Q2 2024 Elme Communities Earnings Call

Operator: Greetings and welcome to the Elme Communities second quarter 2024 earnings conference call. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Amy Hopkins, Vice President, Investor Relations. Amy, please go ahead.

Operator: Greetings and welcome to the Elme Communities 2nd quarter, 2024 earnings conference call. As a reminder, today's call is being recorded.

Greetings and welcome to the communities second quarter 2024 earnings Conference call.

As a reminder, today's call is being recorded.

Amy Hopkins: At this time, I would like to turn the call over to Amy Hopkins, Vice President and Investor Relations. Amy, please go ahead.

At this time I would like to turn the call over to Amy Hopkins, Vice President Investor Relations. Amy. Please go ahead.

Amy Hopkins: Good morning, and thank you for joining our 2nd quarter earnings call. Today's event is being broadcast with a slide presentation that is available on the Investor's section of our website and will be available on our webcast replay.

Amy Hopkins: Good morning, and thank you for joining our second quarter earnings call. Today's event is being webcast with a slide presentation that is available in the investors section of our website and will be available on our webcast replay. Statements made during this call may constitute forward-looking statements that involve known and unknown risks and uncertainties, which may cause actual results to differ materially, and we undertake no duty to update them as actual events unfold.

Speaker Change: Good morning, and thank you for joining our second quarter earnings call. Today's event is being webcast with a slide presentation that is available on the investors section of our website and will be available on a webcast replay statements made during this call may constitute forward looking statements that involve known and unknown risks and uncertainties, which may cause actual results to differ materially and we undertake.

Amy Hopkins: Statements made during this call may constitute forward-looking statements that involve known and unknown risks and uncertainties, which may cause actual results to differ materially, and we undertake no duty to update them as actual events unfold. We refer to certain of these risks in our SEC filings.

No duty to update them as actual events unfold, we refer to certain of these risks in our SEC filings.

Amy Hopkins: Reconciliation of the gap and non-GAAP financial measures discussed in this call are available in our most recent earnings press release and financial supplement, which was distributed yesterday and can be found on the Investor's page of our website.

Reconciliations of the GAAP and non-GAAP financial measures discussed in the color available in our most recent earnings press release and financial supplement which was distributed yesterday and can be found on the investors page of our website and with that I'll turn the call over to our president and CEO Paul Mcdermott.

Amy Hopkins: We refer to certain of these risks in our SEC filings. Reconciliations of the GAAP and non-GAAP financial measures discussed in this call are available in our most recent earnings press release and financial supplement, which was distributed yesterday and can be found on the investors page of our website. And with that, I'll turn the call over to our President and CEO, Paul McDermott.

Paul McDermott: And with that, I'll turn the call over to our President and CEO, Paul McDermott. Thanks, Amy, and good morning, everyone. Presenting on the call with me today are Tiffany Butcher, our Chief Operating Officer, and Steve Freistat, our Chief Financial Officer. Tiffany will provide an update on our operating trends and initiatives, and Steve will cover our balance sheet and outlook. Grant Montgomery, our head of research, is here to answer market-level questions during Q&A.

Paul McDermott: Thanks, Amy, and good morning, everyone. Presenting on the call with me today are Tiffany Butcher, our Chief Operating Officer, and Steve Freishtat, our Chief Financial Officer. Tiffany will provide an update on our operating trends and initiatives, and Steve will cover our balance sheet and outlook. Grant Montgomery, our head of research, is here to answer market-level questions during Q&A. I'll start today's call with a brief market overview. The Washington Metro is a top-performing apartment market this year, and the region remains one of the best-positioned apartment markets nationally.

Paul McDermott: Thanks, Amy and good morning, everyone.

Speaker Change: Presenting on the call with me today are chip any butcher, our chief operating officer, and Steve <unk>, Our Chief Financial Officer.

Speaker Change: Anthony will provide an update on our operating trends and initiatives and Steve will cover our balance sheet and outlook.

Speaker Change: Grant Montgomery, our head of research is here to answer market level questions during Q&A.

Paul McDermott: I'll start today's call with a brief market level overview. The Washington Metro is a top performing apartment market this year, and the region remains one of the best position apartment markets nationally. Across our submarkets, deliveries have peaked, and net inventory ratios have normalized in the low single digits. Our Washington Metro portfolio, which comprises over 75% of our homes, is benefiting from strong, stable demand, allowing us to drive occupancy above our targeted level for the year. We believe we are positioned to capture growth in the second half of the year that will set us up well heading into 2025.

Paul McDermott: Across our submarkets, deliveries have peaked, and net inventory ratios have normalized in the low single digits. Our Washington Metro portfolio, which comprises over 75% of our homes, is benefiting from strong, stable demand, allowing us to drive occupancy above our targeted level for the year. We believe we are positioned to capture growth in the second half of the year that will set us up well heading into 2025. Turning to Atlanta, absorption rates are accelerating, and the supply overhang continues to decline. In M submarkets, absorption is now nearly 60% higher than the pre-pandemic period. Our Operating Fundamentals are showing stability with modest improvement, supported by strong retention and renewal rates. Tiffany will provide more details in her remarks.

Grant Montgomery: I'll start today's call with a brief market level overview.

Speaker Change: The Washington Metro is a top performing apartment market this year and the region remains one of the best positioned apartment markets nationally.

Anthony: Across our Submarkets deliveries have peaked and net inventory ratios have normalized in the low single digits.

Our Washington Metro portfolio, which comprises over 75% of our homes.

Speaker Change: Anything from strong stable demand, allowing us to drive occupancy above our targeted level for the year.

Speaker Change: We believe we are positioned to capture growth in the second half of the year that will set us up well heading into 2025.

Paul McDermott: Turning to Atlanta, absorption rates are accelerating, and the supply overhang continues to decline. In M submarkets, absorption is now nearly 60% higher than the pre-pandemic period. Our operating fundamentals are showing stability with modest improvement, supported by strong retention and renewal rates. Tiffany will provide more details in her remarks. While supply remains elevated, it is not expected to increase materially above the current levels in any of our submarkets, and we expect the overall level of demand relative to supply to continue to improve through 2025. Moreover, units under construction and new starts have declined significantly.

Speaker Change: Turning to Atlanta absorption rates are accelerating and the supply overhang continues to decline.

Speaker Change: And M. Submarkets absorption is now nearly 60% higher than the pre pandemic period.

Speaker Change: Our operating fundamentals are showing stability with modest improvement supported by strong retention and renewal rates.

Speaker Change: Tony will provide more details in her remarks.

Paul McDermott: While supply remains elevated, it is not expected to increase materially above the current levels in any of our submarkets, and we expect the overall level of demand relative to supply to continue to improve through 2025. Moreover, units under construction and new starts have declined significantly, pointing to better conditions in 2025 and a highly favorable supply-demand dynamics forecasted for 2026 and 2027. Our residents' financial health also remains solid. The rent-to-income ratio for new leases was 23% on average in the second quarter compared to 24% a year ago, reflecting a positive credit trend relative to rental rate growth.

Tony: While supply remains elevated it is not expected to increase materially above the current level than any of our sub markets and we expect the overall level of demand relative to supply to continue to improve through 2025.

Tony: Moreover units under construction and new starts have declined significantly.

Paul McDermott: Turning to better conditions in 2025 and highly favorable supply-demand dynamics forecasted for 2026 and 2027. Our residents' financial health also remained solid. The rent to income ratio for new leases was 23% on average in the second quarter, compared to 24% a year ago, reflecting a positive credit trend relative to rental rate growth. Employment trends remain stronger for middle-income wage earners relative to high-wage earners, and the composition of job growth is shifting in favor of non-cyclical industries, which are two favorable trends for Elme. As of the second quarter, government was our largest industry exposure in the Washington Metro, and healthcare was our largest industry exposure in the Atlanta Metro.

Speaker Change: Turning to better conditions in 2025, and a highly favorable supply demand dynamics forecasted for 2026 and 2027.

Speaker Change: Our residents' financial Health also remained solid the rent to income ratio for new leases was 23% on average in the second quarter compared to 24% a year ago, reflecting a positive credit trend relative to rental rate growth.

Paul McDermott: Employment trends remain stronger for middle-income wage earners relative to high wage earners, and the composition of job growth is shifting in favor of non-cyclical industries, which are two favorable trends for Elme. As of the second quarter, government was our largest industry exposure in the Washington metro, and healthcare was our largest industry exposure in the Atlanta metro. Affordability and relative value remain critical to our strategy, and our rent levels are several hundred dollars below both Class A rents and the cost to own a home in our market. Move-outs to purchase homes comprise just 8% of second-quarter move-outs, well below the historical level of mid-teens.

Speaker Change: Employment trends remained stronger for middle income wage earners relative to high wage earners and the composition of job growth is shifting in favor of non cyclical industries, which are two favorable trends for L.

Speaker Change: As of the second quarter government was our largest industry exposure and the Washington Metro and health care was our largest industry exposure in the Atlanta Metro.

Paul McDermott: Affordability and relative value remain critical to our strategy, and our rent levels are several hundred dollars below both Class A rents and the cost to own a home in our markets. Moveouts to purchase homes comprise just 8% of second quarter moveouts, well below the historical level in the mid-teens. Additionally, our retention rates remain historically high, averaging 65% year-to-date, as our value-oriented resident base tends to be stickier, with an average tenure of about 2.7 years.

