Q2 2024 Mid-America Apartment Communities Inc Earnings Call
Good morning and welcome to Mid-America Apartment Communities, or MAA's second quarter 2024 earnings conference call. During management's prepared remarks, all participants will be in a listen-only mode.
Operator: MAA's Second Quarter 2024 Earnings Conference. This conference call is being recorded today, Thursday, August 1st, 2024. I will now turn the call over to Andrew Schaeffer, Senior Vice President, Treasurer, and Director of Capital Markets, MAA, for opening remarks. Thank you, Julianne, and good morning, everyone.
Speaker Change: Afterward, the company will conduct a question-and-answer session. In the interest of time, the company has requested a two-question limit.
This conference call is being recorded today, Thursday, August 1st, 2024.
Andrew Schaeffer: I will now turn the call over to Andrew Schaeffer, Senior Vice President, Treasurer, and Director of Capital Markets of MAA for opening remarks.
Andrew Schaeffer: This is Andrew Schaeffer, Treasurer and Director of Capital Markets for MAA. Members of the management team participating on the call this morning with prepared comments are Eric Bolton, Brad Hill, Tim Argo, and Clay Holder. Rob Del Prori and Joe Fracchia are also participating and available for questions as well.
Andrew Schaeffer: Thank you, Julianne, and good morning everyone. This is Andrew Schaeffer, Treasurer and Director of Capital Markets for MAA.
Speaker Change: Members of the management team participating on the call this morning with prepared comments are Eric Bolton, Brad Hill, Tim Argo, and Clay Holder. Rob Del Pori and Joe Fracchia are also participating and available for questions as well.
Andrew Schaeffer: Before we begin with prepared comments this morning, I want to point out that as part of this discussion, company management will be making forward-looking statements, and actual results may differ materially from our projections. Thanks, Andrew. And good morning.
Speaker Change: Before we begin with prepared comments this morning, I want to point out that as part of this discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections.
Andrew Schaeffer: We encourage you to refer to the forward-looking statement section in yesterday's earnings release.
Andrew Schaeffer: and our 34-act filings with the SEC, which describe risk factors that may impact future results.
Andrew Schaeffer: During this call, we will also discuss certain non-GAAP financial measures.
Speaker Change: A presentation of the most directly comparable GAAP financial measures as well as reconciliations of the differences between non-GAAP and comparable GAAP measures can be found in our earnings release and supplemental financial data.
Speaker Change: Our earnings release and supplement are currently available on the For Investor page of our website at www.maac.com. A copy of our prepared comments and an audio recording of this call will also be available on our website later today. After some brief prepared comments, the management team will be available to answer questions.
Unknown Executive: Core FFO results for the second quarter were ahead of expectations as the strong demand for apartment housing across our markets is steadily absorbing the new supply being delivered. This strong demand continues to support steady occupancy performance from our portfolio, as well as blended lease-over-lease pricing that has consistently increased since Q4 of last year. These positive trends are continuing into July. MAA's strategy has long focused on positioning its portfolio to capture higher full-cycle demand to drive superior long-term value growth. We continue to believe that new supply deliveries across our markets are currently peaking.
Speaker Change: I will now turn the call over to Eric.
Eric Bolton: Thanks, Andrew, and good morning.
Eric Bolton: Core FFO results for the second quarter were ahead of expectations as the strong demand for apartment housing across our markets is steadily absorbing the new supply being delivered.
Eric Bolton: This strong demand continues to support steady occupancy performance from our portfolio as well as blended lease-over-lease pricing that has consistently increased since Q4 of last year. These positive trends are continuing into July .
Eric Bolton: MAA's strategy has long focused on positioning our portfolio to capture higher full-cycle demand to drive superior long-term value growth.
Eric Bolton: To best mitigate the occasional periods of supply pressure, we have a unique portfolio diversification strategy involving both large and mid-tier markets.
Eric Bolton: Further, by appealing to a broad segment of the rental market with a more affordable price point, as evidenced by our strong rent-to-income ratios and sector-leading low delinquency performance,
Eric Bolton: We believe we are able to drive higher demand and absorption across our portfolio.
Eric Bolton: We continue to believe that new supply deliveries across our markets are currently peaking.
Unknown Executive: And we expect to see the volume of new deliveries decline over the back half of this year, with 2025 ushering in a multi-year period where the growing demand for apartment housing will exceed the level of new competing supply. As detailed in yesterday's earnings release, we continue to find compelling opportunities to deploy capital in new acquisitions and development that will, we believe, deliver meaningful earnings accretion over the next few years. Our balance sheet remains strong and well-positioned to deliver on this future value pipeline that we are building.
