with Scotiabank. Your line is open.

Thanks, Good morning, Tim just going back to Atlanta, and the last quarter, you talked about some weather issues affecting occupancy was there anything else.

Driving the occupancy being lowered their this quarter.

Yeah, a couple of things going on there I mean, Atlanta is experiencing a decent amount of supply it's not quite as high as some of our other markets, but relative to what Atlanta typically gets there. There is some supply of pressure, but a couple of other things impacting that and you mentioned one of them. We had sort of late first quarter early second quarter over the course of.

Three months, we had about 100 units come back online in Atlanta, which was a mixture of some units that were down to storm damage and then a fire at one of our properties and so pulling.

Pulling those back into into the portfolio and needing to Lisa had some impact.

And then secondly, which is.

Hinders us a little bit of a in the short term, but as positive on the long term is Atlanta and the counties. There have started Ah progress some on evictions in filings and doing coordinates and kind of working through that whole process, which has been a real laggard in terms of our markets for working through that so we actually year this year to date of.

About 140, more evicts and skips this time versus the same period last year. So good thing as I said long term and we are seeing a little bit better payment.

Progress there, but it kind of doubled down on some of the occupancy pressure their revenue in pricing is held in okay will be below the market, but not.

A little bit below the portfolio, but not too bad and.

Overall, we obviously still feel good about it long term, but just running through a little bit of pressure right now.

Okay. Thanks, and then in terms of if we think about new supply and concessions being offered across markets can you just give a feel for where you know concessions are more prevalent.

Competing product and where you are also offering confessions.

The existing assets are in any of the development assets.

Yeah. So for our portfolio concessions are running about cash concessions are about half a percent of rats, it's picked up a little bit but not significantly I mean, we we do tend to net price with our pricing systems. So don't use a ton of concessions, but broadly.

At a market level on what we're seeing some of the competitors I would say you know you're at a month free is is about where we're at and several of the larger markets and for most that is more kind of in town central areas of the markets you might see a little bit more if there's there's a lease up in the area, but we're not.

Not saying any more than a month and a half or so in any of our markets Austin's one where it's a little unique in that we're actually not seeing a lot of concessions kind of in the central Austin, but more in the suburbs, where there's quite a bit of supply and that's one word concessions are a little more prevalent in the suburbs versus other markets, where it's it's more urban and.

Until.

Thanks.

Sorry, I just wanted to add to that real quick.

You asked about our lease up properties.

Tim's point, we've got one in lease up in Austin.

That one we're we're offering up to a month free which.

On select units by the way not across the board. We've got a couple of hundred units competing supplied us.

That same submarkets I'd say that was probably feeling the.

The most pressure, but I will say that.

Average average rents on that property or.

Coupled three to $400 higher than what we expected and then.

The average concessive concession usage of there is significantly below.

What we expected most of our newly subs, we expect about a month free we've been significantly below that on this asset and then I would just say in all of our properties that are in lease up right. Now we're below what we generally pro forma which is a month free just we're offering that on select units is needed. So it's not broad based use of concessions that we're seeing right now.

Great. Thanks, if I could just follow up on the the investment activity and being more patient. There you know I know you gave some commentary on this but is that is that more of a view that hey cap rates seem like they're too low to where you're.

Penciling, they should make sense or was it also just the view that hey.

You know at some point, we're not sure exactly where market rents are going in some areas. There is supply coming maybe there's an opportunity to wait.

You mentioned talking to merchant developers and just trying to kind of tie together I guess valuation versus a view on hey fundamentals are becoming a little bit uncertain because of supply.

Nick This is Brad.

Would say.

It is really the belief that we think cap rates will pick up a bit from where they are right now I mean, the fundamentals generally are holding up.

Pretty well within our region of the country and we're not seeing distress certainly in our region and especially in these these lease out properties.

We've seen cap rates pick up over the last year year, and a half and really what we believe right now with the limited amount of inventory that's on the market the.

Capital that's out there kind of piling up on each other on the assets that are coming to market. So.

That is driving down cap rates. We also continue to see a high proportion of the deals that do trade or 10, 31 exchange as well as <unk>.

Loan assumptions so.

We just believed that as.

The elevated supply that's occurred in our market over the last year or two years begins to come to market those assets need to trade merchant developers need to sell and as that product comes to market, it's likely to spread out the capital debt and.

More likely to see cap rates continue to move up a bit from where they are today.

Interest rates are five and a half 575.

