Q1 2024 Independence Realty Trust Inc Earnings Call
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Thank you for standing by my name is D and I will be your conference operator today at this time I would like to welcome everyone to the Independence Realty Trust first quarter 'twenty 'twenty four earnings conference call. All lines have been placed on mute to prevent any background nice update the speaker's remarks, there will be a question.
And answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star. One again. Thank you I would now like to turn the call over to Loren Floris. Please go ahead.
Lauren Tarola: Thank you and good morning, everyone. Thank you for joining us to review independence Realty Trust's first quarter 'twenty 'twenty four financial results.
Lauren Tarola: On the call with me today are Scott Schaeffer, Chief Executive Officer, Mike Daly EVP of operations and people, Jim Zebra, Chief Financial Officer, and Janice Richard <unk> SVP of operations.
Lauren Tarola: We also have a special guests joining us today Lili Shafer gods grandchild I'll just bring your child to work day welcome Lilly did.
Lauren Tarola: Today's call is being webcast on our website at IR to living dotcom, there will be a replay of the call available via webcast on our Investor Relations website, and Telefonica <unk> beginning at approximately 12 P M Eastern time today.
Lauren Tarola: Before I turn the call over to Scott I'd like to remind everyone that there may be forward looking statements made on this call.
Lauren Tarola: We're looking statements reflect <unk> current views with respect to future events and financial performance.
Lauren Tarola: Actual results could differ substantially and materially from what IRT has projected.
Scott F. Schaeffer: Statements are made in good faith pursuant to the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Scott F. Schaeffer: Participants may discuss non-GAAP financial measures during this call.
Scott F. Schaeffer: Copy of Irt's earnings press release, and supplemental information containing financial information other statistical information and a reconciliation of non-GAAP financial measures to the most direct comparable GAAP financial measure is attached to Irt's current reports on the form 8-K available at <unk>.
Scott F. Schaeffer: Irt's website under Investor Relations.
Scott F. Schaeffer: <unk> other SEC filings are also available through this link.
Scott F. Schaeffer: IRT does not undertake to update forward looking statements on this call or with respect to matters described herein, except as may be required by law with that it's my pleasure to turn the call over to Scott cheaper.
Scott F. Schaeffer: Thanks, Lauren and thank you all for joining us this morning.
Scott F. Schaeffer: During the first quarter, we made notable progress on our initiatives to grow occupancy and increase resident retention execute our portfolio optimization and deleveraging strategy and deliver on our planned value add improvements.
Scott F. Schaeffer: We are pleased with the results of our efforts in the first quarter as we delivered an increase of 120 basis points in average occupancy to 94, 4% lease renewal at 65, 4% and resident retention at 54, 3% all above first quarter of 2023 and.
Scott F. Schaeffer: And we continue to see sequential improvements in April with same store occupancy today at 95, 4% with lease renewal at 66, 7% and total resident retention at 55, 7%.
Scott F. Schaeffer: Year to date, our lead volume is up approximately 17, 4% year over year due to our enhanced marketing initiatives. This lead volume along with the improvement in occupancy puts us in a position of strength to drive growth in the coming months and keeps us on track to deliver our full year operating guidance.
Scott F. Schaeffer: Last October with the view that interest rates would stay higher for longer we announced our portfolio optimization and deleveraging strategy in which we identified 10 noncore properties for sale I'm pleased to report we have closed on the sale of nine of these properties exiting for single asset markets and paid off $489 million of debt, thereby extending.
Scott F. Schaeffer: Our maturity profile and eliminating all of our exposure to floating rate debt.
Scott F. Schaeffer: And final property targeted for sale under this program is currently under contract with a hard deposit and we expect it to close on April 30th.
Scott F. Schaeffer: Lets us on track to achieve our six times net debt to EBITDA target in the fourth quarter of this year.
Scott F. Schaeffer: To that end, we received an investment grade credit rating from Fitch ratings in early March. This is a significant milestone for Iot and reflects our efforts to fundamentally reset our leverage profile profitable growth with lower leverage with this rating. We can further improve our cost of capital and gain access to additional capital sources to implement our business plan and invest.
Scott F. Schaeffer: In our portfolio. Additionally.