Speaker Change: Affordability and relative value remain critical to our strategy and our rent levels are several hundred dollars below both class a rents and the cost to own a home and our markets.

Speaker Change: Move outs to purchase homes comprised just 8% of second quarter move outs well below the historical level in the mid teens.

Paul McDermott: Additionally, our retention rates remained historically high, averaging 65% year-to-date as our value-oriented resident base tends to be stickier, with an average tenure of about 2.7 years. As we move forward, our focus on maintaining rent levels that are affordable for the largest and most underserved segments of the rental market, combined with our efforts to enhance the Class B living experience, should continue to attract strong and steady demand from value-conscious renters. And with that, I'll turn it over to Tiffany to discuss our Operating Trends and Growth Initiatives.

Speaker Change: Additionally, our retention rates remained historically high averaging 65% year to date as our value oriented resident base tends to be stickier with an average tenure of about 2.7 years.

Paul McDermott: As we move forward, our focus on maintaining rent levels that are affordable for the largest and most underserved segments of the rental market, combined with our efforts to enhance the Class B living experience, should continue to attract strong and steady demand from value-conscious renters. And with that, I'll turn it to Tiffany to discuss our operating trends and growth initiatives.

Speaker Change: As we move forward our focus on maintaining Brent levels that are affordable for the largest and most underserved segment of the rental market combined with our efforts to enhance the class B living experience should continue to attract strong and steady demand for value conscious renters.

Speaker Change: And with that I'll turn it to Tiffany to discuss our operating trends and growth initiatives.

Tiffany Butcher: Thanks, Paul. The positive momentum we began to experience in April has continued, and blended lease rate growth and occupancy improves sequentially during the second quarter, across both the Washington and Atlanta metro. Effective blended lease rate growth increased to 3.2% for our same store portfolio during the second quarter, comprised of renewal lease rate growth of 5.4% and new lease rate growth of 0.2%. New lease rate growth increased to 0.4% in July, showing continued improvement. Renewal lease rate growth was 4.6% in July, and we're signing renewals at an average rate of 4% for August and September lease expirations, reflecting gradual moderation in renewal rates through year end, which is in line with our expectations.

Tiffany Butcher: Thanks, Paul. The positive momentum we began to experience in April has continued, and blended lease rate growth and occupancy improved sequentially during the second quarter across both the Washington and Atlanta metros. Effective blended lease rate growth increased to 3.2% for our same store portfolio during the second quarter, comprised of renewal lease rate growth of 5.4% and new lease rate growth of 0.2%. New lease rate growth increased to 0.4% in July, showing continued improvement.

Tiffany: Thanks, Paul the positive momentum we began to experience in April has continued and blended lease rate growth and occupancy improved sequentially. During the second quarter across both the Washington, Atlanta Metros effective blended lease rate growth increased to three 2% for same store portfolio during the second quarter comprised of renewal.

Tiffany: Lease rate growth of five 4% and new lease rate growth at 0.2%.

Speaker Change: New lease rate growth increased two 0.4% in July showing continued improvement.

Tiffany Butcher: Renewal lease rate growth was 4.6% in July, and we're signing renewals at an average rate of 4% for August and September lease expirations, reflecting gradual moderation and renewal rates through year end, which is in line with our expectations. Save Store resident retention remains very strong at 65% during the quarter, highlighting the longer-term nature of our resident base and our heightened focus on customer service excellence as part of our 2024 platform initiative.

Tiffany: New lease rate growth was four 6% in July and we're signing renewals at an average rate of 4% for August and September lease explorations, reflecting gradual moderation in renewal rates through year end, which is in line with our expectations.

Tiffany Butcher: Same store resident retention remains very strong at 65% during the quarter, highlighting the longer term nature of our resident base and our heightened focus on customer service excellence as part of our 2024 platform initiatives. Moving on to occupancy, same store average occupancy increased sequentially to 94.6%, and ending occupancy increased to 95.5% in the second quarter, driven by strong demand in the Washington Metro, offset in part by the impact of new supply and the timing of evictions in our lane of portfolio. Through July, same store occupancy has averaged 95.3%, representing a 70 basis point increase relative to second quarter.

Speaker Change: Same store resident retention remains very strong at 68, 5% during the quarter.

Tiffany: Letting the longer term nature of our resident base and our heightened focus on customer service excellence as part of our 2024 platform initiatives.

Tiffany Butcher: Moving on to occupancy, same-store average occupancy increased sequentially to 94.6% and ending occupancy increased to 95.5% in the second quarter, driven by strong demand in the Washington Metro, offset in part by the impact of new supply and the timing of evictions in our Atlanta portfolio. Through July, same-store occupancy has averaged 95.3%, representing a 70 basis point increase relative to the second quarter. The demand patterns that we're seeing in northern Virginia, where the majority of our Washington Metro communities are located, are exceptional.

Tiffany: Moving on to occupancy same store average occupancy increased sequentially to 94, 6% and ending occupancy increased to 95, 5% in the second quarter driven by strong demand in the Washington Metro All set in part by the impact of new supply and the timing of addiction in our Atlanta portfolio.

Speaker Change: Yeah.

Speaker Change: Through July same store occupancy has averaged 95, 3% representing a 70 basis point increase relative to the second quarter.

Tiffany Butcher: The demand patterns that we're seeing in Northern Virginia where the majority of our Washington Metro communities are located are exceptional. An occupancy average 96.1% for our Washington Metro communities during the quarter, increasing to an average level of 96.6% in June and 96.7% in July, which is above the upper end of our targeted range, allowing us to continue to push rent during the busiest leasing month. In Atlanta, while the market is experiencing an unprecedented level of new supply, market demand is improving. Atlanta occupancy averaged 89.5% during the quarter, increasing to 90.6% in July. Additionally, we have 24 homes, or just over 1% of our Atlanta portfolio, that are temporarily out of service due to a fire, which detracted from our occupancy improvement.

Speaker Change: The demand patterns that we're seeing in northern Virginia, where the majority of our Washington Metro communities are located are exceptional and occupancy averaged 96, 1% for Washington Metro communities during the quarter, increasing to an average level of 96, 6% in June at 96, 7% in July which is.

Tiffany Butcher: Occupancy averaged 96.1% for our Washington Metro communities during the quarter, increasing to an average level of 96.6% in June and 96.7% in July, which is above the upper end of our targeted range, allowing us to continue to push rents during the busiest leasing month. In Atlanta, while the market is experiencing an unprecedented level of new supply, market demand is improving, and Atlanta occupancy averaged 89.5% during the quarter, increasing to 90.6% in July.

Speaker Change: The upper end of our targeted range, allowing us to continue to push rents during the busiest leasing months.

Speaker Change: In Atlanta, while the market is experiencing an unprecedented level of new supply market demand is improving and Atlanta occupancy averaged 89, 5% during the quarter increasing to 96% in July.

Tiffany Butcher: Additionally, we have 24 homes, or just over 1% of our Atlanta portfolio, that are temporarily out of service due to a fire, which detracted from our occupancy improvement. Although the timing of evictions could continue to pressure occupancy, we're seeing stable demand patterns, and we're focused on driving higher occupancy over the second half of the year. Turning to bad debt.

Speaker Change: Additionally, we have 24 homes or just over 1% of our Atlanta portfolio that are temporarily out of service due to a fire, which detracted from our occupancy improvement.

Tiffany Butcher: Although the timing of evictions could continue to pressure occupancy, we're seeing stable demand patterns, and we're focused on driving higher occupancy over the second half of the year. Turning to bad debt, reducing bad debt is a top priority, and the proactive steps that we have taken are delivering better credit performance overall. We expect to benefit from lower year-over-year bad debt in the second half of this year and even more so in 2025 as higher credit standards and credit protections at the front end of the lacing process. In normalizing eviction delays at the back end, drive credit performance to a more normalized level.

Speaker Change: Although the timing of evictions could continue to pressure occupancy, we're seeing stable demand patterns and we're focused on driving higher occupancy over the second half of the year.

Speaker Change: Turning to bad debt, reducing bad debt is a top priority and the proactive steps we have taken are delivering better credit performance overall.

Tiffany Butcher: Reducing bad debt is a top priority, and the proactive steps that we have taken are delivering better credit performance overall. We expect to benefit from lower year-over-year bad debt in the second half of this year and even more so into 2025, as higher credit standards and credit protections at the front end of the leasing process and normalizing eviction delays at the back end drive credit performance to a more normalized level. Turning to renovations, during the second quarter, we generated an average ROI of approximately 17% on 150 home renovations.

Speaker Change: We expect to benefit from lower year over year bad debt in the second half of this year and even more so into 2025 as higher credit standards and credit protection at the front end of the leasing process.

Speaker Change: Normalizing eviction delays at the backend drive credit performance to a more normalized level.

Tiffany Butcher: Turning to renovations during the second quarter, we generated an average ROI of approximately 17% on 150 home renovations. We now expect to complete approximately 475 full renovations and over 100 home upgrades this year. Looking forward, renovations continue to be a key growth driver for Elme. Our identified renovation pipeline of nearly 3,300 homes represents over 35% of our portfolio, which is more than enough runway to deliver renovation-led value creation for the foreseeable future. Our operational initiatives remain on track as we elevate our platform to new levels of success.

Speaker Change: Turning to renovation during the second quarter, we generated an average ROI of approximately 17% on a 150 home renovations.