And I think what you layer onto that just still good operating fundamentals, but not the 567 per cent right growth that we've seen over the last year I do think that that.

Continues to point to a scenario, where the negative leverage <unk>.

Continues to decrease which supports increasing cap rates so.

Just for context after the G. F C. A three year period. After that we purchased 9000 units over a three year period and I don't know if this situation will be.

Fruitful as that was for us, but it certainly feels like.

Our region is really primarily driven by March and developers and product needs to trade at some point and we're starting to see cap rates move up a bit. So we are going to be patient and hold our capacity to what we think will be a better opportunity.

Thanks appreciate it.

And we will move next to John Kim with BMO capital markets is open.

Good morning, Uhm I wanted to ask you about your savings to a revenue guidance you narrowed the range, but you maintain the mid point.

But you started the year with 5.5% Hernan. So just to hit the top end of your seems to revenue Guy who put seven per cent you only really needed to achieve three per cent lease growth rates for the year already exceeded that I think you've been saying that please come in higher than expected.

So I know that arguments eat off that's just a little bit the same with the fees, but you're six and a quarter midpoint seems very conservative.

Today, and just wanted to.

John This is al I think I think important point there we didn't cover today, we've talked about it a bit in the past is that there is a little bit of dilution and that total revenue from the pricing line because there's other income components or what about 10% of our revenue stream that aren't growing at that call at 7% and so they'll go in 2% to 3% and so that dilutes at some.

Oh I'm. So so that's probably the difference there but in general the math that you laid out with a throb, Bob and half carry and plus half of the pricing performance. We'd gotten this year, which is you know we've talked about was 3%, 5% blended pricing half of that that gives you pretty close to the effective rent growth expectation. We have this year and then those other other income.

Items dilute that just a bit.

So is there a likelihood that.

You're going to achieve above the midpoint I forgot.

I'm, just saying that the guidance as we think the guidance is accurate there are things other than effective rents that are that are affecting that total revenue. Jonathan there's items that are other income related that are growing call at 2% to 3% that bring that down. So if you're looking at total revenue I think the.

We brought it in and just because we narrowed it which we typically do.

Just because we have a little more information getting closer to the end of the year, but that nipple six and a quarter until revenue we still feel is the right number.

Okay My.

My second question is on the insurance premium that you got it 20 per cent I know that's in line with your guidance, but it still came in.

Sure that many of US had expected and I'm wondering if there was any change in the coverage that you had.

To get that premium whether itself and sharing coverage or or anything else.

Yeah, John this is Rob.

In part the.

The cost of the property insurance premiums as a big driver of it it was up about 33% and that was offset by a.

A much.

Smaller increase in our casualty lines automobile workers comp general liability.

So the balance should always said was about 20%.

We did have some some changes on the retention this year about one.

Million dollars on our per occurrence in a couple million dollars on our aggregate.

Then we we do have a separate freeze event deductible because of some of the events that are happening in the southeast but.

Overall, we feel like the the the attention that we have are appropriate given the balance sheet strength, we have in the spread of risk across the portfolio given geographic disbursement.

And then as we've done for for several years, we did take a a portion of the.

The primary insurance so we've got.

About.

$10 million of self retention there.

That we feel very comfortable with with an insurance product. The caps are los over three years at 15 or so million dollars. So if you feel like we're in really good shape their relative the strength the balance sheet.

Okay, great. Thank you.

Thanks, John .

And we will move next to John Miller Ski with Green Street in your lines open.

Thanks up rather Eric I, just had a follow up question regarding that.

Glen citizens.

Better acquisition up change you're starting to see he just gives me a sense for whether you're seeing notable signs and broad based sign of capitulation on pricing for a merchant builders struggling with higher debt service costs utterly subs.

Yes, John This is Brad Yeah, I would say, we're not seeing capitulation at this point I think what we're seeing is selectively developers are looking to take some risk off the table on select assets when it makes sense for them to do so I mean.

Just for contacts in the first quarter, we track I think seven seven deals that we had data points on we're up to call at 14 in the in the second quarter, but I would also say the majority of those are not necessarily merchant developed asset so.

So again not a lot of data points. There we've seen a few but not broad based I do think that that is what we continue to monitor because as we get later into this year to my comments earlier, I think the merchant developer profile and need to transact increases.

But we haven't seen that really open up broadly at the moment.

John I would tell you know you should get later in the year and you get into the slower leasing season sort of during the holidays and Q1 of next year a lot of these lease ups.