Eric Bolton: And we expect to see the volume of new deliveries decline over the back half of this year, with 2025 ushering in a multi-year period where the growing demand for apartment housing will exceed the level of new competing supply.
Eric Bolton: As detailed in yesterday's earnings release, we continue to find compelling opportunities to deploy capital in new acquisitions and development that will, we believe, deliver meaningful earnings accretion over the next few years.
Eric Bolton: The redevelopment and repositioning opportunities available to harvest within our existing portfolios, and the new growth pipeline that we're building through in-house development, our pre-purchase program with third-party developers, and the acquisition of newly constructed properties
Unknown Executive: We believe that with the combination of the evolving market conditions poised to decline with the level of new supply delivering across our market, the Redevelopment and Repositioning Opportunities Available to Harvest within our Existing Portfolio and the New Growth Pipeline that we are building through in-house development, our pre-purchase program with third-party developers, and the acquisition of newly constructed property, MAA is positioned for meaningful growth in value over the next few years. Before turning the call over to Brad, Tim, and Clay for more details, I'd like to send my thanks and appreciation to our MAA associates for their dedication and tremendous service to our residents. MAA is achieving record levels of resident retention, high resident satisfaction ratings, and strong lease renewal performance thanks in large part to your hard work. I'll now turn the call over to Brad.
Eric Bolton: MAA is positioned for meaningful growth and value over the next few years.
Brad Hill: We continue to see solid demand in our markets, supported by strong household formation and positive wage and job growth, leading to Continued Blended Pricing Momentum in July with Stable Occupancy. MAA's long-term strategy positions our portfolio as an attractive, lower-cost alternative to the higher-priced new multifamily supply being delivered, as well as the available single-family housing options within our markets. Our renewal accept rates are at a record high, and our Google scores continue to lead the sector, evidence of the value our residents find in living with MAA. With the back door controlled, we're very focused on the front door and encouraged by the improving traffic trend.
Eric Bolton: Thank you, Eric, and good morning, everyone.
Speaker Change: We continue to see solid demand in our markets, supported by strong household formation and positive wage and job growth.
Eric Bolton: Leading to continued blended pricing momentum in July with stable occupancy. MAA's long-term strategy positions our portfolio as an attractive, lower-cost alternative.
Eric Bolton: to the higher-priced new multifamily supply being delivered as well as the available single-family housing options within our markets. Our renewal accept rates are at a record high and our Google scores
Brad Hill: Our property tours are higher than this time last year, and our conversion of leads into leases is also up. With increased traffic, strong conversion, stable occupancy, and lower exposure, our properties are well positioned as we enter the back half of the year. As indicated in our release, we have made progress using our balance sheet capacity to support future earnings growth. In addition to the two second quarter construction starts that bring our under-construction pipeline at the end of the second quarter to 2,617 units at a cost of $866 million, in July, we provided financing to take out The Equity Partner on a 239-unit under-construction development in the South Park area of Charlotte. The project suffered an early delay that put the project's investment horizon outside of the Equity Fund's fund horizon.
Speaker Change: I'm the equity partner on a 239-unit under-construction development in the South Park area of Charlotte. The project suffered an early delay that put the project's investment horizon outside of the equity's fund horizon.
Brad Hill: Our previous relationship with the developer and the equity partner provided us with a unique opportunity to invest in an under-construction project with no entitlement risk and a materially shortened construction schedule with first units scheduled to be delivered in the second quarter of 2025. The two second quarter development starts, we're expected to deliver first units in mid-2026, and all three projects are expected to deliver average initial stabilized NOI yield.
Brad Hill: [inaudible] Stabilized NOI yields that exceed our original expectations by approximately 70 basis points. Pre-development work continues on a number of projects in our pipeline, which has increased to 11 projects, representing additional growth of over 3,100 units.
Brad Hill: We maintain optionality on when we start these projects, but we expect to start construction on one to two more projects later this year, bringing our development starts for the year to four to five, at or slightly above our original guidance for the year, and leading to a slight increase in our development spend for the year at $350 million. Construction costs have yet to decline broadly, but we are hopeful that as the current pipeline of projects under construction winds down, we could see more improvement in construction costs and schedules as we progress through the year, supporting our ability to start construction on additional opportunities at compelling yields.
Speaker Change: We maintain optionality on when we start these projects, but we expect to start construction...
Speaker Change: [inaudible]
Speaker Change: [inaudible]
Brad Hill: All right, in the transaction market, volume remains low, with cap rates generally in the low 5% range, with a number of transactions occurring well below 5%. Our team continues to find select but compelling acquisition opportunities, generally in lease-up and on an off-market basis. In the second quarter, we closed on a 306-unit suburban property in Raleigh for approximately $81 million, which is 15-20% below replacement costs. This newly-constructed property is currently in its initial lease-up and finished the quarter at 62% occupied.