Tiffany Butcher: We now expect to complete approximately 475 full renovations and over 100 home upgrades this year. Looking forward, renovations continue to be a key growth driver for Elm. Our identified renovation pipeline of nearly 3300 homes represents over 35% of our portfolio, which is more than enough runway to deliver renovation-led value creation for the foreseeable future. Our operational initiatives remain on track as we elevate our platform to new levels of success. We're pleased to report that in June, we successfully launched our shared services department, known as Elm Resident Services, focused on streamlining community operations and enhancing process efficiencies across resident account management, collections, and renewals.

Speaker Change: We now expect to complete approximately 475 full renovations and over 100 home upgrades this year looking.

Speaker Change: Looking forward renovations continue to be a key growth driver for al or.

Speaker Change: Our identified renovation pipeline of nearly 3300 homes represents over 35% of our portfolio, which is more than enough runway to deliver renovation led value creation for the foreseeable future.

Speaker Change: Our operational initiatives remain on track as we elevate our platform to new levels of success.

Tiffany Butcher: We're pleased to report that in June, we successfully launched our shared services department, known as Elme Resonant Services, focused on streamlining community operations and enhancing process efficiencies across resident account management, collections, and renewals. We're excited to welcome our shared services team into their new roles within Elme. This launch was supported by the successful rollout of several new technologies, including an AI platform that saves team members time by managing electronic communication with current residents, automating payment and collection efforts, and entering service requests. We're already beginning to see an increase in resident engagement with this new tool.

Ellen: We're pleased to report that in June we successfully launched our shared services department known as Ellen resident services folks.

Ellen: On streamlining community operations and enhancing process efficiencies across resident account management collection and renewals. We're excited to welcome our shared services team into their new roles within al.

Tiffany Butcher: We're excited to welcome our shared services team into their new roles within ELLE. This launch was supported by the successful rollout of several new technologies, including an AI platform that saves team members time by managing electronic communication with current residents, automating payment and collection efforts, and entering a service request. We're already beginning to see an increase in resident engagement with this new tool. We're also implementing new software to manage balances after move-out, reducing the amount of time our team spends attempting to collect and track payments from former residents.

Ellen: This launch was supported by the successful rollout of several new technologies, including an AI platform that these team members time by managing electronic communication with current residents automating payment and collection efforts and entering service requests were.

Speaker Change: We're already beginning to see an increase in resident engagement with this new tool.

Tiffany Butcher: We're also implementing new software to manage balances after move-outs, reducing the amount of time our team spends attempting to collect and track payments from former residents. Lastly, we've partnered with a provider, a flexible payment options, to give our residents the ability to choose when they pay during the month, while we receive cash from the provider when rents do. With all of these tools as part of our program and a strong team in place, we are confident in our ability to achieve our multi-year goals related to this effort. This successful launch of Elme resident services is a key milestone to achieving the 1.7 to 1.9 million of additional NOI and FFO from operational initiatives in 2024, which aligns with our 2023 to 2025 upside target, a 4.25 to 4.75 million.

Speaker Change: We're also implementing new software to manage balances after move out reducing the amount of time. Our team has spent attempting to collect and truck payments from former residents.

Tiffany Butcher: Lastly, we've partnered with a provider of flexible payment options to give our residents the ability to choose when they pay during the month while we receive cash from the provider when rent is due. With all of these tools as part of our program and a strong team in place, we are confident in our ability to achieve our multi-year goals related to this effort. This successful launch of Elm Resident Services is a key milestone to achieving the 1.7 to 1.9 million of additional NOI and FFO from operational initiatives in 2024, which aligns with our 2023 to 2025 upside target of 4.25 to 4.75 million.

Ellen: Lastly, we've partnered with a provider of flexible payment options to give our residents the ability to choose when they pay during the month, while we receive cash for that provider when run and scale.

Speaker Change: With all of these tools as part of our program and a strong team in place we are confident in our ability to achieve our multi year goals related to this effort.

Speaker Change: The successful launch of home resident services is a key milestone to achieving the one seven to $1 9 million of additional NOI and F. F O from operational initiatives in 'twenty, 'twenty, four which aligns with our 2023 to 2025 upside target of four point to five to $4 $75 million.

Tiffany Butcher: Beyond the initiatives that comprise our 2023 to 2025 upside target, we're also rolling out managed Wi-Fi across our portfolio in phases, starting with approximately 2,000 homes in phase one, which are scheduled for installation during the fourth quarter.

Tiffany Butcher: Beyond the initiatives that comprise our 2023 to 2025 upside target, we're also rolling out managed Wi-Fi across our portfolio in phases, starting with approximately 2,000 homes in phase one, which is scheduled for installation during the fourth quarter. And with that, I'll turn it over to Steve to cover our 2024 Outlook and Balance Sheet.

Speaker Change: The initiatives that comprise our 2023 to 2025 upside target. We're also rolling out managed Wifi across our portfolio in phases, starting with approximately 2000 homes in phase one which are scheduled for installation during the fourth quarter.

Steve Freistat: And with that, I'll turn it over to Steve to cover our 2024 outlook and balance sheet. Thanks, Tiffany. Starting with guidance, we are tightening our 2024 core FFO per share guidance range, the 91 cents to 95 cents, maintaining our midpoint of 93 cents. We are tightening the range and raising the midpoint of our same store multi-family NOI growth assumption, which is now expected to range from 0.75% to 1.75% in 2024, due to stronger than expected performance in our Washington Metro portfolio. We now expect interest expense for the year to range from 37.5 to 38.25 million dollars.

Speaker Change: And with that I'll turn it over to Steve to cover our 2020 for outlook and balance sheet.

Steve Freishtat: Thanks, Tiffany. Starting with guidance, we are tightening our 2024 core FFO per share guidance range to $0.91 to $0.95, maintaining our midpoint of $93 per share. We are tightening the range and raising the midpoint of our same-store multifamily NOI growth assumption, which is now expected to range from 0.75% to 1.75% in 2024 due to stronger-than-expected performance in our Washington Metro portfolio. We now expect interest expense for the year to range from $37.5 to $38.25 million.

Steve: Thanks, Tiffany starting with guidance, we are tightening our 2024 core <unk> per share guidance range of 91.

Steve: 95 cents, maintaining our midpoint of 93.

Steve: We are tightening the range and raising the midpoint of our same store multifamily NOI growth assumption, which is now expected to range from <unk>, 75% to 175% in 2024 due to stronger than expected performance in our Washington Metro portfolio.

Speaker Change: We now expect interest expense for the year to range from 37, 5% to $38 $5 million, while we expect fewer rate cuts in 2024, then our outlook going into the year.

Steve Freistat: While we expect fewer rate cuts in 2024 than our outlook going into the year, our continued focus on managing our cash and debt balance, as well as successful execution of our new revolving credit facility, has helped us stay within our initial range, though at a slightly higher midpoint. Turning to our balance sheet, annualized net debt to adjusted EBITDA was 5.6 times a quarter end, in line with our targeted range, and we continue to expect our leverage ratio to finish this year in the mid five times range. As previously discussed, subsequent to quarter end, we entered into a new four year 500 million dollar revolving credit facility to replace the prior facility, which have been due to mature in August 2025.

Operator: While we expect fewer rate cuts in 2024 than our outlook going into the year, our continued focus on managing our cash and debt balance, as well as the successful execution of our new revolving credit facility, has helped us stay within our initial range, though at a slightly higher mid-term. Turning to our balance sheet, annualized net debt to adjusted EBITDA was 5.6 times at quarter end, in line with our targeted range, and we continue to expect our leverage ratio to finish this year in the mid five times range.

Speaker Change: <unk> focus on managing our cash and debt balance as well as successful execution of our new revolving credit facility that has helped us stay within our initial range, though at a slightly higher midpoint.

Steve: Turning to our balance sheet annualized net debt to adjusted EBITDA was five six times at quarter end.

Steve: In line with our targeted range and we continue to expect our leverage ratio to finish this year in the mid five times range.

Operator: As previously discussed, subsequent to quarter end, we entered into a new four-year, $500 million revolving credit facility to replace the prior facility, which had been due to mature in August 2025. The new facility has two six-month extension options and an accordion feature that allows us to increase the aggregate facility to $1 billion. Our liquidity position remains strong, with over $320 million available on our new revolving credit facility as of August 1st.

Steve: As previously discussed subsequent to quarter end, we entered into a new four year 500 million dollar revolving credit facility to replace replace the Pryor facility, which had been due to mature in August 2025.

Steve Freistat: The new facility has two six-month extension options, and an according feature that allows us to increase the aggregate facility to $1 billion. Our liquidity position remains strong with over 320 million dollars available when our new revolving credit facility as of August 1st. With no secured debt and the only maturity prior to 2028 being the 125 million dollar term loan, our balance sheet remains in excellent shape.

Steve: The new facility has two six month extension options and an accordion feature that allows us to increase the aggregate facility to $1 billion.

Steve: Our liquidity position remains strong with over $320 million available on our new revolving credit facility as of August 1st.

Operator: With no secured debt and the only maturity prior to 2028 being the $125 million term loan, our balance sheet remains in excellent shape. To conclude, our second quarter performance reflects continued strength in the Washington Metro and Improving Trends in our Atlanta Portfolio. Our renovations continue to yield very strong returns, with plenty of runway ahead. Additionally, our operational initiatives are on track, and the successful launch of our shared services department represents our latest platform enhancement. Looking forward, we are still in the early innings with our operational initiatives, and we are setting the stage for further ROI-driven initiatives in 2025. And with that, I will open it up to Q&A.