Scott F. Schaeffer: Additionally, as part of our regular capital recycling initiatives, we have identified an asset in Birmingham, Alabama as held for sale and May use the proceeds to purchase one of our new construction joint venture assets in Nashville, Jim will discuss this in more detail during his remarks, but the Birmingham property is now under contract and is expected to close in the third quarter of 2024.
Scott F. Schaeffer: With respect to value add renovations our program is well received by both current and prospective residents as we seek to improve the quality and value of their rental experience. We now continue to see significant premiums as compared to unregulated comparable units. Despite current market dynamics that are impacting new lease rates.
Scott F. Schaeffer: With that we completed renovations on 320 units during the first quarter and achieved a weighted average return on investment of 18% when compared to and renovated comps throughout the rest of 2024, we expect to complete renovations at approximately 2100 additional units.
Scott F. Schaeffer: Please note this number could vary depending on resident retention. In addition, we currently own over 12000 additional units that are appropriate for renovation over the long term.
Scott F. Schaeffer: We believe these efforts to drive strong demand and attract value driven residents seeking an effective alternative to newer class a communities at a lower price point.
Scott F. Schaeffer: We continue to believe in the strength of our portfolio and our team's ability to manage through difficult operating environment in 2024, while the Sunbelt region continues to see elevated levels of new supply Irt's predominantly b class portfolio is somewhat insulated from the resulting effects and we are confident in our ability to navigate these headwinds.
Scott F. Schaeffer: Before I wrap up my remarks, I also wanted to highlight that we recently published our 2023 sustainability report, which details the progress we have made on our sustainability strategy over the last year and the initiatives. We have in place to continue building, a sustainable and inclusive future for our business and all of our stakeholders, we see continuing opportunities to further enhance our sustainability.
Scott F. Schaeffer: Practice and look forward to continuing these initiatives, which will support our long term success and.
Scott F. Schaeffer: In conclusion, our results demonstrate the strength and resiliency of our portfolio and the ability of our team during a challenging economic climate I'm confident these results will drive further growth throughout 2024, and we look forward to continuing to build on these successes going forward.
Scott F. Schaeffer: I'll now turn the call over to Mike.
Mike Daley: Thanks Scott.
Mike Daley: The priority of IRT heading into this year was to increase retention and reduce unit vacancies. We accomplish this in the first quarter delivering a resident retention rate of 54, 3%, which represented a 610 basis point improvement versus a year ago, and 330 basis points increase on a sequential basis.
Mike Daley: Similarly, our same store average occupancy rate increased 120 basis points year over year to 94, 4% for the quarter.
Mike Daley: For April to date same store average occupancy is 95% improving another 60 basis points on a sequential basis as compared to the first quarter, which reflects our ongoing efforts to drive occupancy.
Mike Daley: At our non value add communities average occupancy was 94, 6% in the first quarter and is 95, 2% for April to date.
Mike Daley: Our same store portfolio average rental rate increased one 5% in Q1 contributing to three 4% year over year property revenue growth for the quarter.
Mike Daley: As mentioned on last quarters call, we are reducing the use of concessions in the first quarter, 15% of leases signed had a concession and the average concession was two weeks for April to date concessions are even lower at 10% of Liza side again with an average concession of two weeks.
Mike Daley: While new lease spreads remain negative in the first quarter due to lower seasonal demand and supply pressure. We are seeing a pickup in April improving 190 basis points on a sequential basis due to more favorable demand at the reduced use of concessions the benefit of higher occupancy is helping to mitigate the pressure on rents from the impact of new supply mentioned earlier.
Mike Daley: So renting continues to be more attractive than owning for many people with persistently high interest rates and inflation continuing to make homeownership less affordable.
Mike Daley: And our top 10 markets owning a home is approximately 104% more expensive than renting when factoring in all the cost of homeownership, including a mortgage payment property taxes and insurance.
Mike Daley: Lease over lease effective rent growth for renewals in the first quarter was four 4% for April to date of 3%. We've also signed 86% of our expected may and June renewals with an effective rental rate increase of three 5%.
Mike Daley: As mentioned on our prior calls we continue to utilize technology to increase our operational efficiency and performance. One example of this is enhanced screening which was fully implemented across the portfolio earlier. This year, we have seen a meaningful positive improvement in our ability to identify potential fraud. This technology. In addition to the enhanced.