Brad Hill: We have two additional acquisition opportunities in due diligence, and upon successfully concluding our inspections, we expect the closings to occur over the next few months. The three acquisitions are expected to deliver stabilized NOI yields, on average, just under 6%.
Speaker Change: The three acquisitions are expected to deliver stabilized NOI yields, on average, just under 6%.
Brad Hill: Based on the activity our team is seeing in the market, we believe our forecasted acquisition volume of $400 million. We have two dispositions in the market, one in Charlotte and one in Richmond, that we hope to execute on by the end of the year, but we are early in the process. Before I turn the call over to Tim, to all of our associates at the properties and our corporate and regional offices, I want to say thank you for your hard work and dedication that you show on a daily basis to our prospects, residents, and fellow associates. With that, I'll turn the call over to Tim. Thanks, Brad. And good morning, everyone.
Speaker Change: Before I turn the call over to Tim, to all of our associates at the properties and our corporate and regional offices, I want to say thank you for your hard work and dedication that you show on a daily basis to our prospects, residents, and fellow associates. With that, I'll turn the call over to Tim.
Timothy Argo: As previously referenced, demand in our markets continues to be strong, as evidenced by steadily improving lease over lease rates on new move-in residents and stable lease over lease rates on renewal residents. However, pricing growth does continue to be impacted by elevated new supply deliveries, but it showed improvement over the first quarter as traffic patterns increased. These factors contributed to new lease pricing on a lease-over-lease basis of minus 5.1%, with renewal rates for the quarter staying strong, growing 4.6% on a lease-over-lease basis.
Timothy Argo: These two components resulted in lease or release pricing on a blended basis that was an improvement of 70 basis points from the first quarter. Average physical occupancy was 95.5%, up 20 basis points from the first quarter, and collections continued to outperform expectations with net delinquency representing just 0.3% of billed rent. All these factors drove the resulting Saved Store revenue growth of 0.7%.
Tim Argo: All these factors drove the resulting safe-store revenue growth of 0.7%.
Timothy Argo: Our unique market diversification strategy that Eric mentioned continues to benefit overall portfolio results. While some of our larger markets are being more heavily impacted by new supply deliveries, many of our mid-tier metros remain steady. Similar to last quarter, Savannah, Richmond, Charleston, and Greenville are all outperforming the broader portfolio from a blended lease and release pricing standpoint. Our portfolio balance between large and mid-tier markets and diversification of sub-markets within a market helps strengthen performance through the cycle. Austin, Atlanta, and Jacksonville are markets that continue to be more negatively impacted by the absolute level of supply being delivered into those markets.
Tim Argo: Our unique market diversification strategy that Eric mentioned continues to benefit overall portfolio results.
Tim Argo: While some of our larger markets are being more heavily impacted by new supply deliveries, many of our mid-tier metros remain steady. Similar to last quarter, Savannah, Richmond, Charleston, and Greenville are all outperforming the broader portfolio from a blended lease-over-lease pricing standpoint.
Speaker Change: Our portfolio balance between large and mid-tier markets and diversification of sub-markets within a market helps strengthen performance through the cycle.
Timothy Argo: While we have slowed some of our various product upgrade and redevelopment initiatives in this elevated supply environment, we do continue to execute where it makes sense with the expectation of reaccelerating next year. For the second quarter of 2024, we completed nearly 1,700 interior unit upgrades, achieving rent increases more than 8% above non-upgraded units. For our repositioning program, we have three active projects that are in the repricing phase.
Speaker Change: with the expectation of re-accelerating next year.
Speaker Change: For the second quarter of 2024, we completed nearly 1,700 interior unit upgrades, achieving rent increases more than 8% above non-upgraded units.
Timothy Argo: We will begin construction on an additional six projects in the third quarter with a plan to complete construction and begin repricing in 2025 in what we believe will be an improving leasing environment. With July now wrapped up, we are encouraged by the early third quarter trends. Average physical occupancy for the month of July of 95.5% is in line with the second quarter, and current occupancy is 95.8%. This stability and occupancy, combined with the lower 60-day exposure that Brad noted, sets us up for more pricing power for the remainder of the summer.
Speaker Change: With July now wrapped up, we are encouraged by the early third quarter trends. Average physical occupancy for the month of July of 95.5% is in line with second quarter and current occupancy is 95.8%.
Speaker Change: This stability and occupancy, combined with the lower 60-day exposure that Brad noted, sets us up for more pricing power for the remainder of the summer, as we also start to lap weaker new lease pricing that became evident beginning in August of last year.