Steve: With no secured debt and the only maturity prior to 2028 being the $125 million term loan our balance sheet remains in excellent shape.

Steve Freistat: To conclude, our second quarter performance reflects continued strength in the Washington metro and improving trends in our Atlanta portfolio. Our renovations continued to yield very strong returns, with plenty of runway ahead. Additionally, our operational initiatives are on track, and the successful launch of our shared services department represents our latest platform enhancement.

Steve: To conclude our second quarter performance reflects continued strength in the Washington Metro and improving trend in our Atlanta portfolio.

Steve: Renovations continued to yield very strong returns with plenty of runway ahead.

Steve: Additionally, our operational initiatives are on track and the successful launch of our shared services Department represents our latest platform enhancement.

Steve Freistat: Looking forward, we are still in the early innings with our operational initiatives, and we are setting the stage for further ROI-driven initiatives in 2025.

Steve: Looking forward, we are still in the early innings with their operational initiatives and we are setting the stage for further ROI driven initiatives in 2025.

Operator: And with that, I will open it up to Q&A. Thank you. At this time, we will be conducting our question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tommel indicate your line is in the question key. You may press star two if you would like to remove your question from the key. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we pull for questions. Thank you.

Speaker Change: With that I will open it up to Q&A.

Steve: Yeah.

Operator: Thank you. At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation token will indicate your line is in the question. You may press star two if you would like to remove your question from the list. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing start. One moment, please, while we poll for questions. Thank you. Our first question is from Cooper Clark with Wells Fargo. Your line is:

Speaker Change: Thank you at this time, we will be conducting a question and answer session.

Speaker Change: If you'd like dockers, sorry, if you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue.

Speaker Change: You May press Star two if you would like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: One moment, please where we poll for questions.

Speaker Change: Thank you.

Cooper Clark: Our first question is coming from Cooper Clark with Wells Fargo. Your line is live. Great. Thank you for taking the question. Wondering if you could walk through bad debt in the quarter for the whole portfolio in Atlanta specifically. Wondering if you still think Atlanta bad debt could get to that 3-4% range by the end of the fourth quarter and that full year 24 average of 5-6%.

Speaker Change: Our first question is coming from Cooper Clark with Wells Fargo. Your line is life.

Tiffany Butcher: Great, thank you for taking the question. I'm wondering if you could walk through bad debt in the quarter for the whole portfolio and Atlanta specifically. I'm wondering if you still think Atlanta bad debt could get to that 3% to 4% range by the end of the fourth quarter and that full year 24 average of 5% to 6%.

Cooper Clark: Great. Thank you for taking the question I'm wondering if you could walk through bad debt and Nicole in the quarter for the whole portfolio in Atlanta, specifically I'm wondering if you still think Atlanta bad debt could get to that 3% to 4% range by the end of the fourth quarter and that full year 'twenty four average of 5% to 6%.

Tiffany Butcher: Cooper, this is Tiffany Butcher, sure. Happy to answer that question. I would start off by saying, in the second quarter, we saw improvement in our bad debt across both of our markets, both here in the Washington, DC area as well as in our Atlanta portfolio. We are now in the DMV, or in the Washington Metro portfolio. We are now below 1% of bad debt, so we are definitely in the normalized range for bad debt here in the Washington Metro area. In our Atlanta portfolio, we've continued to see improvement over where we were for the full year of 2023, and improvement over where we were in the first quarter of 24.

Tiffany Butcher: Cooper, this is Tiffany Butcher. Sure, happy to answer that question. I would start off by saying, in the second quarter, we saw improvement in our bad debt across both of our markets, both here in the Washington, D.C. area, as well as in our Atlanta portfolio. We are now in the DMV, or in the Washington Metro portfolio, we are now below 1% bad debt, so we are definitely in the normalized range for bad debt here in the Washington Metro area.

Speaker Change: This is Tiffany which are sure happy to answer that question I would start off by saying in the second quarter, we saw improvement in our bad debt across both of our markets. Both here in the Washington D C area as well as in our Atlanta portfolio.

Speaker Change: We are now in the D M V or any Washington Metro portfolio. We are now below 1% bad debt. So we are definitely in the normalized range for bad debt here in the Washington Metro area in our Atlanta portfolio. We've continued to see improvement over where we were for the full year of 2023.

Tiffany Butcher: In our Atlanta portfolio, we've continued to see improvement over where we were for the full year of 2023, and improvement over where we were in the first quarter of 2024. So in terms of our bad debt as a percentage of revenue, we are currently, in the second quarter, about 6.6% in our Atlanta portfolio, which is obviously, continues to be above historical norms, but we have seen stability in that number. What I would say is the most recent trend that is impacting our bad debt is that we are now starting to see positive momentum in some of our Atlanta communities and counties for implementing House Bill 1203, which is the bill in Georgia that allows landlords to hire off-duty officers to execute evictions, and that's going to be a significant improvement in Atlanta over the back half of the year, because it has continued to be a challenge to gain possessions of homes, given the level of backlog that there is in the sheriff's offices in many of the Atlanta counties.

Speaker Change: <unk> an improvement over where we were in the first quarter of 'twenty four.

Tiffany Butcher: So, in terms of our bad debt as a percentage of revenue, we are currently in the second quarter in about 6.6% in our Atlanta portfolio, which is obviously continues to be above historical norms, but we have seen stability in that number. What I would say is the most recent trend that is impacting our bad debt is that we are now starting to see positive momentum in some of our Atlanta communities and counties for implementing House Bill 1203, which is the bill in Georgia that allows landlords to hire off-duty officers to execute evictions, and that's going to be a significant improvement in Atlanta over the back half of the year because it has continued to be a challenge to gain possession of homes given the level of backlog that there is in the sheriff's offices in many of the Atlanta counties.

Speaker Change: So in terms of our our bad debt as a percentage of revenue. We're currently in the second quarter at about six 6% in our Atlanta portfolio.

Speaker Change: Which is obviously continues to be above historical norms, although we have seen stability in that number.

Speaker Change: What I would say is the most recent trial because it is impacting our bad debt is that we are now starting to see positive momentum in some of our Atlanta communities.

Speaker Change: And counties for implementing house Bill 12, those three which is the bill in Georgia that allows landlords to higher off duty officers to execute addictions and I was going to be a significant improvement in Atlanta over the back half of the year because of those continued to be a challenge to gain possession of the policy.

Tiffany Butcher: So we look forward to being able to take possession of those units and then be able to turn them around and ultimately release them to rent-paying tenants, and that's going to be very helpful in terms of getting us to that reduced level of bad debt by year-end. So I think with the implementation of House Bill 1203, along with additional efforts that we're making internally, in terms of streamlining the collections process and improving our credit screening with the implementation of our new ERS team, those are the major factors that are going to help us get to that lower level of bad debt by year-end.

Speaker Change: Given the level of backlog I think there is in the sheriff's offices in many of the Atlanta counties.

Tiffany Butcher: So we look forward to being able to take possession of those units and then be able to turn them and ultimately release them to rent-paying tenants, and that's going to be very helpful in terms of getting us to that reduced level of bad debt by year end. So I think with the implementation of House Bill 1203, along with additional efforts that we're making internally in terms of streamlining the collections process and improving our credit screening with the implementation of our new ERS team, those major factors that are going to help us get to that lower level of bad debt by year end.

Speaker Change: We look forward to being able to take possession of those units and then be able to turn them and ultimately re lease them to rent paying tenants and that's going to be very helpful. In terms of getting us to that reduced level of bad debt by year end. So I think with the implementation of house Bill <unk>.

Speaker Change: Three along with additional efforts that we're making internally in terms of streamlining the collections process and improving our credit screening with the implementation of our new E. R. S team.

Speaker Change: Those are the major factors that are going to help us get to that lower level of bad debt by year end.

Cooper Clark: Okay, thank you. That's super helpful.

Steve Freishtat: Okay, thank you. That's super helpful. And I guess just switching over to the updated NOI guidance, it seems that it's mostly expense driven, wondering how same store revenue is shaping up relative to expectations assumed in guidance, clearly some DC strength year to date on the topic. Yeah, Cooper, so, I mean, if we look at it, so, like, the NOI...

Speaker Change: Okay. Thank you that's super helpful and I guess, just switching over to the updated NOI guidance. It seems that it's mostly expense driven and wondering how same store revenue shaping up relative to expectations assumed in guidance clearly some D C strength year to date on the top one.

Cooper Clark: And I guess just switching over to the updated NOAA guidance, it seems that it's mostly expense-driven, wondering how same-store revenue shaping up relative to expectations assumed in guidance. Clearly, some DC strengths here to date on the top one.

Steve Freishtat: Yeah, Cooper, so I mean, if we look at it, right, the NOI, you know, we tightened, slightly raised at the midpoint, so the midpoint is about 1.25. Looking at the expense growth, we do see expense growth in the 5% to 6% range for this year. That is lower than what we initially forecasted coming into the year, and that's helped out by a couple of things. One is taxes, where we've just seen assessments not come in as high as we initially thought, and the second one is lower payroll.