Mike Daley: Income verification technology currently being rolled out will not only improve business results, but also deliver a better African experience and helped drive efficiencies for our teams on site <unk>.
Mike Daley: These technologies are key drivers to improve our bad debt. This year from about two 1% last year to our interim goal of one 5% by year end 2024.
Speaker Change: Before handing it to Jim I would like to thank our team for driving these results and progress on our key initiatives. We've made notable advancements over the past year. Despite the industry pressure. We've described the improvements we've made are systemic and sustainable and we expect to continue driving strong results and high efficiency for 2024 and into the future I will now turn the call.
Joe: Over to Joe.
Joe: Thanks, Mike and good morning, everyone Bill.
Joe: Beginning with our first quarter performance update net income available to common shareholders was $17 6 million.
Joe: Up from $8 $6 million in the first quarter of 2023, primarily due to gains on the sale of real estate during this quarter.
Speaker Change: <unk> was $61 $5 million in core <unk> per share was 27 per share.
Speaker Change: Same store NOI growth in the first quarter was two 4% driven by revenue growth of three 4%. This growth was led by a one 5% increase in average monthly rental rates to $1551 per month, and a 120 basis point increase in average occupancy to 94, 4% both as compared.
Speaker Change: Third to Q1 of 2023.
Speaker Change: On the operating expense side Iot same store operating expenses increased 5% during this quarter.
Speaker Change: This increase was primarily driven by higher property insurance expenses due to the notable increase last year as well as higher advertising and personnel expenses as we increased our efforts to drive occupancy contract service expense was flat in the quarter, while repairs and maintenance expenses decreased 11% due to timing of repair and maintenance projects.
Speaker Change: And a continued focus on managing expenses.
Speaker Change: Regarding property management expenses in G&A, our Q1 results were in line with the guidance. We previously provided.
Speaker Change: Turning to the balance sheet as of March 31, our liquidity position was $412 million, an increase of approximately $124 million from year end 2023.
Speaker Change: Approximately $21 million of unrestricted cash and $391 million of available capacity through our unsecured credit facility. As noted earlier. We're pleased to have received an investment grade credit rating from Fitch assigning Iot a long term issuer default rating of Triple B flat with a stable outlook. This is yet another example.
Speaker Change: All of our strong underlying fundamentals and as Scott mentioned opens up additional sources of capital for Iot as we seek to operate grow and be a leading apartment company in the United States.
Speaker Change: For Q1 2024, our leverage was six seven times on a net debt to adjusted EBITDA basis. This is down from seven three times in Q1 of last year. Clearly we are beginning to see the impact of our portfolio optimization and deleveraging strategy.
Speaker Change: On a trailing 12 month basis, our leverage is six five times and we are still on target to be closer to six times net debt to adjusted EBITDA in Q4 of this year.
Speaker Change: We still have only about 7% of our pro forma debt maturing through year end 2025, with only $20 million of maturities in 2024.
Speaker Change: We'd also have adequate hedges in place that are effectively converted our floating rate debt to fixed rate debt such that our debt as of March 31 is 100% fixed Andrew hedged.
Speaker Change: Before I discuss our 2024 guidance I'd like to provide an update on our portfolio optimization and deleveraging strategy. During the first quarter. We sold five properties that were included in our portfolio optimization plan for a combined sales price of $296 1 million.
Speaker Change: And we recognized a net gain of $25 6 million.
Speaker Change: In total and as of the end of the first quarter. We sold nine of the 10 properties, which were part of our plan for a gross sales price of $496 8 million.
Speaker Change: Proceeds from these sales were used to repay $488 9 million of debt, including $218 million payback on our credit facility to date from this plan.
Speaker Change: As part of our initial plan, we have one remaining asset to sell and Chattanooga, Tennessee, which we expect to close next week the sales price for that asset is $28 5 million.
Speaker Change: Which when aggregated with the other 90 sales achieved our targeted gross sales proceeds of approximately $525 million.
Speaker Change: As mentioned by Scott in connection with our capital recycling program. We have also identified a legacy steadfast asset in Birmingham, Alabama as held for sale and recognized a loss on impairment of $15 1 million.
