Q1 2024 Mid-America Apartment Communities Inc Earnings Call
Good morning, and welcome acute mid America apartment communities or N. A as first quarter 'twenty 'twenty four earnings conference call. During management's prepared comments, all participants will be in a listen only mode. Afterwards, the company will conduct a question and answer session in the interest of time. The company has requested a two question limit.
This conference call is being recorded today Thursday may 2nd 'twenty 'twenty four I will now turn the call over to Andrew Shaper, Senior Vice President Treasurer, and director of capital markets at MAA for opening comments.
Andrew Schaeffer: Thank you Regina and good morning, everyone and Andrew Schaffer, Treasurer, and director of capital markets for MAA members of the management team participating on the call. This morning with prepared comments are Eric Bolton, Brad Hill, Margo and playful adult Ferrari NGL frothy are also participating and available for questions as well before we begin with prepared comments. This morning.
Want to point out that as part of this discussion company management 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, and our 34 Act filings with the SEC, which describe risk factors that may impact future results. During this call. We will also discuss certain non-GAAP financial measures.
Andrew Schaeffer: A presentation of the most directly comparable GAAP financial measures as well as reconciliations of the differences between non-GAAP comparable GAAP measures can be found in our earnings release and supplemental financial that our earnings release and supplement our currently available only for investors page of our website at Www Dot AC dot com a copy of our prepared call.
Andrew Schaeffer: Comments and an audio recording of this call also.
On our website later today after some brief prepared comments the management team will be available to answer your questions I will now turn the call over to Eric.
Eric: Thanks, Andrew.
Eric Bolton: <unk> trends in the first quarter were in line with our expectations and we enter the summer leasing season, well positioned pricing.
Eric: Pricing trends for new resident move ins continue to reflect the impact from new supply delivering in several of our markets.
Eric: Our renewal pricing remains strong.
Eric: Encouragingly blended lease over lease pricing in the first quarter captured 100 basis points improvement as compared to the prior quarter followed by April pricing that will say ahead of the first quarter performance.
Eric: While the bulk of the leasing year is still in front of US. We are we do like our early positioning as we head into the summer leasing season.
Eric: We continue to believe that our high growth markets are producing solid demand sufficient to absorb the new supply in a steady manner that will enable continued stable occupancy strong renewal pricing strong collections.
Eric: And overall revenue results that are aligned with the outlook that we provided in our prior guidance.
Eric: Our leasing traffic remained strong and record low resident turnover favorable net migration trends and stable employment conditions across our diversified portfolio of markets continued to drive solid demand.
Eric: While we expect leasing conditions will remain pressured by new supply deliveries through the year. Our onsite teams actively supported by our asset management group are doing a terrific job.
Eric: Superior resident services as reflected by our sector, a sector, leading Google ratings and record high resident retention rates, along with several new technology capabilities introduced over the past couple of years are making a meaningful difference in this competitive environment.
Eric: With new supply deliveries poised to begin tapering later this year demand trends remaining stable in occupancy remaining strong we remain optimistic that leasing conditions should recover quickly and began improving in early 2025.
Eric: While the transaction market remains slow we are seeing more acquisition opportunities for new lease up projects, which Brad will touch on in his comments and we remain comfortable with our transaction expectations for the year.
Eric: I continue to be optimistic about our ability to work through the current supply cycle with our high growth markets and high growth markets ability to absorb new supply with.
Eric: With a 30 year performance record focused on these high growth markets. We've operated through prior supply cycles today, we believe our diversified and higher quality portfolio, our stronger operating platform, our stronger balance sheet have us positioned to compete at an even higher level. We're excited about the outlook.
Eric: Over the next few years, our high growth markets continue to offer attractive long term appeal for employers households, and real estate investors, we have meaningful future growth on the horizon as new supply deliveries decline in leasing conditions strengthen several new technology initiatives will drive further efficiencies and higher.
Eric: Our operating margins from our existing portfolio and our pipeline of redevelopment opportunities will also drove higher rent growth from our existing properties and finally, our external growth pipeline continues to expand setting the stage for meaningful additional NOI growth.
Speaker Change: I'd like to send my appreciation to our MAA team for a solid start to 2024.
Eric: And with that I'll turn the call over to Brad.
Brad Hill: Thank you, Eric and good morning, everyone.
Brad Hill: In preparation for what we believe will be a stronger leasing environment in 2025 through at least 2028, we continue to make progress in putting our balance sheet capacity to work.
Brad Hill: To deliver future earnings growth subsequent to quarter end, we started construction on a 302 unit pre purchase development in Charlotte North Carolina.
Brad Hill: And we expect to start construction this quarter on a 345 unit project under our pre purchase development platform in the Phoenix, Arizona MSA.
Brad Hill: Both projects are expected to deliver first units by mid 2026, and deliver stabilized NOI yields in the mid 6% range consistent with what we are achieving on our current developments that are leasing well.
Brad Hill: The addition of these two projects our active development pipeline represents 2617 units at a total cost of approximately $866 million.
Brad Hill: With continued interest rate volatility and tight credit conditions transaction volume remains low.
Brad Hill: But we have seen cap rates firm up a bit from fourth quarter with market cap rates on deals we track they closed in the first quarter, averaging approximately five 1% 30 basis points lower than the previous quarter.
Brad Hill: Despite the low transaction volumes, our team continues to find compelling select acquisition opportunities.
Brad Hill: We currently have an off market 360 unit suburban property in Raleigh under contract to acquire for approximately $81 million and we expect to close this month.
Brad Hill: Newly constructed property is currently in its initial lease up at 49% occupancy and is expected to stabilize in mid to late 2025.
Brad Hill: At this point, we believe our forecasted acquisition volume of $400 million is achievable.
Brad Hill: Despite the increased pressure from new supply or for developments that are actively leasing three of which are under construction and one that has completed and is in lease up continued to deliver good performance, while new lease rates are facing slightly more pressure at the moment with concessions on select units.
Brad Hill: From four weeks to six weeks, we continue to achieve rents on average approximately 18% above our original expectations driving higher than originally projected NOI and earnings and creating additional long term shareholder value.
Brad Hill: So these four projects, we expect to achieve an average stabilized NOI yield of six 5% exceeding our original expectations by 70 basis points.
Brad Hill: We continue to make progress on the pre development work for a number of projects. In addition to the two second quarter development starts I mentioned, a moment ago, we expect to start construction on one to two more projects later this year.