Steve Freistat: Yeah, Cooper, so I mean, if we look at it so right, the NOI, we tighten slip slightly raised at the midpoint, to the midpoint at about one and a quarter. Looking at the expense growth, we do see expense growth in the five to six percent range for this year. That is lower than what we initially forecasted coming into the year. And that's helped up by a couple of things. One is taxes, where we've just seen assessments not come in as high as we initially thought. And the second one is lower payroll. We're really starting to see the effects of the operational initiatives, the operational upside that we have out there really start to take effect.

Cooper: Cooper's I mean, if we look at it so right the NOI.

Speaker Change: Slip slightly raised at the midpoint to midpoint at about a one quarter I'm looking at our.

Speaker Change: The expense growth, we we do see expense growth in the 5% to 6% range for this year.

Speaker Change: That is lower than what we initially forecasted coming into the year and that has helped out by a couple of things one is taxes, where we've just seen assessments not come in as high as we initially thought.

Speaker Change: The second one is lower payroll are where we're really starting to see the effects of the operational initiatives and the.

Steve Freishtat: We're really starting to see the effects of the operational initiatives and the operational upside that we have out there really start to take effect, and so we're starting to see savings take place. On the revenue side... We're expecting revenue to be in the 2.5% to 3% range for 2024, and that's really driven, I think, by the bad debt in Atlanta that Tiffany was just talking about. We're seeing that trend in the right direction. We're just not seeing it move as quickly as we initially had thought when we came into the year.

Speaker Change: Operational upside that we have out there really start to take effect and so we're starting to see that that savings take place on the revenue side.

Steve Freistat: And so we're starting to see that savings take place on the revenue side. We're expecting revenue to be in the 2.5 percent to 3 percent range for 24. And that's really driven, I think, by the bad debt in Atlanta that Tiffany was just talking about, that we're seeing that trend in the right direction.

Speaker Change: We're seeing we're expecting revenue to be in the 2.5% to 3% range for 'twenty for and that's really driven I think by the the bad debt and Atlanta. The Tiffany was was just talking about that we're seeing that trend in the right direction. We're just not seeing it move as quickly as we initially thought when we.

Steve Freistat: We're just not seeing it move as quickly as we initially thought when we came into the year.

Tiffany: Came into the year.

Cooper Clark: Thank you very much.

Speaker Change: Okay. Thank you very much.

Operator: Thank you. Once again, if you have any questions, please press star 1 on your telephone keypad. Our next question is coming from Anthony Paolone with J.P. Morgan. Your line is live.

Operator: Thank you. Once again, if you have any questions, please press star one on your telephone keypad.

Speaker Change: Thank you.

Speaker Change: Once again, if you have any questions. Please press star one on your telephone keypad.

Anthony Paolone: Our next question is coming from Anthony Paolone with J.P. Morgan, your line is nice. Thanks, good morning. In Atlanta, you know, where do you think our dependency finishes off the year in terms of how you're seeing things now?

Anthony <unk>: Our next question is coming from Anthony <unk> with J P. Morgan Your line is live.

Tiffany Butcher: Thanks, good morning. In Atlanta, where do you think occupancy finishes off the year in terms of how you're seeing things now?

Anthony <unk>: Thanks, Good morning.

Speaker Change: In Atlanta, you know, where do you think occupancy.

Speaker Change: Finishes off the year in terms of how you're seeing things now.

Tiffany Butcher: Hi Tony, it's Tiffany again. In Atlanta, we're seeing occupancy trends into the low 90%. And our guidance assumes that occupancy remains at that, you know, kind of low 90% range through year end, as we continue to see kind of gradual improvement in the supply and demand dynamics in the Atlanta market. We've continued to see solid retention, which is also helping that occupancy trend, but it's just going to be a gradual improvement, and we are continuing to adjust our pricing and revenue strategy to maintain occupancy in that range through year-end.

Tiffany Butcher: Hi, Tony, it's Tiffany again. In Atlanta, we're seeing occupancy trends into the low 90%. And our guidance is in the occupancy remains that that, you know, have low 90% range through year-end. As we continue to see kind of gradual improvement in the supply-demand dynamics in the Atlanta market. You know, we continue to see solid retention, which is also helping that occupancy trend, but it's just going to be a gradual improvement. And we are, you know, continuing to adjust our pricing revenue strategy to maintain occupancy in that range through year-end.

Anthony <unk>: Hi, Toni it's Stephanie again in Atlanta, we're seeing occupancy trend until low 90% and our guidance assumes that occupancy remains at that low 90% range through year end as we continue to see a gradual improvement in the supply demand dynamics in the Atlanta market.

Toni: Yeah, we've continued to see solid retention, which is also helping that occupancy trend evidenced it's gonna be a gradual improvement and we are continuing to adjust our pricing revenue strategy to maintain occupancy in that range through year end.

Anthony Paolone: Okay, thanks, and then just shifting to maybe investments in capital markets.

Speaker Change: Okay. Thanks, and then.

Tiffany Butcher: Okay, thanks. And then maybe, maybe just update us on how much you're spending on the returns you're getting on full renovations and also maybe some discussion about where you're seeing sort of Class B cap rates in your markets?

Speaker Change: Just shifting to maybe investments in capital markets can you talk about maybe just update us on how much you're spending and the returns are.

Tiffany Butcher: Can you talk about maybe just update us on how much you're spending in the returns. You're getting on full renovations and also just maybe some discussion about, you know, where you're seeing sort of Class B cap rates in your markets.

Speaker Change: You're getting on full renovations and also just maybe some discussion about you know where you're seeing sort of class b cap rates in your markets.

Paul McDermott: I can start off by talking about the renovations, and then I can turn it over to Paul to talk about the capital markets. So, in terms of renovations, we have increased the number of renovations that we're doing for the year. We're now projecting over 475 full home renovations and over 100 partial renovations or home upgrades through the remainder of the year. We're continuing to see the upper teens return, so we averaged a 17% ROI on our renovations for the quarter and year to date.

Tiffany Butcher: I can start off by talking about the renovations, and I can turn it over to Paul to talk about the capital market. So, let's say, in terms of renovations, we have increased the number of renovations that we're doing for the year. We're now projecting over 475 full home renovations and over 100 partial renovations or home upgrades through the remainder of the year. We're continuing to see, you know, upper teens returns. So we averaged a 17% ROI on our renovations for the quarter and year-to-date. So that continues to remain a very good investment source for us.

Anthony <unk>: I can start off by talking about the renovations and I can turn it over to Paul to talk about the capital market.

Speaker Change: In terms of renovation.

Paul: <unk> increased the number of renovations that we're doing for the year. We're now projecting over 475 full home renovation and over 100, a partial renovations our home upgrades through the remainder of the year, we're continuing to see upper.

Paul: Teens returns so we averaged 17% ROI on our renovations for the quarter and year to date. So that continues to remain a very good investment source for us as well as we're investing in our managed Wi Fi I mentioned in my prepared remarks.

Paul McDermott: So that continues to remain a very good investment source for us. As well as investing in our managed Wi-Fi, I mentioned in my prepared remarks that we are launching phase one of over 2,000 units of managed Wi-Fi that'll be installed in the fourth quarter, which also has very strong returns. Paul, I'll turn it over to you to talk about capital markets. Thanks, Tiffany.

Tiffany Butcher: As well as we're investing in our managed Wi-Fi, I mentioned in my prepared remarks that we are launching a phase one of over, you know, 2,000 units of managed Wi-Fi that will be installed in the fourth quarter, which, you know, also have very strong.

Speaker Change: We are launching a phase one up over 2000 units advantaged Wi Fi that'll be installed in the fourth quarter.

Speaker Change: You know also have very strong returns.

Paul McDermott: And Paul, turn it over; you talk about capital market.

Paul: And Paul I'll turn area, you talked about capital markets. Thanks, Stephanie.

Paul McDermott: Thanks, Tiffany. Tony, just in terms of what we're seeing out there, looking at the transactions market, I mean, first off, from a macro standpoint, year over year, it's been pretty flat. And when we look at potential sellers right now that we've talked to or approached, they're facing rate cut prospects plus an election, and a lot of them are being advised, in many cases, just to hold. And, you know, they're probably questioning why they go to the market.

Paul McDermott: Thanks, Tiffany. Tony, just in terms of, you know, what we're seeing out there looking at the transactions market. I mean, first off, from a macros standpoint, year over year, you know, it's been pretty flat. And when we look at potential sellers right now that we talked to approach, they're facing rate cut prospects, plus an election. And a lot of them are being advised, in many cases, just to hold and, you know, they're probably questioning why go to the market. The real sellers that we are seeing, you know, remain folks with debt maturities, redemptions, or operators with some type of profit left in the promote.

Tony: Tony just in terms of.

Paul: What we're seeing out there.

Paul: Looking at the transactions market.

Paul: First of all from a macro standpoint year over year.

Speaker Change: Been pretty flat.

Speaker Change: And when we look at potential sellers right now that that we've talked to the approach they are facing a rate cut prospects plus an election.

Speaker Change: And a lot of them are being advised in many cases, just a hope and theyre probably questioning why go to the market. The real sellers that we are seeing remained folks with debt maturities redemptions or operators with some type of profit left in the in the promote.

Paul McDermott: The real sellers that we are seeing, you know, remain folks with debt maturities, redemptions, or operators with some type of profit left in the promotion. You know, but that has not really helped accelerate and expand the volume.

Paul McDermott: You know, but that has not really helped, you know, really accelerate and expand the volume. We talked to a lot of investment sales folks over the last quarter. You know, they're expecting, they say their pipelines are up for the second half of the year, but it's all. I think it's fraud with a lot of contingencies from a buying standpoint. You know, institutional capital, PE shops, family offices are all in the fray. I think the only people we're really seeing on the sidelines are the oddities.