Speaker Change: This property is now under contract at an economic cap rate of five 2%.
Speaker Change: The sale is expected to close during Q3 2024, and the proceeds may be used to acquire one of our properties developed by our joint venture partner in Nashville, Tennessee.
Speaker Change: This capital recycling transaction will reduce our exposure in Birmingham, while adding to our Nashville portfolio and allows us to realize the benefits of our joint venture in preferred equity investment strategy.
Speaker Change: With respect to our full year 2024 outlook, we are reaffirming our <unk> and core <unk> per share guidance that we provided on our year end conference call in February, but we are updating our EPS guidance range given the planned sale of the Birmingham community and the associated impairment loss, we recorded in Q1 2024 our.
Speaker Change: Our revised EPS range is 34 to 38 per share Relatedly. We also updated our same store portfolio to be 108 properties down from 109 properties as we updated our transaction volume guidance.
Speaker Change: The midpoint of our 2024 core flow per share guidance remains at $1 14 per.
Speaker Change: Per share as mentioned last quarter, when thinking about our core focus share guidance for this year. The bridge from our $1 15 per share starting point at the year end 2023 will include <unk> <unk> of accretion from additional NOI growth in 2024, offset by dilution of <unk> <unk> from our portfolio optimization.
Speaker Change: <unk> and <unk> from increased expenses, bringing us to our guided midpoint of $1 14 per share for 2024.
Speaker Change: While our same store portfolio has changed there is no impact to our operating guidance as we are reiterating our previous outlook for same store revenue and operating expenses our guidance range for same store revenue growth in 2024 remains at 3% to four 5% and on the expense side, our guidance range for full year.
Speaker Change: 2020 for total operating expense growth continues to be between five 4% and six 4%.
Speaker Change: Controllable operating expenses are expected to be up five 4% at the midpoint with non controllable operating expenses for real estate taxes and insurance to be up six 6% at the midpoint.
Speaker Change: As a result for 2024, we continue to expect that property NOI growth will be between 1% and 4% or two 5% at the midpoint.
Speaker Change: New to our full year guidance is acquisition volume, which reflects our potential plan to acquire a property in Nashville that was developed by our joint venture partner <unk>.
Speaker Change: And where we exercised our right of first offer.
Speaker Change: We are also increasing our disposition volume guidance to reflect the additional asset held for sale and Birmingham.
Scott F. Schaeffer: Scott back to you.
Scott F. Schaeffer: Thanks, Jim our performance in the first quarter gives us a solid foundation to drive further growth of our business in 2024, which includes supporting increased occupancy, which in turn will give us the ability to drive rent growth in the coming quarters and allows us to remain confident in delivering our full year guidance and completing our portfolio optimization and deleveraging strategy.
Scott F. Schaeffer: By selling the 10th and final property fundamentally resetting our leverage profile and reducing our exposure to non core markets as we focus on these initiatives throughout the organization. We also maintain our commitment to delivering shareholder value and returning capital to our shareholders. We thank you for joining us today and look forward to seeing many of you at Bmo's annual real estate conference in May and NAREIT.
Scott F. Schaeffer: <unk> REIT week conference in June.
Speaker Change: Later, you can now open the call for questions.
Scott F. Schaeffer: Okay.
Scott F. Schaeffer: Yeah.
Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and we'd like to ask a question. Please press star one and our California Keybanc to raise your hand and trying to queue. If you would like to withdraw your question simply press Star. One again, if you are called upon to ask a question listening via loudspeakers device. Please speak apprehend.
Scott F. Schaeffer: Chad any shortage of Poland to snap on mute when asking your question.
Scott F. Schaeffer: A question for today's session. Please limit to one question and one follow up again press Star one for China Q and your first question comes from the line of Austin like Smith from Keybanc capital markets. Please ask your question.
Austin Todd Wurschmidt: Mike you highlighted in your prepared remarks that you've signed I believe 85% of the renewables for May and June at three 5% increase.
Austin Todd Wurschmidt: What's the retention related to that 85% figure.
Austin Todd Wurschmidt: What sort of the thinking on the remaining 15% as it relates to what you think you can achieve on the renewal rate growth just wondering how that.
Austin Todd Wurschmidt: Changes the three 5% figure.