Brad Hill: We have not seen a broad reduction in construction cost encouragingly, we have achieved some level of reduction on our recent pricing supporting our ability to start construction on these projects, we have seen better subcontractor bid participation, which we expect to lead to better execution with stronger subs throughout the construction process for our new starts.
Brad Hill: We are hopeful that the significant drop in construction starts that we've seen in our region will lead to more substantial construction cost declines.
Brad Hill: As we progressed through the year, allowing us to start construction on additional opportunities in our development pipeline, which today consists of 10, well located sites that we either own or control representing additional growth of nearly 2800 units. We maintain optionality on when we start these projects, allowing us to remain patient and disciplined in our execution.
Brad Hill: <unk> timing.
Brad Hill: Any project we started this year, we will deliver first units in 2026 and 2027 allow.
Brad Hill: Aligning with what is likely to be a strong leasing environment supported by significantly lower supply. Our development team continues to evaluate land sites as well as additional pre purchase development opportunities and this liquidity constrained environment. It's possible, we could add additional in house and pre purchase development opportunities to our current and future.
Brad Hill: Pipeline.
Brad Hill: While we continue to pursue numerous external growth opportunities are existing portfolio remains in a good position heading into the busier leasing season.
Brad Hill: Our broad diversification provides support during times of higher supply with a number of our mid tier markets currently outperforming as Tom will outline further despite the high level of new supply, we continue to see solid demand and absorption leading to improved current occupancy with future exposure better than this time last year.
Brad Hill: Our collections are strong and near pre Covid levels at 99, 6% of billed rents our resident base is stable with more residents choosing to live with us longer supported by our focus on customer service, coupled with high single family housing costs.
Brad Hill: Before I turn the call over to Tim to all of our associates at the properties and our corporate and regional offices I want to say. Thank you for all you do to improve our business and serve our residents and those around you.
Brad Hill: While exceeding expectations of those that depend on us with that I'll turn the call over to Tim.
Tim: Thanks, Brian and good morning, everyone as Eric mentioned, new lease pricing in the first quarter continued to be impacted by elevated new supply deliveries in several of our markets. This combined with typically slower traffic patterns that are evident in this time of the year attributed to new lease pricing on a lease over lease basis of negative six two.
Tim: <unk>.
Tim: Renewal rates for the quarter stayed strong growing 5%.
Tim: Traffic tends to be relatively low as compared to the second and third quarters, we essentially repriced less than 20% of our leases in the first quarter, the new lease and renewal pricing resulted in blended lease over lease pricing a negative <unk> six for the quarter, an improvement of 100 basis points from the fourth quarter.
Tim: Average physical occupancy was 95, 3% and collections outperformed expectations with net delinquency, representing less than <unk>, 4% and build brands. All of these factors drove the resulting revenue growth of one 4%.
Tim: From a market perspective in the first quarter larger markets such as in the Washington, DC Metro area in Houston continue to hold up well and national showed improvement many.
Tim: Many of our mid tier Metro has also continued to be steady with savanna, Richmond, Charleston, and Greenville, all outperforming the broader portfolio from a blended lease over lease pricing standpoint.
Tim: Our diversification between larger and mid tier markets helps balanced performance through the cycle, the improving performance of a market like Nashville, which is getting a lot of new supply demonstrates the benefit of some market diversification along with the market diversification.
Tim: Austin and Jacksonville are two markets that continue to be more negatively impacted by the absolute level of supply being delivered into those markets.
Tim: Touching on some other highlights during the quarter, we continued our various product upgrade and redevelopment initiatives for the first quarter of 2024, we completed nearly nearly 1100 interior unit upgrades given.
Tim: Given the number of units in lease up across our portfolio. Currently we expect to renovate fewer units. In 2024, then we would in a typical year, but would expect to Reaccelerate the program in 2025.
Tim: We have now completed over 94000 smart home upgrades since inception of the program and we expect to complete the remaining few properties this year.
Tim: For our repositioning program, we have four active projects that are in the repricing phase and we have targeted an additional six projects to begin later in 2024 with a plan to complete construction and begin repricing in 2025.
Tim: Regarding April metrics, we are encouraged by the accelerating trends for both the first quarter and March in both pricing and occupancy.
Tim: Blended pricing is negative <unk>, 4%, a 20 basis point improvement from the first quarter and a 70 basis point improvement from March. This is comprised of new lease pricing at negative six 1%, a 10 basis point improvement from the first quarter, and notably a 70 basis point improvement from March and renewal pricing of five 1%.
Tim: <unk> had in the first quarter and an improvement of 50 basis points for March.
Tim: Average physical occupancy for April was 95, 5% also up from boats.
Tim: The first quarter end March and as Brian noted 60 day exposure also remained lower than this time last year at eight 5% versus the prior year of eight 8%.
Tim: As we discussed new supply being delivered continues to be a headwind in many of our markets, but we still believe the outlook is similar to what we discussed last quarter. While we do expect this new supply will continue to pressure pricing for much of 2024.
Tim: With demand in leasing traffic expected to increase in the spring and summer. We believe we have likely already seen the maximum impact new lease pricing and that the outlook is better for late 2024 and into 2025.
Tim: There is by market, but on average new construction starts in our portfolio footprint peaked in early to mid 2022, and we've seen historically that the maximum pressure on leasing is typically about two years after construction start.
Tim: While supply remains elevated the strength of demand is evident as well absorption in the first quarter and in our markets was the highest for any first quarter in the last two decades and the highest of any quarter since the third quarter 2021.
Tim: Job growth is still expected to moderate some in 2024 as compared to 2023, but has recently been revised upwards and growth is still expected to be strongest in the sunbelt region in the country.
Tim: Job growth combined with continued in migration accelerate the key demand factor of household formation.
Tim: Additionally, we saw resident turnover continued to decline in the first quarter and we expect it to remain low with fewer residents moving out to buy out in fact, the 12, 9% of move outs in the first quarter that were due to a resident buying a home with the lowest ever for MAA.
Tim: All I have in the way of prepared comments I will turn the call over to clay.
Clay: Thank you, Tim and good morning, everyone.
Clay: We reported core <unk> for the quarter $2 22 per share, which was <unk> <unk> per share above the midpoint of our first quarter guidance.
Clay: About half of the favorability was related to the timing of real estate taxes, while the remaining outperformance is related to the collective Tommy of overhead costs interest expense and non operating income.
Clay: Our same store operating performance for the quarter was essentially in line with expectations same.
Clay: Excluding the favorable timing of real estate tax expenses same store operating expenses were slightly higher than our first quarter guidance, primarily due to onetime property costs.