Paul: But that has not really helped.

Paul: Really accelerate and expand the volume we talked to a lot.

Paul McDermott: We talked to a lot of investment sales folks over the last quarter. You know, they're expecting, they say their pipelines are up for the second half of the year, but it's all, I think it's fraught with a lot of contingencies. From a buying standpoint, you know, institutional capital, PE shops, family offices are all in the fray. I think the only people we're really seeing on the sidelines are the

Speaker Change: <unk> sales folks over the last quarter they were expecting they say their pipelines are up for the second half of the year, but it's all I think it's fraught with a lot of contingencies.

Paul: From a buying standpoint.

Paul: <unk> capital P shops family offices.

Paul: Our all in the <unk> I think the only.

Paul: People were really seeing on the sidelines or the odyssey's.

Paul McDermott: I think the thesis right now for a lot of the new LP capital coming in is that they're buying below replacement cost. And they're underwriting flat to negative residual in the first two years, with a recovery in, you know, years three through five. And that's very consistent with what from an institutional perspective. We're seeing even our own observations on our portfolio, you know, the improvement runway of years 26, 27 to 28. But particularly in the value at space for seeing that work, that renovation work, you know, on new acquisitions being pushed to years two and three.

Paul McDermott: I think the thesis right now for a lot of the new LP capital coming in is that they're buying below replacement cost and they're underwriting flat to negative residual in the first two years with a recovery in, you know, years three through five. And that's very consistent with what, from an institutional perspective, we're seeing, even in our own observations on our portfolio, the improvement runway of years 26, 27, and 28. But particularly in the value-add space, we're seeing that work, that renovation work, you know, on new acquisitions being pushed to years two and three.

Paul: I think the thesis right now for a lot of the new LP capital coming in is that they are buying below replacement cost.

Paul: And there are underwriting flat to negative residual on the first two years.

Paul: With the recovery in years three through five and that's that's very consistent with what from an institutional perspective.

Paul: We're seeing even our own observations on our portfolio.

Paul: The improvement of runway of years 26, 27% and 28.

Paul: But particularly in the value add space, we're seeing that work that renovation work.

Paul: On new acquisitions being pushed to years two and three.

Paul McDermott: And that's really contingent on the supply and demand dynamics in the respective markets. I'd say what we've seen in terms of cap rates, you know, the core cap rate, folks that are really, really pushing, we're seeing those cap rates in the four and a half to five range. The core plus cap rates in the five to five and a half range, and obviously, that can vary by submarket to submarket.

Paul McDermott: And that's really contingent on the supply and demand dynamics and the respective markets. I'd say what we've seen in terms of cap rates, you know, the core cap rate folks that are really, really pushing, we're seeing those cap rates in the four and a half to five range. The core plus cap rates in the five to five and a half range and obviously that can vary by some market to some market and then the value add space. We're seeing those cap rates probably trade between five and a half and a six toning. And just from a lending standpoint, you know, on who's out there, you know, the really top quality that 40 to 50% LTV, we're still seeing insurance companies be aggressive there.

Paul: And Thats really contingent on the supply and demand dynamics in the respective markets I'd say, what we've seen in terms of cap rates.

Paul: Core cap rate.

Paul: Folks that are really really pushing we're seeing those cap rates in the four five to five range.

Paul: The core plus cap rates.

Tony: 5% to five five range and obviously that can vary by Submarket to Submarket and then the value add space, we're seeing those cap rates, probably trade between five five and a six Tony and just from a lending standpoint.

Paul McDermott: And then in the value add space, we're seeing those cap rates probably trade between five and a half and six, Tony. And just from a lending standpoint, you know, on who's out there, you know, the really top quality, that 40 to 50% LTV, we're still seeing the insurance companies be aggressive there. But Fannie and Freddie, we know, I believe, are behind their goals as of 2Q, and they're probably going to get a little bit more aggressive on some of the rate buy-downs.

Tony: On who's out there.

Tony: Top quality that 40% to 50% LTV, we're still seeing the insurance companies be aggressive there, but Fannie and Freddie we know I believe are behind their goals.

Paul McDermott: But Fanny and Freddie, we know, I believe, are behind their goals as of 2Q, and they're probably going to get a little bit more aggressive on some of the rate by downs. You know, we're seeing spreads that probably 150 over, and you can buy that down to, you know, the 120s, and you can end up, you know, on let's say a five year deal in a five and a quarter with a full term. So if we do see product coming to the market, we do expect the agencies to be a bit more aggressive. In the second half, but it's really just about getting deals back to the table given, you know, given the potential for obviously the September or rate cuts and election coming in November.

Paul: <unk>.

Paul: They're probably going to get a little bit more aggressive on.

Paul McDermott: You know, we're seeing spreads at probably 150 over, and you can buy that down to, you know, the 120s. And you can end up on, let's say, a five-year deal in a five and a quarter with a full-term I.O. So if we do see product coming to the market, we do expect the agencies to be a bit more aggressive in the second half. But it's really just about getting deals back to the table, given, you know, given the potential for, obviously, the September rate cuts and an election coming in November.

Paul: Some of the rate buy downs.

Speaker Change: We're seeing spreads of probably.

Speaker Change: 150 over and you can buy that down to the 100, Twenty's and you can end up.

Speaker Change: Let's say, a five year deal and a five and a quarter with a full term io. So if we do see product coming to the market. We do expect the agencies to be a bit more aggressive in the second half, but it's really just about getting deals.

Speaker Change: Back to the table given.

Paul: Given the.

Paul: The.

Paul: Potential for obviously the September rate cuts.

Paul: And in election coming in November.

Operator: Great rundown. Thank you both. Thank you. Once again, if there will be any final questions, please indicate so now by pressing star one on your telephone keypad. Thank you.

Operator: Great rundown; thank you both.

Speaker Change: Great rundown. Thank you both.

Paul: Yeah.

Operator: Thank you. Once again, if there are any final questions, please indicate so now by pressing star one on your telephone keypad. Thank you. We have a question from Michael Gorman with BTIG. Your line is live.

Speaker Change: Thank you once again, if there'll be any final questions. Please indicate so now by pressing star one on your telephone keypad.

Speaker Change: Thank you.

Michael Gorman: We have a question from Michael Gorman with BTIG. Your line is live. Yeah, thanks. Good morning. Maybe just a bit more of a strategic question as we tie together what you're seeing in the markets and fundamentally, and then just pause on your commentary there about the investment market and transaction markets.

Speaker Change: We have a question from Michael Gorman with B T. R. U G. Your line is life.

Paul McDermott: Yeah, thanks. Good morning. Maybe just a bit more of a strategic question as we tie together what you're seeing in the markets and fundamentally, and then just, Paul, some of your commentary there about the investment market and transaction markets. Are you seeing anything in some of your potential target markets as you track them, not only from a deal perspective but from an operating perspective that maybe has caused you to change how you're thinking about potential expansion markets just due to how they've behaved in the current cycle or how they're managing to go through the current supply cycle that we're seeing now?

Michael Gorman: Yes. Thanks, good morning, maybe just a bit more of a strategic question as we tie together what youre seeing in the markets and fundamentally and then just Paul some of your commentary there about the investment market and transaction markets are you seeing anything in some of your potential target markets as you track them not only from a deal.

Michael Gorman: Are you seeing anything in some of your potential target markets as you track them, not only from a deal perspective, but from an operating perspective that maybe has caused you to change how you're thinking about potential expansion markets, just due to how they've behaved in the current cycle or how they're managing to go through the current supply, supply cycle that we're seeing now?

Paul: Perspective, but from an operating perspective that maybe has caused you to change how youre thinking about potential expansion markets.

Paul: Just due to how they've behaved in the current cycle or how they're managing to go through the current supply.

Paul: Supply cycle that we're seeing now.

Paul McDermott: Michael, I would say that it's really just from an underwriting standpoint; we obviously are applying, just based on our portfolio experience, a lot more scrutiny on the going rental rates, you know, how much diminution we would probably see in that year one. I think most of the markets we're looking at for that second year are probably flat, and then we are looking at positive spreads in, you know, that third year, and what that does strategically, as I said earlier, Michael, is really probably might have pushed back the timing of some of the renovations in our portfolio.

Paul McDermott: Michael, I would say that it's really just from an underwriting standpoint. We obviously are applying just based on our portfolio experience. We're applying a lot more scrutiny on the going-in rental rates.

Paul: Michael I would say that it's really just from an underwriting standpoint.

Michael: We obviously are applied just based on our portfolio experience, we're applying a lot more scrutiny.

Michael: Ongoing and rental rates.

Paul McDermott: How much diminishing we would probably see in that year one, I think most of the markets we're looking at that second year is probably flat, and then we are looking at positive spreads and that third year. And what that done strategically, as I said earlier, Michael is really probably might have pushed back the timing of some of the renovations. In our portfolio, I think, as you know, we have over 3,000 units to renovate. We're obviously monitoring those, and then any new acquisitions that would all be part of our going in strategy in terms of when we feel like we can get in there operationally and create future value.

Michael: How much diminishing we would probably see.

Speaker Change: In that year, one I think most of the markets. We're looking at that second year is probably flat and.

Paul: Then we are looking at positive spreads.