Speaker Change: Retention of 55% and we are continuing to focus very.
Austin Todd Wurschmidt: Very consistently on retention in terms of our renewal rent growth. We do have as I mentioned some pickup in April in terms of.
Austin Todd Wurschmidt: Our momentum on our retention and I expect are based on the renewals that are going out now we've got our first batch of renewals for July have gone out at about three 5%.
Austin Todd Wurschmidt: So I do feel good about the strength of those renewals.
Austin Todd Wurschmidt: So based on the month to date for April what you achieved in May and June I mean, it feels like you think you can achieve that 55% retention target with renewables holding around the 3% to three 5% range.
Austin Todd Wurschmidt: Do you think that this gets offset by softer than expected new lease rate growth or could blended rate growth.
Austin Todd Wurschmidt: Exceed the $2 one that you assumed in your initial same store revenue growth guidance.
Austin Todd Wurschmidt: I don't think we wanted to we would want to say that the blended rent growth is going to exceed.
Austin Todd Wurschmidt: The guidance I think the guidance is solid the balance that we have taken between the two.
Austin Todd Wurschmidt: Really is the way that we approached it was balanced between our retention focus.
Austin Todd Wurschmidt: And the renewal rates for retention retained renewed leases as opposed to the new leases. So overall our focus on retention.
Austin Todd Wurschmidt: Just that our focus on occupancy is just that and I think that we're comfortable with the guidance that is out there now.
Speaker Change: Great. Thanks for the time.
Speaker Change: Thanks Austin.
Speaker Change: Our next question comes from the line of Eric Wolfe from Citi. Please ask your question.
Eric Wolfe: It's actually yes.
Eric Wolfe: So curious Eric.
Eric Wolfe: Good morning, guys.
Eric Wolfe: Good morning, just wanted to dive in on some of the capital allocation the additional asset sale.
Eric Wolfe: How are you thinking about additional asset sales from here just trying to understand kind of the framework of what would make you want to transact or not thats, either further deleveraging or kind of noncore markets use.
Eric Wolfe: Use of proceeds kind of how you're thinking about additional asset sales beyond what's announced thus far.
Speaker Change: So I think there's nothing planned at this point.
Speaker Change: Nick.
Speaker Change: The additional asset sales in Birmingham was part of our recycling strategy.
Speaker Change: We're looking for looking at our markets in the portfolio long term and where does it make sense for us to be to be growing and we're contracting and we do have.
Speaker Change: Now to assets in our joint venture program in Nashville that are completed and our purchase options are in play so we decided.
Speaker Change: That we would sell the asset in Birmingham.
Speaker Change: We are happy with the price at a five two cap rate.
Speaker Change: And reallocate that money, if we can reach.
Speaker Change: <unk> price.
Speaker Change: On the national asset and when I say that agreeable price thats because the way. The program is set up is that we exercise our right and then we get an appraiser the developer gets an appraiser those two appraisers pick a third appraiser and then it's the average of those three.
Speaker Change: We then will decide we're not committed if whether or not we want to buy it and if we don't the developer can sell to anyone else for less than what that number was without appraise number was and we have and if he does once two then we have a last look.
Speaker Change: So.
Speaker Change: Is this is all part of our strategy of focusing the portfolio, where we want it to be long term and frankly, we would rather be in Nashville and Birmingham.
Speaker Change: Thanks, and then just from that portfolio strategy perspective.
Speaker Change: Other markets would you look to gain exposure to it doesn't sound like in the near term, but as you look over the next few years either from a job growth population growth expectation, where could we expect you to kind of rotate in and out of.
Speaker Change: Yes, I'm still a believer in the sunbelt long term I think Thats, where you will see above average population and job growth and.
Speaker Change: We're coming through a bit of a rough patch here because of all the new supply that's coming to an end and.
Speaker Change: I believe Youll see continued.
Speaker Change: Continued.
Speaker Change: As above average growth in the sunbelt markets. So that's where our focus will be and we have a couple of markets, where we have only one or two assets in the sunbelt and we would look to expand there.
Speaker Change: Our next question comes from the line of Anthony Powell from Barclays. Please ask your question.