Clay: During the quarter, we funded approximately approximately $44 million of development cost of the current expected $647 million pipeline, leaving nearly $202 million to be funded on this pipeline over the next two years.
Clay: Although we expect to complete three projects in the second half of 2024 with the additional starts that Brad mentioned earlier, we expect to continue to grow our development pipeline over the remainder of the year, which our balance sheet is well positioned to support.
Clay: During the quarter, we invested a total of $9 $4 million of capital through our redevelopment repositioning and smart man installation programs, which we expect to produce solid returns and continue to enhance the quality of our portfolio.
Clay: Our balance sheet remains in great shape, we ended the quarter with nearly $1 $1 billion in combined cash and borrowing capacity under our revolving credit facility, providing significant opportunity to fund future investments.
Clay: Our leverage remains low with net debt to EBITDA at three six times and at quarter end, our outstanding debt was approximately 95% fixed with an average maturity of seven two years at an effective rate of three 6%.
Clay: During January we issued $350 million of 10 year public bonds at an effective rate of five 1% using the proceeds to pay down our outstanding commercial paper.
Clay: We have an upcoming $400 million maturity in June that has an effective rate of 4%. Following just maturity. The next scheduled bond maturity is in the fourth quarter of 2025.
Clay: Finally, with the bulk of leasing season ahead of US we are reaffirming the midpoint of our guidance for the year, while slightly tightening the full year range to $878 70 to $9 six per share.
Clay: We are also maintaining our same store as well as other key guidance ranges for the year.
Clay: That is all that we have in the way of prepared comments. So Regina we will now turn the call back to you for questions.
Regina: We will now open the call up for questions if you'd like to ask a question. Please press Star then one on your Touchtone phone. If you would like to withdraw your question Press Star one again in the interest of time. The company has requested a two question limit. Our first question will come from the line of Austin <unk> with Keybanc. Please go ahead.
Austin: Thanks, and good morning, guys just want to hit a little bit on the operating side of the business and I was hoping you could provide some detail on sort of the operating playbook in the next couple of months and how youre thinking about pushing on lease rate growth in occupancy and it has the breakdown between new and renewal lease rate growth that you embedded in guidance.
Austin: Changed at all at this point.
Austin: Hey, Austin this is Tim.
Austin: Yes.
Tim: A little bit of overview I mean, I think we're as I mentioned in my comments and with where we are in exposure, where we are with occupancy we feel like we're in a good place. There. So we'll continue as we get into the certainly the busier part of the season now that push on.
Tim: New lease rent new lease rent growth, where we can and balanced a little bit depending on property by property, it's not a it's not necessarily a portfolio wide decision.
Austin: Look at everything based on occupancy occupancy and exposure about property, but we're comfortable with where occupancy is we'll continue to push on pricing, where we can as far as the mix between new lease renewal first quarter was about where we expected it to be with renewals, probably 51% to 49% in terms of the total leases than we.
Austin: In Q1 are expected to blend a little more towards renewals over the next couple of quarters. So that's a key key thing to keep in mind as you think about pricing trajectory for the rest of the year that we do expect turnover to remain low and that renewals to have a little bit heavier weight in the new leases.
Speaker Change: That's helpful. And then the March data implies there was a pocket of softness, which I think you alluded to a little bit in your prepared remarks, comparing the March versus April <unk>.
Speaker Change: From a comp issue or 60 day exposure perspective that caused you to pull back in March to just positioning the portfolio better heading into April and May just looking for some additional detail there.
Speaker Change: If you could.
Speaker Change: Yes, I mean, there was a little bit more of a push towards occupancy I would say in late February and early March is kind of a base again looking at it on a targeted basis, where exposure was and thats late.
Speaker Change: Late February early March timeframe is always kind of at the time of the year, where you start to see lease explorations pick up and you are kind of waiting on that demand to pick up as it as it has and it starts to do in March. So there was there was a little bit of a lean towards occupancy during that period.
Speaker Change: As you saw as we got into April we saw acceleration both in pricing and in occupancy from where we were in March.
Speaker Change: Very helpful. Thanks for the time.
Speaker Change: Your next.
Speaker Change: <unk> will come from the line of Brad Heffern with RBC capital markets. Please go ahead.
Bradley Barrett Heffern: Yes, thanks, everybody just sticking with the leasing spreads.
Bradley Barrett Heffern: Typically you see a decent sized uptick into April obviously, I know March was weakened so there wasn't uptick but it seems like it's not tremendously different than what you saw in January and February. So I guess has traffic picked up a lot in April and are you surprised that the leasing spreads didn't increase more sequentially.
Bradley Barrett Heffern: To the first question, yes, we have seen we have seen traffic pick up leads lead volume and we'd look at it kind of going back to the exposure to we look at leads for expose unit and Thats as good as what it was and we've kind of talked about we haven't seen a quote normal year since probably 2018 2019.
Bradley Barrett Heffern: So we're sort of exceeding those levels. When you think about traffic volume and leads for exposed in.
Bradley Barrett Heffern: And all the things that we look at it.
Bradley Barrett Heffern: <unk> for demand.
Bradley Barrett Heffern: With.
Bradley Barrett Heffern: With the March new lease pricing.
Bradley Barrett Heffern: When you get into individual months, there can be volatility and there's not a ton of leases getting done in the first quarter. So.
Bradley Barrett Heffern: It's going to ebb and flow from month to month. When we're looking at today is kind of quarter to quarter see that general trajectory moving up and we're seeing that and it'll it'll play out over the next three or four months I mean, we will we will reprice about 50% of our of our leases for the year between May May June July.
Bradley Barrett Heffern: August obviously that only that will be the biggest part of the impact of what it has on the year end.
Bradley Barrett Heffern: That's also when we start to see the traffic really pick up.
Bradley Barrett Heffern: That's where it will really play out is over these next three to four months.
Bradley Barrett Heffern: Okay got it and then in the prepared remarks, you said, a stronger leasing environment or at least 2028, when the supply drops off.
Bradley Barrett Heffern: I think a lot of people would agree on 2026, but I'm curious why you would project strength that far out is the expectation that.
Bradley Barrett Heffern: A low level of starts is just maintained indefinitely and thats whats driving it or if you could give your thinking there.
Bradley Barrett Heffern: Yeah, Hey, Brian This is Brad, yes, I think relative to that comment.
Brad: As a realization that the.
Brad: High level of supply that we are seeing today is partly a result of cheap financing thats been available over the last couple of years and just realizing.
Brad: And in general those times are behind us and so getting back to a more normal supply environment going forward into the future I do think over the next couple of years the supply environment environment will be below long term averages, but perhaps we get back closer to long term averages as we get out a few years, but then.