Michael: The third year and what's that done strategically as I said earlier, Michael is really probably might have pushed back the timing of some of the renovations in our portfolio I think as you know we have over 3000 units.

Paul McDermott: I think, as you know, we have over 3,000 units to renovate. We're obviously monitoring those, and then any new acquisitions, that would all be part of our going in strategy in terms of when we feel like we can get in there operationally and create future value.

Paul: To renovate we're obviously monitoring those and then any any new acquisitions that would all be part of our of our going in strategy.

Paul: In terms of when we feel like we can get in there operationally and create future value.

Michael Gorman: Okay, great.

Michael Gorman: Thanks for the time. Thank you, Michael. Thank you.

Speaker Change: Okay, great. Thanks for the time.

Michael: Thank you Michael.

Operator: Thank you. Our next question is coming from Anne Chan on Green Street. Your line is live. Hi, good morning.

Speaker Change: Thank you. Our next question is coming from Chung with Green Street. Your line is life.

Chan: Our next question is coming from Chan with green streams. Your line is life. Hi, morning. Thanks for your time. Go ahead, guidance. Could you share what kind of changes to supply and demand assumptions are baked into the new guidance, if any?

Tiffany Butcher: Hi, good morning. Thanks for your time. Going to your guidance, could you share what kind of changes to supply and demand assumptions are baked into the new guidance, if any?

Chung: Hi, Good morning, Thanks for your time go.

Chung: So in your guidance could you share what kind of changes to supply and demand assumptions are baked into the new guidance if any.

Steve Freistat: Yeah, so I would say in terms of what we are what we're seeing that is driving our guidance is stronger than expected performance in the Washington DC market, and Grant can talk a little bit about the supply demand dynamics that are impacting that, but just, you know, kind of operating perspective. We have continued to see, you know, strength in our new weacing at both in the second quarter as newly straight growth growth split from negative in the first quarter to positive in the second quarter. And we have continued to see increasing strength in that in the month of July or in our peak leasing season.

Tiffany Butcher: Yeah, so I would say in terms of what we're seeing that is driving our guidance is stronger than expected performance in the Washington, D.C. market. And Grant can talk a little bit about the supply-demand dynamics that are impacting that, but just kind of from an operating perspective, we have continued to see strength in our new leasing, both in the second quarter as new lease rate growth split from negative in the first quarter to positive in the second quarter.

Speaker Change: Yeah. So I would say in terms of what we are what we're seeing that is driving our guidance is stronger than expected performance in our Washington D. C market and grant can talk a little bit about the supply demand dynamics that are impacting.

Grant Montgomery: But just kind of on the operating perspective, we've continued to see strength in our new leasing.

Speaker Change: Both in the second quarter as new lease rate growth growth split from negative in the first quarter to positive in the second quarter and we Havent continued to see increasing our strength in that in the month of July.

Tiffany Butcher: And we have continued to see increasing strength in that in the month of July as we're in our peak leasing season. We've also continued to see occupancy increase significantly as there is a strong and robust demand for our product here in the Washington, D.C. area. And Grant can talk a little bit more about the demand drivers for that. But we have continued to see from first quarter to second quarter to the month of July, you know, occupancy continues to improve in our portfolio.

Grant Montgomery: We've also continued to see occupancy increase significantly, as there is a strong and robust demand for our product here in the Washington DC area, and Grant can talk a little bit more about the demand drivers for that. But we have continued to see from first quarter to second quarter to the month of July, you know, the occupancy continue to improve in our portfolio. And as we mentioned in our prepared remarks, the DMB has seen store occupancy at 96.1% in the second quarter and 96.7%, so incredibly strong occupancy driven by the high demand and lower supply environment here in Washington Grant.

Speaker Change: Peak leasing season. We've also continued to see occupancy increased significantly as there is a strong and robust demand for our product here in the Washington D. C area and grant can talk a little bit more about the demand drivers for that but we have continued to see from first quarter to second quarter to the month of July.

Grant Montgomery: And the occupancy continues to improve in our portfolio.

Tiffany Butcher: And as we mentioned in our prepared remarks, the DMV had same store occupancy at 96.1 percent in the second quarter and 96.7 percent, so incredibly strong occupancy driven by the high demand and lower supply environment here in Washington. Grant, do you want to comment a little bit on that? Sure.

Speaker Change: And as we mentioned in our prepared remarks.

Brad: The Dnb has same store occupancy at 96, 1% in the second quarter and 96, 7%. So incredibly strong occupancy is driven by the high demand and lower supply environment here in Washington, Brad do you want to comment a little bit on that sure and this is grant.

Grant Montgomery: Do you want to comment a little bit on that?

Grant Montgomery: Sure. And this is grand. You know, when we look at from a supply standpoint, our some markets are performing really well and actually are set to moving in a better direction even over the next quarter than where they are currently. Over the first quarter, second quarter, the net interior ratio of deliveries is about 2.5%, which is well below the US level and the Sun Belt. And over the next four quarters, that's expected to decline even further to just 2.3% on average. But we are in markets where it is significantly even lower than that.

Tiffany Butcher: Sure. Anne, this is Grant.

Brad: When we look at it from a supply standpoint.

Grant Montgomery: You know, when we look at from a supply standpoint, our submarkets are performing really well and are actually set to move in a better direction even over the next four quarters than where they are currently. Over the first and second quarters, the net inventory ratio of deliveries was about 2.5 percent, which is well below the U.S. level and the Sun Belt. And over the next four quarters, that is expected to decline even further to just 2.3 percent on average.

Brad: Some markets are performing really well.

Brad: We are a sector moving in a better direction, even over the next four quarters and where they are currently.

Speaker Change: Over the first quarter second quarter, the net <unk> ratio of deliveries it was about two 5%.

Brad: It is well below the U S level in the sunbelt.

Brad: The next four quarters that is expected to decline even further just two 3% on average, but we are in markets, where that isn't significantly even lower than that so for example, in northern Virginia, where over 60% of our homes are located.

Grant Montgomery: But we are in markets where that is significantly even lower than that. So, for example, in Northern Virginia, where over 60 percent of our homes are located, the net inventory ratio is down to about 1.7 percent over the next four quarters. So that's really driving the tightness on the supply side. From the demand side, we continue to see solid job growth across both markets, particularly in our Northern Virginia market, where we have 1.6 percent employment growth.

Grant Montgomery: So, for example, in Northern Virginia, where over 60% of our homes are located, net inventory ratio is down to about 1.7% over the next four quarters. So that's really driving the tightness on the supply side. From a demand side, we continue to see solid job growth across both markets, particularly again in our Northern Virginia market, where we have 1.6% employment growth. And even further detail there, we're really seeing strong demand in industries that particularly drive demand for our communities. We're seeing job growth in particular strengths in education and health, construction, and local government, all which are up over anywhere from 2% to 6% year-over-year growth.

Speaker Change: Inventory ratio.

Speaker Change: Is down to about one 7% over the next four quarters. So that's really driving the tightness on the supply side from a demand side, we continue to see solid job growth.

Speaker Change: Across both markets, particularly again in our northern Virginia market, where we have one 6% employment growth and even further detail. There we're really seeing strong demand in industries that particularly drive demand for our communities, we're seeing job growth in particular strengths in education.

Grant Montgomery: And even further detail there, we're really seeing strong demand in industries that particularly drive demand for our communities. We're seeing job growth in particular strength in education and health, construction, and local government, all which are up anywhere from 2 percent to 6 percent year-over-year growth. So we really see it on both sides, a tight supply in our core market, tightening across our entire portfolio, and continued strong job growth, in particular growth in industries that create demand for the types of homes that we provide our residents. Great, thank you.

Speaker Change: Health construction and local government all of which are up over anywhere from 2% to <unk>.

Speaker Change: 6% year over year growth, so we really see it on both sides a tight supply.

Grant Montgomery: So we really see it on both sides: a tight supply in our core market, tightening across our entire portfolio, and continued strong job growth, in particular growth in industries that create demand for the types of homes that we provide our residents.

Speaker Change: Core market tightening across our entire portfolio and continued strong job growth and particular growth in industries that create demand for the types of homes that we provide our residents.

Chan: Thank you. Great, thank you.

Tiffany Butcher: Great, thank you. And I was just wondering if you could also give a breakdown of the 1.3 blended rate expected for the rest of this year or for this year.

Speaker Change: Great. Thank you and Ah just wondering if you can also give a breakdown of.

Steve Freistat: And just plainly, if you can also give a breakdown of the 1.3 blinded rate expected for the rest of this year, over this year. Sure, we can absolutely walk through that. So, in terms of where we're expecting for the full year to be in terms of blended lease rate growth, we're expecting kind of new rates to be in the negative one to positive one percent range for the full year. We're expecting renewal rates to be in the three and a half to four and a half percent range for the full year.

Speaker Change: The one place we blended rate expected for the rest of you here over this year.

Speaker Change: Yes.

Tiffany Butcher: Sure, we can absolutely walk through that. So in terms of where we're expecting the full year to be in terms of blended lease rate growth, we're expecting new rates to be in the negative one to positive 1% range for the full year. We're expecting renewal rates to be in the 3 12 to 4 12% range for the full year. And we're expecting, therefore, the blends to be in the 1.5 to 2.5% range for the full year.

Speaker Change: Sure. We can have absolutely walk through that so in terms of what we're expecting for the full year to be in terms of blended lease rate growth, we're expecting kind of a new rate it could be in the negative one to positive 1% range for the full year, we're expecting a renewal.