Anthony Franklin Powell: Hi, Good morning, just a question in terms of your Midwest versus Sunbelt, I guess performance in the quarter.
Anthony Franklin Powell: Yes, how much higher were Midwest I guess spreads on the new side, both in the quarter in April kind of given the lower supply growth there.
Dennis: This is Dennis.
Dennis: <unk>.
Anthony Franklin Powell: While we've seen a probably relatively a 2% spread between the Midwest and the Senegal area.
Anthony Franklin Powell: We continue to see a sustainable.
Anthony Franklin Powell: The opportunity in the Sun belt now that we've stabilized occupancy is at 95, four and we will continue to make.
Anthony Franklin Powell: It's all about that balanced approach.
Anthony Franklin Powell: <unk>.
Anthony Franklin Powell: Wrapping the levers of new lease renewal also ensure that we're able to maintain that occupancy through the rest of the year.
Anthony Franklin Powell: Anthony This is Jim on the on the NOI growth kind of between the sunbelt in the Midwest.
Anthony Franklin Powell: Midwest certainly outperformed the roughly four 5% NOI growth in Q1 with the sundial roughly 2%.
Anthony Franklin Powell: Got it thanks, and then maybe on value add.
Speaker Change: Pretty good results for lease spreads there.
Anthony Franklin Powell: Our cost trending any value add program.
Anthony Franklin Powell: What do you think about maybe adding more or less as you go forward this year and next.
Anthony Franklin Powell: So to the program.
Anthony Franklin Powell: So I mean, we've given guidance that we were kind of targeting roughly 2500.
Anthony Franklin Powell: Because retention has little bit been a little stronger there so far that kind of numbers about what about 2400 and it will continue to kind of moderate again, depending on what the ultimate retention is we love the value add program. We think it continues to provide great long term value to Iot shareholders and we'll continue to add there.
Anthony Franklin Powell: As as appropriate as we kind of talked about in our investor decks, we have 12000, plus or minus additional units that are right for value add that we will continue to give us many years of runway.
Speaker Change: Okay, great. Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of John Kim from BMO Capital markets. Please ask your question.
John P. Kim: Thank you maybe a follow up to Austin's on on the new and renewal so.
John P. Kim: It was a little bit surprising to see that new and renewal spread compressed during April and signing a three 5% renewal would imply I would think maybe minus 200 basis points or so on new leases, but I just wanted to ask Howie.
Howie: How do you view new leases trending during the year and what you've seen so far in leases signed.
Howie: Yes, I mean, I think it's a good question I think it's kind of Microsoft highlighting we're very focused on driving occupancy and prioritizing occupancy and depending on how that retention rate comes out 55, maybe a little more will continue to moderate that and if that means that we're able to kind of get a little more renewal growth and give us our pricing power.
Howie: To begin to push new leases, we're certainly going to be doing that but I think what we've kind of given in terms of the guidance in terms of mid point, we're still very comfortable with the mid point guidance as we continue to operate in a very balanced fashion throughout the year.
John P. Kim: Okay, and I think you guys mentioned that you are looking to get bad debt down to one 5% by year end.
Speaker Change: I just wanted to clarify that.
Speaker Change: 175 was still going through balance of the year.
Speaker Change: Yes at the mid point of our guidance has a 175% average throughout the year that's right.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks, John.
Speaker Change: Our next question comes from the line of Wes Golladay from Baird. Please ask your question.
Wesley Keith Golladay: Hey, good morning, everyone regarding the Nashville asset would that be both the abuse of music city and their Crockett and if you were to acquire it would you pay down the debt as well.
Wesley Keith Golladay: It's just the the deal that we've exercised our right of first offer is the Crockett as part of the rationale portfolio. We have not done physically music city music to yet and then our expectation our expectation would be that again, given the proceeds from the sale of the Birmingham asset there'd be a little actually that we'd be able to pay down some debt. So.
Wesley Keith Golladay: We have until October of <unk>, we havent till October of this year to exercise the.
Wesley Keith Golladay: And on news.
Wesley Keith Golladay: Abuse of music City excuse me.
Wesley Keith Golladay: So we're just going to continue to monitor the properties lease up performance and the market and we'll make that decision when we have to.