Brad: When you layer on top of that just the demand strength that we are seeing in our region of the country leads us to believe that the fundamentals could be very very good for a number of years.
Speaker Change: Okay. Thank you.
Speaker Change: Yes.
Speaker Change: Your next question will come from the line of Josh <unk> with Bank of America. Please go ahead.
Speaker Change: Hi, This is Steven on for Josh just a quick question on the concession usage wondering whether you can kind of comment on the Alex crossover markets, where you see the biggest concession in the where you see maybe the improvements.
Tim: Yes. This is Tim.
Tim: At a high level of concession usage is pretty similar to what we saw in Q4, and we haven't seen it get materially worse or better for us as a portfolio is about 5% of rents last quarter, it's about 4% of rents this quarter.
Tim: At a market level. It obviously varies a little bit I would say again not a lot of movement from from last quarter.
Tim: One one market, where we've seen it probably get a little bit heavier concession usages in Charlotte, where we're seeing one five to two months there.
Tim: Austin continues to be obviously, a heavy concession market, but no no worse and really what we were seeing before where you've got one five months and most of the submarkets in Austin with probably closer to two if you think about the central Austin.
Tim: And then the other one we're keeping an eye on I would say is Atlanta, where certainly in the in the Midtown area, we've seen concession usage pick up a little bit, but broadly as I said kind.
Tim: Stable and not seeing quite the.
Tim: Usage from developers that we saw late last year.
Speaker Change: Okay, great. Thanks, and then on a different subject on the development yields.
Speaker Change: Sorry, if I missed that but can you comment at all like what's the what's the with you about your underwriting for the new starts and maybe also some comments on the construction cost youre seeing right now thanks.
Brad: Hey, this is Brad.
Brad: I would comment that the yields that we're expecting on our new starts for this year or in the mid 6% range, which is consistent with what.
Brad: What we're delivering today on our existing.
Brad: Development portfolio.
Brad: <unk>.
Speaker Change: That is a pretty good spread from where current cap rates are call. It low fives as I mentioned in my comments. So we're still in that.
Speaker Change: Call It 150 basis point spread or so range with current cap rates, which feels.
Speaker Change: Feels really good to us and in terms of construction cost.
Speaker Change: I mentioned in my comments, we haven't seen a broad reduction in construction costs. It's really market specific there are some markets where the supply pipeline is.
Brad: Really dropped.
Brad: During quicker and earlier than other markets, we're seeing some cost reduction in those markets. There are others. For example, the two projects that we are starting we have seen our partners have been able to get construction cost reductions.
Brad: Without scope reductions in those projects, which I think is a positive for both of those but we're not seeing across the board construction cost reduction in our markets in general.
Speaker Change: Okay. That's very helpful. Thank you.
Brad: Your next question comes from the line of Michael Goldsmith with UBS. Please go ahead.
Michael Goldsmith: Good morning, Thanks, a lot for taking my question. It seems like the quarter was generally in line with expectations here just about the mid point yet demand was unseasonably strong. So does that mean that demand needs to stay unseasonably strong levels to to kind of hit the high point of the guidance.
Brad: Forward.
Brad: Okay.
Speaker Change: I mean, I don't think it needs necessarily stay on it.
Brad: At higher levels than what we expected I think it needs to be at levels that we've seen pretty consistently now for a while I mean, the demand is that's been there in our markets for a while job growth in migration continues.
Brad: A number of move outs that we're seeing outside of our two outside of our footprint has declined so that net in migration is pretty consistent with where it's Dan. So it's really just continuing to see the demand is steady level and then now as we get into a heavier traffic period, we would expect that to obviously benefit which is what.
Brad: Youre getting.
Brad: Didn't see in Q4, and Q1 is obviously the lower traffic patterns, but demand is there and now we're getting into the heavier traffic season, and heavier lease explorations, which will have a greater benefit. So I think mainly the same thing that demand at a high level.
Brad: Some sort of economic.
Brad: Economic shock I think to move it to where it's something that.
Brad: It is not attainable in terms of thinking about our guidance.
Speaker Change: Thanks, a lot for that.
Speaker Change: My follow up.
Speaker Change: What is your expectations of leasing spreads.
Speaker Change: During the peak leasing season, and how much movement.
Brad: We picked up on the new lease side and along with that can you hold renewals at 5% with new leases are down 6% does that lead to increased negotiation on renewals.
Brad: Yes.
Brad: This time of the year there is theres always a fairly widespread when youre looking at new leases versus renewals, it's gapped out a little bit from where it typically is but not not hugely different and I would expect those spreads to narrow a little bit as we get into the spring and summer.
Brad: Our expectation for renewals and I think we've talked about a little bit last quarter kind of in that four five to five range. We've been closer to five right now we think.
Brad: Somewhere in that $454 75 range is reasonable for rest of the year.
Brad: And keeping in mind too when you think about the lower turnover those renewals are going to have an outsized impact on the blended leasing spreads for the new lease pricing and our expectation for new lease pricing while it is for it to accelerate from here over the next few months and then moderate back down as we get into Q4 is still but it's <unk>.
Brad: And to be negative for the full year, we don't expect to see at least pricing get to zero or positive I think it's probably.
Brad: Well into the spring season spring and summer 2025, before we'd see that but.
Speaker Change: That's a high level, how we're thinking about it.
Speaker Change: Michael This is Eric just to add on to what Tim is saying I think another thing to keep in mind is when you look at that negative 6% on new lease pricing versus 5% of renewal in terms of the lease over lease comparison.
Speaker Change: <unk> <unk>.
Eric Bolton: Implies I think in some peoples mind, a bigger dollar difference than what's what's at play really if you look at the actual rent amount that were achieving on new leases and the actual rent amount that were achieving on renewals as all late this spread is only about 150 Bucks and that of course as Tim mentioned is kind of the biggest spread we see.
Eric Bolton: From a seasonal perspective, and then it tends to narrow a bit over the course of the spring in the summer so.
Eric Bolton: The friction cost of moving in some of the other issues you run into moving suggests to us that.
Eric Bolton: Spread is.
Eric Bolton: And again, recognizing it's going we think narrow a bit over the spring and summer, we think yields an opportunity for us to continue to achieve that renewal pricing performance along the lines of what we've outlined and we don't see any particular concerns about the spread in terms of what youre referring to.
Eric Bolton: Your next question will come from the line of Eric Wolfe with Citigroup. Please go ahead.