Speaker Change: <unk> to be in the three five to four 5% range for the full year and we're expecting therefore, the blends to be in the one 5% to two 5% for the full year.

Steve Freistat: And we're expecting therefore the blends to be in the 1.5 to 2.5 percent for the full year. Thank you.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Cooper Clark: Our next question is coming from Cooper Clark with Wells Fargo.

Operator: Thank you. Our next question is coming from Cooper Clark with Wells Fargo. Your line is...

Speaker Change: Our next question is coming from Cooper Clark with Wells Fargo. Your line is life.

Cooper Clark: Your line is life. Hey, thanks for taking the follow-up. I just wanted to circle back on Paul some of your comments around pricing. I'm giving your implied cap rate today and some of the pricing commentary, wondering if you thought about picking up capital recycling specifically out of your Maryland portfolio or maybe some of your district assets. I'm wondering if that's something you're looking at as we kind of move through the rest of the year here.

Paul McDermott: Hey, thanks for taking the follow-up. I just wanted to circle back on, Paul, some of your comments around pricing. Given your implied cap rate today and some of the pricing commentary, wondering if you've thought about picking up capital recycling, specifically out of your Maryland portfolio or maybe some of your district assets. Wondering if that's something you're looking at as we kind of move through the rest of the year here.

Cooper Clark: Hey, Thanks for taking the follow up I just wanted to circle back on Paul some of your comments around pricing given your implied cap rate today and some of the pricing commentary I'm wondering if you've thought about picking up capital recycling, specifically out of your Maryland portfolio or maybe some of your district assets I'm wondering if that's something you're looking at as we kind of move through the <unk>.

Speaker Change: First of the year here.

Paul McDermott: Cooper, we're always looking at our portfolio, and we're looking at recycling. I think, you know, as you know, we have the Watergate, which is definitely a recycling candidate, and we're watching the DC market slowly but steadily improve, and I think we'll have some positive things to talk about about the Watergate going forward. We are, have at our disposal, I believe, you know, outside of a good balance sheet with optionality and liquidity, we do have the assets that you mentioned to look at as recycling candidates.

Paul McDermott: Cooper, we always are looking at our portfolio, and we're looking at recycling. I think, as you know, we have the water date, which is definitely a recycling candidate, and we're watching the DC market slowly but steadily improve. I think we've, you know, we'll have some positive things to talk about the water date going forward. We are at our disposal. I believe outside of a good balance sheet with optionality and liquidity, we do have the assets that you mentioned to look at as recycling candidates. And I wouldn't say that that is, you know, at the top of our list right now.

Speaker Change: Cooper, we always are looking at our portfolio and we're looking at a brief recycling I think.

Cooper Clark: As you know we have the Watergate which is.

Speaker Change: Definitely a recycling candidate and we're watching the D C market slowly, but steadily improve and I think we.

Speaker Change: We will have some positive things to talk about about the Watergate going forward.

Speaker Change: We are.

Speaker Change: Have at our disposal I believe outside of.

Speaker Change: A good balance sheet with Optionality and liquidity, we do have the assets that you mentioned.

Speaker Change: Two.

Speaker Change: Look at as recycling candidates.

Speaker Change: And.

Paul McDermott: I wouldn't say that that is at the top of our list right now. I think we've got a lot of very proactive initiatives to drive value for the shareholders, but as we progress throughout the balance of the year, we will look at those assets. That's really going to depend on market conditions right now. We don't have plans to actually do any recycling from now through December, but in terms of just preserving optionality, we would probably move forward with the guidance that we've provided to you, Cooper.

Speaker Change: I wouldn't say that that is.

Speaker Change: At the top of our list right now I think we've got a lot of very proactive initiatives to drive value for the shareholders, but.

Steve Freistat: I think we've got a lot of very proactive initiatives to drive value for the shareholders. But, you know, we will, as we progress throughout the balance of the year, look at those assets. That's really going to depend on market conditions right now, and we don't have plans to actually do any recycling from now through December. But, you know, in terms of just preserving optionality, you know, we would probably move forward with the guidance that we provide to you, Cooper. Okay, great.

Speaker Change: We will as we progress throughout the balance of the year, we will look at those assets, that's really going to depend on market conditions.

Speaker Change: Right now and.

Speaker Change: We don't have plans to actually do any recycling from now through December.

Speaker Change: But.

Speaker Change: In terms of just preserving optionality.

Speaker Change: We would probably move forward.

Cooper Clark: With the guidance that we provided to you Cooper.

Steve Freishtat: Okay, great. And then I guess this one's for Steve. You've talked about potentially doing something on the unsecured side if pricing gets closer to 6%. Wondering where you're seeing pricing today in the unsecured market and thoughts around raising any incremental debt for the right acquisition opportunity as opposed to using the capacity on your LOC? Yeah, so Cooper, thanks.

Steve: Okay, Great and then I guess, just one for Steve you've talked about potentially doing something on the unsecured side, if pricing gets closer to 6% I'm wondering what are you seeing pricing today in the unsecured market and thoughts around raising any incremental debt for the right acquisition opportunity as opposed to using the capacity on your L. L C.

Steve Freistat: And then I guess this one's for Steve. You've talked about potentially doing something on the unsecured side of pricing gets closer to 6%. Wondering when you're seeing pricing today in the unsecured market and thoughts around raising any incremental debt for the right acquisition opportunity as opposed to using the capacity on your LLC. Yeah. So, Cooper, thanks for the question. Yeah, very timely given the movements in the 10 year. So, I'd say given a lot of the movements in the last week or so, if we were to do new unsecured debt, it would probably be in the high fives, and then secured debt maybe a little bit inside of that.

Steve Freishtat: Yeah, so Cooper, thanks for the question. Yeah, very timely given the movements in the 10-year. So I'd say given a lot of the movements in the last week or so, if we were to do new unsecured debt, it would probably be in the high fives, and then secured debt maybe a little bit inside of that. So rates are definitely much more attractive than they were when we were coming into the year.

Cooper Clark: Yeah, So cooper thanks.

Steve: Thanks for the question, Yeah, very timely given the movements in the 10 year, So I'd say.

Speaker Change: <unk> given a lot of the movements in the last week or so if we were to do new unsecured debt. It would probably be in the high fives, and then secured that may be a little bit inside of that so.

Steve Freistat: So, we're definitely rates are much more attractive than they were when we were coming into the year. We certainly have, you know, we just re-did our credit facility. Of course, that pushed out our maturity until 28, but we do have a balance that we could certainly love to term out, you know, at the right time. And as far as the acquisitions go, you know, we feel like we've created a balance sheet that creates a lot of optionality. So, there are a lot of different ways we could go with that. I would say that from a leverage perspective, again, we're right where we want to be, right in line with our leverage governors. So, if we do find an opportunity, not there, I'd say it's probably on what Paul just spoke about a moment ago: capital recycling. Recycling assets is probably our top choice right now of being able to finance an opportunity if we were to find something.

Speaker Change: So we're definitely rates are are much more attractive than they were when we were coming into the year and we certainly have we just redid our credit facility of course, so that pushed out our maturity until 28, but we do have a balance there that we could certainly look to to term out at.

Steve Freishtat: We certainly have, you know, we just redid our credit facility, which pushed out our maturity until 28, but we do have a balance there that we could certainly look to term out, you know, at the right time. And as far as acquisitions go, we feel like we've created a balance sheet that creates a lot of optionality. So there are a lot of different ways we could go with that.

Cooper Clark: At the right time and as far as acquisitions go.

Cooper Clark: We feel like we've created a balance sheet that creates a lot of optionality. So there are a lot of different ways, we could go with that.

Steve Freishtat: I would say that from a leverage perspective, again, we're right where we want to be, right in line with our leverage governors, so if we do find an opportunity, out there, I'd say it's probably on what Paul just spoke about a moment ago, capital recycling and recycling assets is probably our top choice right now of being able to finance an opportunity if we were to find something.

Cooper Clark: I would say that from a leverage perspective, again, where we're right where we want to be right in line with our our leverage governors. So if we do find an opportunity.

Cooper Clark: The other I'd say, it's probably on what Paul just spoke about a moment ago, our capital recycling and recycling assets is probably our top choice right now of being able to finance a an opportunity if we were to find something.

Steve Freistat: Okay, thank you. Thank you.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you.

Operator: If there are no further questions, I'd like to turn the floor back over to management for any closing comments. Thank you. Again, I'd like to thank everyone for your time and interest today, and I look forward to keeping you updated on our progress and speaking with many of you again in the very near future.

Paul McDermott: Thank you. If there are no further questions, I'd like to turn the floor back over to management for any closing comments.

Speaker Change: There are no further questions I'd like to turn the floor back over to management for any closing comments.

Paul McDermott: Again, I'd like to thank everyone for their time and interest today, and I look forward to keeping you updated on our progress and speaking with many of you again in the very near future.

Speaker Change: Thank you again I'd like to thank everyone for your time and interest today and I look forward to keeping you updated on our progress and speaking with many of you again.

Speaker Change: In the very near future.

Operator: Thank you.

Operator: Thank you. This does conclude today's call. You may disconnect your lines at this time and have a wonderful day. And we thank you for your participation.

Speaker Change: Thank you. This does conclude today's call you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation.

Operator: This does conclude today's call. You may disconnect your lines at this time and have a wonderful day, and we thank you for your participation.