Speaker Change: Okay. Thanks for that and then regarding the value add program are there any particular quarters, where the value add new leases will be a bigger part of the program, maybe I know, there's seasonality on new leasing, but maybe a higher percentage of new leasing will be the first generation leases in any particular quarter.
Speaker Change: Yes, mainly second and third quarter, that's where the vast majority of the volume that will renovate what will happen and specifically between those two the third quarter.
Wesley Keith Golladay: July and August are very heavy months.
Wesley Keith Golladay: So our lease exploration schedule.
Wesley Keith Golladay: The lease expiration curve is heavier or higher if you will in the second later second and third quarters.
Speaker Change: Okay. Thanks for the time everyone.
Speaker Change: Thank you and thanks Beth.
Speaker Change: Our next question comes from the line of John Pawlowski from Green Street. Please ask your question.
John Pawlowski: Hey, Thanks for the time I just have a few questions on the Atlanta market.
John Pawlowski: The market saw a pretty large sequential decline in revenue this past quarter.
John Pawlowski: Curious when you look at the full year 2024, what what range of revenue growth do you think is reasonable to underwrite and your Atlanta portfolio. This year.
Wesley Keith Golladay: This.
Wesley Keith Golladay: This is Dennis again, we've seen some.
Wesley Keith Golladay: Benefits in <unk>.
Wesley Keith Golladay: March and April.
Wesley Keith Golladay: Why are we starting to see progress in the land market, even with the softening I think the instrument implementation.
Wesley Keith Golladay: On the Street, and we will continue to see that benefit as it takes three to six months throughout the year that will help us.
Wesley Keith Golladay: NOI for 2012.
Wesley Keith Golladay: Yes.
Wesley Keith Golladay: Okay.
Wesley Keith Golladay: Ed about 50 basis points year over year revenue growth in the quarter. What do you think is roughly reasonable this year in Atlanta.
Ed: I think based on new lease rent growth was we'll still see some challenge are going towards the flat.
Wesley Keith Golladay: Outside of the new week and Thats.
Wesley Keith Golladay: It's really going to all be depending upon the retention that we're able to achieve in Atlanta, and one that we're going to have the pricing power SEC acts can be stabilized.
Wesley Keith Golladay: What's coming in in line with guidance that we presented Holistically.
Wesley Keith Golladay: And we'll see how it goes.
Speaker Change: Okay final question for me can you just give me a sense, how bad debt and your Atlanta portfolio has trended in recent quarters.
Speaker Change: What is it running as a percentage of revenue.
Wesley Keith Golladay: Has it gotten worse or has it gotten better.
Speaker Change: Sure Great question last year for all of 2023 bad debt in Atlanta was about 5% of the Atlanta market revenue.
Speaker Change: And that is certainly trended better so far in the first quarter were down about 4% first quarter and getting better as the eviction process is kind of accelerating as well as our other things are I'd verification of income verification tools are.
Speaker Change: Speeding up.
Speaker Change: Okay. Thank you for the time.
Speaker Change: Our next question comes from the line of Barry Oxford from Colliers. Please ask your question.
Barry Oxford: Great. Thanks, guys.
Barry Oxford: You mentioned, the Nashville asset as you know with the option as possible acquisitions, what else are you seeing in the acquisition market.
Barry Oxford: And our cap rates at a point, where you guys feel comfortable transacting.
Speaker Change: So I'll take the last part of your question first.
Speaker Change: And so think we know there's still a disconnect between public valuations and private market.
Speaker Change: Evaluation, so the cap rates for example in Birmingham at five two.
Speaker Change: That only that would make no sense for us to buy an asset at a five two cap rate with our current cost of capital.
Speaker Change: We're constantly looking at.
Speaker Change: No.
Speaker Change: The portfolio as a whole and where we want to position it and we will continue to recycle some out of some assets and into some newer ones.
Speaker Change: But that is then you're matching.
Speaker Change: The capital on the buy and the sell.
Speaker Change: So.
Speaker Change: We're looking to continue as I said.
Speaker Change: Yes.
Speaker Change: Manage the portfolio for the long term.
Speaker Change: But we're not out there just seeking to acquire.
Speaker Change: It's part of the recycling strategy.
Speaker Change: Alright perfect. Thanks.
Speaker Change: Then going to the defer.