Eric Wolfe: Hey, Thanks, maybe just a follow up on Michaels question, there a second ago.
Eric Wolfe: Based on your guidance it looks like you need.
Eric Wolfe: Round 1718 mm blended growth to hit your blended spread guidance for the year.
Eric Wolfe: Is that the right way to think about it and I guess when do you think will hit that level.
Eric Bolton: When you say are you talking about blended spreads or new lease taking.
Eric Bolton: Linden blended blended spread I mean, our blended spread I mean, I think your guidance before was 1%. So if you're just based on what you've got this far we were calculating like 1718 for the rest of the year and then I guess on the new lease side right. If you assume 5% renewal for the SBA, you probably need like negative too on the release, but I was just trying to understand sort of what's embedded for the rest.
Eric Bolton: For the year and sort of when do you think we'll see those those levels.
Eric Bolton: Yes.
Eric Bolton: Don't think it's quite to the level you set out new ways I mean couple of things to keep in mind that we sort of alluded to is one.
Eric Bolton: Q2, and Q3 will represent about.
Eric Bolton: 60%, 65% of all the leases.
Eric Bolton: Which is also the strongest periods, so that will that will wait heavier into the full year blended and then along with that we tend to see the renewal portion of that mix tick up even more in Q2 and Q3 as well so yes, so when youre thinking about it now in a heavier weighting on the renewals and direct dial in a heavier weight.
Eric Bolton: On the lease spread throughout throughout the year. So yeah, I mean, I think we've talked about kind of four five to five and the renewal range.
Eric Bolton: New leases staying negative, but certainly accelerating from where they are now and then as you get into September and beyond we would expect it to drop back down not quite to the level. We saw in Q4 of last year, but certainly a little bit further negative, but I think the main thing to keep in mind is just the weighting both in terms of lease.
Eric Bolton: <unk> per quarter, and then the weighting between new leases renewals.
Speaker Change: Got it that's helpful and then.
Speaker Change: There was a comment in the release and you alluded to it in your remarks about.
Speaker Change: Quick turnaround and rental performance later this year next year sort of what markets do you think we will see that that turnaround.
Speaker Change: Fastest so based on your supply projections, where do you think we'll see that.
Speaker Change: That quicker turnaround.
Speaker Change: Yes, I would say.
Speaker Change: Yes.
Speaker Change: At a high level of the markets.
Speaker Change: And strong continue to be strong and I would expect to remain strong.
Speaker Change: I'm thinking about DC and Houston, and then some of the mid tier markets like Charleston, and Richmond.
Speaker Change: In Savannah, and Greenville to some extent the ones that would keep an eye on and I think Ken can start really helped in some of the Florida Mountain, Florida markets Orlando and Tampa are starting to show some improvement and we're I think a little bit further along in that supply absorption. If you will than some other markets.
Speaker Change: So those are a couple of them.
Speaker Change: Remarked about Nashville.
Speaker Change: In the prepared comments as well that's another one that I think we can continue to see some benefit from sort of it's getting a lot of supply and working through it but where we are in that market is pretty well positioned so I would say those three beyond the ones that have been pretty steady for us right now.
Speaker Change: Thanks, Ed Thanks for the thanks for that.
Speaker Change: Dale.
Speaker Change: Your next question comes from the line of Nick <unk> with Scotiabank. Please go ahead.
Speaker Change: Hey, good morning, it's Dan answer cargo honest Nick.
Nick: Maybe for Brad can you explain on the confidence in the acquisition opportunity that you highlighted in your prepared remarks.
Nick: So what is the initial stabilized yield on the Raleigh, we sit deal.
Speaker Change: Yes, so the Raleigh lease up deal.
Nick: A 6% NOI yield is what we're expecting out of that and I'm sorry, I missed the very first part of your question.
Speaker Change: Just a general commentary you had in the prepared remarks on the confidence in the acquisition opportunity set.
Speaker Change: I think if you look at where we sit today.
Speaker Change: As we've said over the last few quarters.
Speaker Change: The transaction market has been quiet for a couple of years, but the supply is up so.
Speaker Change: Just feel like the need to transact continues to build while we're not seeing transactions I think the difficulty has been.
Speaker Change: The volatility on interest rates has really slowed the market down from transactions occurring but I will tell you just looking at our our underwritings.
Speaker Change: Deals that we've reviewed the volume is up there is more coming out.
Speaker Change: There's more in the market right now.
Speaker Change: I think we first quarter, what we under wrote was double what it was in fourth quarter. It is still not to where it was a couple of years ago.
Speaker Change: So we do believe that that volume just continues to grow from where we sit today and I would say the other thing that gives us confidence.
Speaker Change: <unk> is just our history in the Sunbelt Eric mentioned.
Speaker Change: Been focused exclusively on this region for for 30 years.
Speaker Change: We have a reputation of performance in our region of the country, whether it's on the operating side of the transaction side. So we get a lot of looks and opportunities perhaps.
Speaker Change: Perhaps others do not get the Raleigh opportunity Spa.
Speaker Change: Specifically.
Speaker Change: As an off market opportunity that we that we got.
Speaker Change: I think we will have other opportunities like that our relationships are pretty strong and deep in this region of the country, especially with the merchant developers who are the largest.
Speaker Change: Builders in this region and <unk>.
Speaker Change: You look at what we purchased over the last 10 years, almost $2 billion and over 80% of that was from merchant developers. So we have a very good relationship with all of those folks and we think that will lead to additional opportunities as we go through the year.
Speaker Change: Great. Thanks for that and then just going back to the revenue outlook.
Speaker Change: The job growth numbers, you talked about an initial guidance, obviously seem pretty conservative now four months into the year, but no change to the revenue components in guidance, how should we be interpreting that.
Speaker Change: I think really just interpreting to the fact that we have the heavier leasing season ahead of us like I said, the first quarter leasing is about 19% of our leases.
Speaker Change: We'll do 50% over the next four months.
Speaker Change: That's really what's driving it is just seeing how it plays out over the next few months, but certainly encouraged where the where the demand side is.
Speaker Change: Our next question will come from the line of Magellan. Thank yous with Mizuho. Please go ahead.
Magellan: Your line Hey, guys good morning.
Speaker Change: So.
Magellan: Hi can you hear me.
Magellan: Yes.
Magellan: Yes Hello.
Speaker Change: Okay perfect.
Speaker Change: So I'm encouraged to hear that your development pipeline is leasing up better than expected and concessions are stabilizing.
Speaker Change: Well my question is one.
Speaker Change: I guess more so on the private market are you tracking how the private market.