Are going to see more pressure.

Leasing traffic is not as robust during that time of the year and so.

We do think that we're heading into an environment, where more likely than not pressure will build a for some of the the leafs up projects that are happening out there and you know that may trigger some opportunity.

Okay makes sense.

Final question from me and you talked about the mid tier markets outperforming coming quarters could you just give us a sense a rough range of the blended rent spread you'd expect in your mid tier markets over the second half of this year versus the <unk>.

More supply of <unk> larger metros.

Yeah, I mean, it obviously varies by market there.

Some doing doing much better than others, but I.

I would say and and depending on which you'd which mortgage giovanni's mid-tier burst versus not you're probably.

Somewhere in 100 150 basis point blended spreads. So here today, we're seeing several that are in that 4.5% to 5% range.

Compared to our upper Three's.

Overall portfolio.

Thank you no 100 to 200 basis point spread is probably about right.

Sounds great. Thanks for that that's.

And we will move next to Rob Stevenson.

Line is open.

Good morning, guys I know you collect a lot of data in your residence to you in the data and the percentage of residents with student loans outstanding and what do you think the resumption of payments is going to have impact lies on the ability to pass through future rent increases in 24.

Yeah right. This time, we've talked about that a little bit we we do not have insight into that.

We outsource sort of our credit check an income verification. So we don't we don't have insight into that certainly at any at any brog level and actually as part of.

Income qualification and rent income checks or you're not allowed to use suited that as part of that so really don't have much insight into that to be honest.

Okay, and then al how are you reading, Texas in terms of this property taxes going forward is this just a one time distribution of the surplus or are you expecting to see fundamental changes there and lower levels of property taxes in Texas going forward.

Now Rob I would we would read this as some level it should be an ongoing benefit I mean every what we've seen over the last several years is Texas because of the strength of the state has had really high valuations come out property valuations and.

And we've seen millage rate rollbacks.

You know some more than others and different policies because of that because there are some limitation.

At the revenue level of budgetary level on taxes. They can do so we had projected a rate rollback now this because of the overall budget surplus goes well beyond that and so they basically recognizing that the coffers full recognizing that the state is doing very well that valuations overall, a very strong.

So there.

Permanently reducing that right. If you would buy legislation now episodic that is you know in the future.

Texas is different they could undo it but this should be a permanent ongoing impact that's pretty significant I mean that it kept caps out to be something like 20 cents per $100 of value for your property values and that's pretty significant.

And any other markets, where you're seeing property taxes trending above or below your expectations from earlier this year.

Not really I think the one outstanding to really get the final information on other than Texas is Florida.

It's the one that comes in late and so we need to see the millage race. There we got the values would need to see the millage rates come in there like a pretty significant but other than that I'm getting a pretty clear picture at this point, we're about 70% of the knowledge at this point I would say Ralph.

Thanks, guys appreciate the time.

And our next question comes from Anthony Powell with Barclays. Your line is open.

Hi, Good morning, just wanting to walk through maybe the medium term outlook for Lee spread it sounds like you'd expect newly spreads to be <unk>.

Range for the next couple of quarters.

Renewals go to as you are the 1% maybe early next year as well or can it can remain above new for awhile.

Yeah, I think I would expect renewals, Vermont to remain above new and that's that's not unusual I mean the the.

What we saw last year renewal rates were quite a bit higher than renewals.

Is more the exception to the norm with renewals you've got obviously somebody that has lived with you and hopefully provided good good resident service and have a an asset that they.

Enjoy living in and so there's some friction cost a move and all that so typically we would see renewals.

Pretty consistently above newly since I don't want I don't expect it to get down to the new lease level.

And can you remind us what's your Ah peak level of supply delivery.

Basically the first half of next year and just when do you think supply starts to come down and your markets.

Yeah, I mean, it's difficult to nail down to a quarter, but I think our belief right now is kind of peaking early 2024, and then starting to trend down and then really really setup for for for a good position as we get in the 2025 in terms of why we're deliveries.

Okay. Thank you.

You have no further questions.

Okay may 8th for closing remarks.

Well, we appreciate everyone joining us this morning, and obviously follow up with any other questions that you may have and that's how we have this morning. So thank you for joining us.

This concludes today's program. Thank you for your participation you may disconnect at anytime.

Mhm.

Mmm.

Mmm.

Mmm.

Mmm.

Mmm.

[noise].

Mmm.

Oh.

[noise].

Mhm.