Speaker Change: Different markets and absorption.
Speaker Change: You feel like most of the markets should be firming up.
Speaker Change: As net absorption happens on the deliveries are there any markets that you're concerned about when it comes to net absorption and maybe maybe free rent might start to seep into the market.
Speaker Change: This is Janet again until we've definitely seen some softening.
Janet: The Raleigh, Charlotte and Charleston, Luckily for US. These are some of our smaller NOI market.
Janet: Definitely have seen an impact on the concessions.
Janet: Our assets in this market based on the new supply that's going to be delivered in 'twenty. One 'twenty five Raleigh seems to subside as Charlotte is going to continue for a little bit, but we've been able to really maintain a good NOI there in Boston.
Janet: We will be continuing.
Janet: The levers to make sure that we're prioritizing occupancy and optimizing that.
Speaker Change: Okay, great. Thanks, so much guys I appreciate it.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Tayo Okusanya from Deutsche Bank. Please ask your question.
Tayo Okusanya: Hi, Yes. Good morning, My question, specifically about the Sun belt markets.
Tayo Okusanya: They seem to be some commentary regarding.
Tayo Okusanya: Feeling that maybe some of the supply issues.
Tayo Okusanya: Kind of moving more towards the rearview mirror in due time.
Tayo Okusanya: Curious, specifically, how you're thinking through supply in the Sun belt in terms of deliveries ultimately absorption and when we may start to see things turn.
Tayo Okusanya: Or inflect in those markets.
Speaker Change: Yes, great question.
Speaker Change: We have some stuff in our investor deck, and we've kind of talked about it I think on our year end earnings call and certainly in our city presentation back in March that the expectation. We have is that the vast majority of the new supply should be through by mid part of this year there'll still be a little bit of a lagging until the back half of the year for sure.
Speaker Change: Such that we will have pricing power as we head into the back part of the year. The other thing that we expect again given some of the data we've seen and done some modeling is absorption this year should be much better relative to kind of the new supply growth, whereas last year. The absorption wise is as strong as Scott had mentioned earlier, we're still very bullish.
Speaker Change: The long term on the Sunbelt and we think that job growth and population growth will continue to be very bullish there.
Speaker Change: And outpace the United States and we're quite excited about kind of how the new supply is trending this year, so far and kind of houses.
Speaker Change: Our more.
Speaker Change: More class B product is more insulated.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Linzess Chai from Jefferies. Please ask your question.
Linzess Chai: Yes, Hi, I can't remember if you track this but how many of your residents moved out to buy a house a year ago versus <unk> 24.
Linzess Chai: Last in the first quarter of last year. The reasons for move out was that people that moved out 16% moved out to buy a home.
Linzess Chai: The first quarter of this year and it's for those that have moved out.
Linzess Chai: 15% have moved out the biopharm.
Speaker Change: Thanks, and then on new leases would you expect to see new lease growth stay volatile or should we expect to see continued improvement for the rest of the year.
Speaker Change: As we continue to maintain occupancy.
Speaker Change: As you go into leasing season will start to see some pricing power.
Speaker Change: Over the next few quarters.
Speaker Change: Again still prioritizing occupancy within the pricing.
Speaker Change: So volatile.
Speaker Change: Our goal is to sustain and to drive.
Speaker Change: And where we can and that would include pricing power.
Speaker Change: We're through that.
Speaker Change: On a monthly basis.
Speaker Change: Thanks, and then I know you expected expenses to be higher this year is there a longer term NOI margin you'd like to target.
Speaker Change: There's no we don't have a target obviously, an NOI margin I think we continue to focus on maximizing that margin through time.
Speaker Change: We've talked about in the past using technology become more efficient continue to obviously drive rent growth and occupancy.
Speaker Change: We won't be satisfied with any number except that it's got to keep going up.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: There are no more questions I will now turn the conference back over at the Scott Schaeffer for closing remarks.
Scott F. Schaeffer: Thank you for joining us this morning, and we look forward to seeing many of you at the upcoming conferences.
Scott F. Schaeffer: And then speaking again with you next quarter have a good day.
Scott F. Schaeffer: Ladies and gentlemen that concludes today's call. Thank you all for Chinese you may now disconnect.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].