Speaker Change: The supply is getting leased up their absorption I'm thinking back to last summer when the <unk>.
Magellan: Private guys links and they dropped pricing late in the summer.
Magellan: To achieve some.
Magellan: Target goals and end up obviously impacting demand and pricing on your end. So I guess I'm curious have you seen anything in the data or behavior that can give you any.
Magellan: Any insight into how their progress is coming along or if we could be facing the same risk later this summer.
Magellan: This is Brad I'll start Tim can add to it.
Brad: We do have a little bit of insight in that.
Brad: The a couple of avenues, one the comp properties of all of our properties, we monitor specifically, how our comps are performing.
Brad: And then also as I mentioned earlier, we just have relationships with all the developers in the market and I would say just in general from the information that we have.
Brad: Seeing a more measured approach to concession usage. This time this year than we did.
Brad: Third fourth quarter of last year.
Brad: We're not seeing as much pressure from the developers at this point in terms of.
Brad: Pushing to get ahead of the supply wave.
Brad: We're in the supply wave now so now theyre starting to look at potentially monetizing and transacting their properties and leaning too heavily into concessions at this point.
Brad: Is going to severely impact their valuations so there'll be a bit more measured at this time of the year than they were last year from what we can see at this point.
Speaker Change: Yeah, and I'll add to that I mean, we do track.
Speaker Change: Properties in our markets that are in lease up and how quickly they're leasing up in that sort of thing and nothing right now that would suggest any concerns from that point I mean, certainly as we get later in this year and you get into the fourth quarter.
Speaker Change: Things can change quickly based on what Theyre doing but were not seeing it right now but that is part of why we certainly dial and particularly on the new lease side that we think it'll moderate back down as we get into the fourth quarter and even though we think supply will be less than it is today probably doesn't.
Brad: <unk> itself in terms of seeing that in the numbers probably until year end.
Brad: For 2025.
Brad: Got it got it and can you remind us you mentioned that there'll be good mark.
Brad: Hitting peak supply this quarter, which markets are still left to hit peak supply amongst.
Brad: Most of the larger markets.
Brad: Thanks.
Speaker Change: Yes, I mean, it is pretty consistent to be honest, where.
Speaker Change: Again, we kind of look back to when construction starts and did a lot of words to different markets and how long it takes to fill that seat pressure to hit but.
Speaker Change: And most somewhere in sort of that Q2 timeframe.
Brad:
Brad: Atlanta is probably one that's maybe a little bit behind that curve Charlotte's one that's probably a little bit behind that curve and then I would think of a market like Phoenix and Orlando and Tampa are probably a little bit ahead of that curve, but at a high level. Most are within that range and certainly within a quarter give or take of that same range.
Brad: Great.
Brad: Provided this but what have you.
Brad: Under.
Brad: What's the indicative pricing today for your June June debt maturity curious what kind.
Brad: Certainly we have been building development as a capability.
Brad: But we expect as I mentioned, we have.
Brad: Aside from those again, we are continuing to evaluate the land market, we're continuing to evaluate our pre purchase opportunities there could be opportunities that emerge in that area where.
Brad: Our merchant developer that we have a relationship with perhaps has an equity partner that backs out or can't raise debt or something along those lines that provides us another opportunity to lean into that area. So.
Brad: Development is an area that we continue to focus on and believe strongly in terms of creating long term value through that Avenue.
Brad: So to the extent that we continue to get the returns that makes sense, we will continue to execute in that area.
Eric: Adam This is Eric.
Eric: I'll add to what Brad is saying.
Eric: We spent a lot of time thinking about just how much.
Eric: Development risk do we want to put on the platform and one of the things that we sort of centered around is the idea that we'd like to keep our exposure.
Eric: And fund a Ford funding obligations, if you will in no more than around sort of 5% of enterprise value, which based on sort of where pricing is today for us that would put it at around $1 billion, but also recognizing that that we've got.
Eric: Lot more of our development increasingly has been through this pre purchase program, where we're effectively partnering with merchant developers that we know quite well throughout the region.
Brad: It enables us to share in some of the risk and some of the downside issues that you can sometimes run into with development. So.
Brad: Taking our pipeline.
Brad: A bit from where it is today is not something we would hesitate to do given both the approach that we're taking in just the capacity we have on our balance sheet and in terms of overall enterprise value. So we feel pretty good about pushing on this agenda as much as the numbers will support in terms of what Brad was discussing.
Speaker Change: Great really appreciate all the color thanks for the time.
Speaker Change: Thank you.
Speaker Change: Your next question will come from the line of John Kim with BMO capital markets. Please go ahead.
John P. Kim: Good morning.
John P. Kim: I believe Adrian mentioned.
John P. Kim: His prepared remarks that acquisition cap rates have compressed a five 1% despite the rise in interest rates.
John P. Kim: So I guess my question is is it your view that the appetite for negative leverage has come back or where there were these transactions sort of one off with below market debt.
John P. Kim: Hey, John this is Brad.
Brad: I don't think that these cap rates are representative of below market debt I mean, I don't think there is theres. Many loan assumptions that are that are in these numbers that I'm quoting.
Brad: And some of these are reflective of very recent transactions.
Brad: Just a few days ago.
Brad: Where we've gotten the cap rate information. So these are very current numbers in terms of yields I mean honestly the spread of cap rates is wider than what it has been in the past I mean, the spread that we're seeing right now is from four and a half to call it five and a half.
Brad: And really.
John P. Kim: Again, averaging in that low 5% range. So.
John P. Kim: In terms of.
John P. Kim: Our debt is today.
John P. Kim: The debt rates are in the well.
John P. Kim: High 5% range.
John P. Kim: Almost 6%.
John P. Kim: So my assumption would be that these underwritings either are assuming a run up in fundamentals or a refinance and a couple of years, where theyre able to take the interest rate back down.
John P. Kim: And are you willing to transact at these levels because this is the market now.
Speaker Change: Well, we're not if you look at the Raleigh acquisition for example.
Speaker Change: Thats representative and the two acquisitions that we had in the fourth quarter of last year. That's representative of where we are willing to transact, which from a yield perspective.
Speaker Change: It has been in the high Fives and then the Raleigh transaction was a six yield.
Speaker Change: That's where we are comfortable transacting and we believe again based on our ability and our balance sheet strength ability to close all cash and things of that nature focusing on properties that are in lease up that are hard to finance the <unk>.
Speaker Change: <unk> will be able to find some opportunities to help us hit our $400 million forecast, but at a broad market level of five or so cap rate at.
Speaker Change: At this point, we're not we're not act.
Speaker Change: Active in that in that price range.
Speaker Change: Okay. My second question, if I could.
Speaker Change: One is on your turnover is at a record low level.
Speaker Change: Which is surprising given.
Speaker Change: Market dynamics.
Speaker Change: A lot of resins are not moving out to buy a home, but is there anything else about the residents today that are different than maybe a few years ago, whether it's the less mobile now or.
Speaker Change: Cost of moving has gone up.
Speaker Change: Yes.
Speaker Change: We're reluctant to move.
Speaker Change: Maybe they are more aware of the concession game in Atlanta with us.
Speaker Change: Okay.
Speaker Change: John.
John P. Kim: I don't think there's anything that's totally different than the residence. We look at all of the sort of the resident demographics are pretty consistent with what they've been in the last couple of years. So certainly it's.
John P. Kim: Much more difficult to buy a house and if you look at our markets in particular, given where interest rates are now it's about 70% more expensive.
John P. Kim: And it is our average rent. So that's that's a very significant different from when you consider cost moving and all of that.
Speaker Change: So that plays into it and the other reason that's down it certainly move outs to rent increase are down pretty significantly to what we've seen in the last couple of years as well. So I think those two things are driving it and primarily just the cost of buying which is that's always historically enrollment John transfer about houses.
Speaker Change: Our highest reason for move out so I think that's that's driving it down combined with the move outs to rent increase.
Speaker Change: That's helpful. Thank you.
Speaker Change: Your next question comes from the line of Jamie Feldman with Wells Fargo. Please go ahead.
James Colin Feldman: Great. Thanks for taking the question.
James Colin Feldman: Just shifting gears to the expense side can you talk more about.
James Colin Feldman: Kind of outsized expenses in the first quarter and just as you're thinking about your guidance for the rest of the year has anything changed are there any areas, where you are more in line of counseling.
Speaker Change: Your line items in.
Speaker Change: And your numbers are just things you may want to point out that we should be paying attention to.
Clay: Sure. Jamie This is this is clay.
Clay: Just speaking to the first quarter and what we saw there.
Clay: The biggest.
Clay: Due to the slight unfavorable we had there as we called out in the comments. It was really around some onetime property cost around some storm damages storm damage that we had at <unk>.
Clay: Number of properties nothing nothing significant but it was a bit of.
Clay: A bit outside of what we were dialing in for the for the quarter.
Clay: Think about going forward to the rest of the year I mean, we're still early on and when you look to flat.
Clay: Our our larger expense line items are specifically real estate expenses.
Clay: We still got some need some more information there before we can really pegged.
Clay: Peg that number, but we still very feel very confident about our guidance that we set forth on on real estate tax expenses at about a 475% growth year over year.
Clay: Also insurance expenses will although a much smaller component of our <unk>.
Clay: Operating expense stack still.
Clay: Some more information to come on that as well.
Clay: When you think about personnel costs repair and maintenance cost in the other line items that are that are touching there with we feel confident about those and those trended in line with what we're expecting for for first quarter and we expect those to.
Clay: Continuing that same manner over the remainder of the year.
Speaker Change: Okay. So it sounds like you're kind of baking some.
Speaker Change: Risks there on all of those.
Speaker Change: If youre not quite sure what the outcome looks like but you are pretty comfortable that Kathryn.
Speaker Change: I'd say I'd say, that's fair I mean again real estate taxes, we'll get the majority of the evaluations around that.
Speaker Change: In late second quarter early third quarter, we'll probably have a little bit more to say about that in the second quarter call.
Speaker Change: Same same for insurance expense as well.
Speaker Change: And again there the other expenses pretty much in line with with what we've dialed in.
Speaker Change: Okay, great. Thank you and then I guess.
Speaker Change: Just thinking about where we are in the cycle and the opportunities Youre seeing.
Speaker Change: If you think about where you may be buying I mean, you've got you.
Speaker Change: You're more supply challenged markets or some of the larger msas in your footprint. You've also got axis. You've also got exposure in markets like Kansas City, Birmingham Fredericksburg.
Speaker Change: Do you think the opportunities this cycle are going to show up in those types of market more and when we look back in five years and think about the portfolio footprint, maybe that's where you guys grow more I know you want to stick with.
Speaker Change: The larger population faster job growth market.
Speaker Change: As you build out the portfolio and put your capital to work.
Speaker Change: Hey, Jamie this is Brad.
Brad: As we look at where we want to deploy capital.
Brad: Broadly speaking the high growth regions of where we're located is what we're targeting and that's going to be both our larger markets as well as some of our mid tier markets that you mentioned I mean tims prepared comments. He noted some of the mid tier markets that are performing quite well right now.
Brad: Larger markets.
Brad: We are committed to those I think when we combine.
Brad: Both of those components as part of our story, it's part of the diversification that we're looking for for our earnings stream and I think they perform well together so.
Brad: I would say.
Brad: <unk> see us focus on on both components there.
Brad: In terms of growing I would also just say that as.
Brad: As we focus on buying new properties generally that are in lease up where the average age over the last 10 years that we purchased has been one one year. So these are brand new properties generally those are going to follow a little bit of where the supply is thats, where the opportunities are going to be that we're going to find but.
Brad: Broadly speaking both segments of our.
Brad: Of our portfolio will be areas that we focus on.
Brad: Okay.
Speaker Change: Just a quick follow up on that like when you're underwriting acquisitions, what is your rent growth outlook.
Speaker Change: Are you guys modeling in $2004 $25 26.
Speaker Change: The pencil a deal yes, it's going to be different based on each market, but I would say in general 24 is going to be flattish.
Speaker Change: But you also have to remember that on our deals that we're underwriting on it.
Speaker Change: Acquisition.
Speaker Change: Leases are predominantly new leases, which is different than our existing portfolio, but we're generally bringing all new leases in the portfolio. So it's going to be flattish year one.
Speaker Change: A positive uptick in 'twenty six 'twenty seven are going to be higher than long term averages on average.
Speaker Change: Okay, alright, thanks for the color I appreciate it.
Speaker Change: Your next.
Speaker Change: Comes from the line of Alexander Goldfarb with Piper Sandler. Please go ahead.
Alexander David Goldfarb: Hey, good morning, good morning down there.
Alexander David Goldfarb: Two questions. The first is.
Alexander David Goldfarb: Jobs have definitely been stronger than everyone. Proactively has has imagined and my question is.
Alexander David Goldfarb: Were you guys just overly.
Alexander David Goldfarb: Derivative and job expectations or have the jobs truly been like much better than.
Alexander David Goldfarb: Anyone would've expected just trying to understand the difference what's going on because clearly, it's allowing you guys and others to handle the supply much better than was originally believed to be the case.
Alexander David Goldfarb: No.
Alexander David Goldfarb: We use a number of different sources to <unk>.
Alexander David Goldfarb: Compile our view of what the demand horizon and the job growth.
Speaker Change: It's going to be.
Speaker Change: Obviously, a year or so ago, there was more nervousness surrounding the prospects of a more material slowdown in the economy. I mean, we are we have seen some moderation in 24 as compared to certainly 'twenty three and 'twenty two but broadly speaking these we've long bill.
Speaker Change: Believed that these the sunbelt markets had underpinnings associated with them surrounding employers stability in job growth and new jobs coming such that we felt pretty good about about the job growth.
Speaker Change: About the employment markets broadly holding up.
Speaker Change: What has probably been frankly more surprising for US is just the what's happening in terms of our resident.
Speaker Change: Surrounding move outs to buying a home.
Speaker Change: The real.
Speaker Change: Decline in.
Speaker Change: And people, leaving to go buy a home and the resulting impact that has on demand has probably been the more surprising factor in.
Speaker Change: Sure thinking about demand projections.
Speaker Change: We werent.
Speaker Change: Really that debt surprise by the employment market and the migration trends have continued to hold up very similar to what we've experienced the last few years. So I would I would say the home buying scenario has probably been the biggest surprise vertical for us.
Speaker Change: And then the second question is yes transaction market clearly.
Speaker Change: But in fairness.
Speaker Change: I mean, the transaction market.
Speaker Change: I guess you'd have to go back to the RTC days for it to be sort of lucrative and over the past decade or so since the credit crisis, we've never seen assets sort of jumped onto the market. So was there a thinking that I guess what is your sense is that the bank regulators or just getting a lot more lenient with the banks might be with the.
Speaker Change: On the banks with them dealing with developers and saying look if the guy is sort of.
Speaker Change: Doing a good effort don't force the foreclosure don't force a sale or what do you think has changed because it sounds like it's more on the lending side that the owners or developers arent being pushed to transact and assets that maybe 15 20 years ago. They would have been so would you attribute that more to the regulators or to something else out.
Speaker Change: There thats not forcing the deals that you would've otherwise expected to happen.
Speaker Change: Yeah. This is Brad I think there's really two components of that I would say number one we have seen a number of loans specifically in 2023 last number I saw was 85% of the loans that were coming due were pushed.
Speaker Change: Extended in 2023, so I do think there is a component of that that has occurred.
Speaker Change: I think relative to developers specifically.
Speaker Change: I think for them over the last couple of years, there's been a change in how they have approached their construction lending in the term that they're able to get in their construction loans now is longer than what I have ever seen it before.
Speaker Change: They're able to get four to five years in their term.
Speaker Change: Are construction loans and a lot of times they have the ability built in if they are hitting certain coverage ratios. They are able to extend that six months a year. Two years. So there are certain components built into those loans that I think.
Speaker Change: Our allowing developers to be a little bit more runway before they're forced to sell all new construction loans. So I think those two components are really addressing that.
Speaker Change: Alex This is Eric I'll add on to what Brad, saying, a couple of other things that I think I would point to as well when you try to contrast, and compare the buying environment and the buying opportunity that we thought was going to be forthcoming contrast that to historical.
Eric: Cycles in the past like coming out of the great financial recession, 2008, 2009 that two year period following that falloff, we bought 9000 apartments in two years.
Eric: But a lot of that was a function of.
Eric: If you will real.
Eric: Recession real.
Eric: Demand fell off considerably and anytime you have an environment, where the demand is really negatively impacted that can really create some distress and we just haven't seen that play out. This time demand has remained very strong and I think that.
Eric: Has bolstered confidence among a lot of merchant builders and banks to have the ability to sort of hang in there because the demand has been so strong and then secondly.
Eric: The thing that's at play here as compared to past cycles, where buying opportunities where more plentiful is that there is so much capital on the sidelines now ready to pounce and people know that.
Eric: So I think just the backdrop of strong demand a lot of investor capital ready to jump into multifamily, particularly in the sunbelt has enabled the markets and pricing to hold up better than what I think some people thought it was likely to happen.
Speaker Change: Okay. Thank you.
Speaker Change: Sure.
Speaker Change: Our next question comes from the line of Linda Tsai with Jefferies. Please go ahead.
Linda Tsai: Yes, Hi, just wondering if you're doing anything differently on the marketing side to drive traffic in the house.
Linda Tsai: Mid market.
Tom: Hey, this is Tom.
Tom: Probably not necessarily anything differently.
Tom: Market by market basis, but we have done.
Tom: Updated our website back towards the end of February which is intended to drive more traffic organically and through to our site as opposed to using some <unk>, which can be quite a bit more expensive. We're getting more involved in some social media things in that type of thing, but it's really just trying to.
Tom: To drive people in traffic towards our web site and really be able to experience, what's there and have a better feel for the community and the neighborhood and we have everything you want to look at it there with floor plans and unit types and all that sort of thing. So it's really just continuing to expand.
Tom: How do we think about that and how we use technology, there as well as getting a little more involved in some of the social media channels.
Tom: And then along those lines any automation.
Tom: The initiatives any updates to highlight there.
Speaker Change: Yes, I mean, there is.
Tom: Let's highlight we've talked about is something that we think will not only drive down marketing costs, the increased demand and the traffic coming in that way, there's a smart home initiative that we've been talking about that we're wrapping up this year I mean, I think over the next 234 years the biggest the biggest initiative.
Tom: In terms of what it can do for margin is continuing sort of our ubiquitous or full property Wifi I mean, we we.
Tom: We have half of our property on a bulk Internet program now we've been doing that for three or four years, but there's opportunities for the other half with this even enhanced version that's higher margin I think there is a.
Tom: $30 million more opportunity there just on the part of the portfolio that's not on bolt and then I think as we renegotiate some of those existing contracts there's huge opportunities there as we look over the next several years.
Tom: Thanks.
Speaker Change: We have no further questions I will return the call to the MAA for closing remarks.
MAA: We appreciate everyone joining us this morning, and feel free to reach out for any other questions in seamless study at NAREIT I'm sure. Thank you.
Speaker Change: This concludes today's program. Thank you for your participation you may disconnect at any time.
MAA: [music].
Tom: Okay.
Tom: [music].
Tom: Yes.
Tom: [music].