Timothy Argo: As we also start to lack weaker new lease pricing that became evident beginning in August of last year. Accordingly, July lending pricing of positive 0.3% is up from the first and second quarters and the month of June, and new lease pricing has improved each month since March.
Brad Hill: Accordingly, July blended pricing of positive 0.3% is up from the first and second quarters and the month of June, and new lease pricing has improved each month since March.
Timothy Argo: Furthermore, the year-over-year change in asking rents for August is expected to be positive for the first time since February of 2023, 18 months ago. As we have discussed over the last few quarters, new supply being delivered continues to be a headwind in many of our markets, and it is resulting in prospects shopping longer and being more selective. However, we still believe the long-term outlook is similar to what we discussed last quarter.
Speaker Change: Furthermore, the year-over-year change in asking rents for August is expected to be positive for the first time since February of 2023, 18 months ago.
Speaker Change: However, we still believe the long-term outlook is similar to what we discussed last quarter.
Timothy Argo: That is, we expect this new supply will continue to pressure prices for much of 2024, but we believe we have likely already seen the maximum impact of new lease or release pricing growth and that the supply-demand balance continues to improve from here, subject to normal seasonality. It varies by market, but on average, new construction starts in our portfolio footprint peaked in mid-2022, and we have seen historically that the maximum pressure on leasing is typically about two years after construction starts.
Timothy Argo: While supply remains elevated, the strength of demand is evident as well. Absorption in the second quarter in our markets was the highest of any quarter since the third quarter of 2021. Wage growth remains strong, with our rent-to-income ratio in the second quarter dropping a bit to 21%, the lowest level in three years.
Timothy Argo: Additionally, we saw resident turnover continue to decline in the second quarter, and we expect it to remain low, with fewer residents moving out to buy a home. The 12.4% of move-outs in the second quarter that were due to a resident buying a home was the lowest ever for MAA, slightly lower than what we saw in the first quarter. That's all I have in the way of prepared comments, and I'll now turn the call over to Clay. Thank you, Tim, and good morning, everyone.
Speaker Change: Additionally, we saw resident turnover continue to decline in the second quarter, and we expected to remain low with fewer residents moving out to buy a home. The 12.4% of move-outs in the second quarter that were due to a resident buying a home was the lowest ever for MAA, slightly lower than what we saw in the first quarter.
Clay Holder: We've reported core FFO for the quarter of $2.22 per share, which was $0.03 per share above the midpoint of our second quarter guidance. Just under two-tenths of the favorability was related to favorable same-store expenses, and a penny and a half was driven by a combination of favorable overhead cost, interest expense, and non-operating income, partially offset by about a penny in storm costs. Our same-store revenue results for the quarter were essentially in line with expectations.
Speaker Change: Thank you, Tim, and good morning, everyone.
Speaker Change: Just under 2 cents of the favorability was related to favorable same-store expenses, and a penny-and-a-half was driven by a combination of favorable overhead cost, interest expense, and non-operating income, partially offset by about a penny in storm cost.
Clay Holder: As Tim mentioned, we saw sequential quarter-over-quarter improvement in both blended pricing and occupancy, while same-store revenues again benefited from strong rent collections. Our same-store expense performance, particularly in repairs and maintenance, real estate taxes, and personnel costs, was favorable compared to our expectations for the quarter. However, repair and maintenance costs continue to show moderation, growing at 1.8 percent compared to the second quarter last year.
Clay Holder: At this point in the year, we have better visibility into our real estate tax expense for 2024, which we will discuss more with our revised guidance in a moment. During the quarter, we funded nearly $80 million of development costs for the current expected $866 million pipeline, leaving an expected $328 million to be funded on this pipeline over the next two years. Considering the Charlotte opportunity and the additional development starts that Brad mentioned, and adjusting for those properties we will complete over the remainder of 2024, we expect our development pipeline to grow to just under $1 billion, which our balance sheet is well positioned to support.
Speaker Change: During the quarter, we funded nearly $80 million of development costs of the current expected $866 million pipeline, leaving an expected $328 million to be funded on this pipeline over the next two years.
Speaker Change: Considering the Charlotte opportunity and the additional development starts that Brad mentioned, and adjusting for those properties we will complete over the remainder of 2024, we expect our development pipeline to grow to just under $1 billion, which our balance sheet is well-positioned to support.
Clay Holder: During the quarter, we invested approximately $12 million in capital through our redevelopment, repositioning, and smart rent installation programs, which we expect to produce solid returns and continue to enhance the quality of our portfolio. Our balance sheet remains in great shape.
Speaker Change: During the quarter, we invested approximately $12 million in capital through our redevelopment, repositioning, and SmartMint installation programs, which we expect to produce solid returns and continue to enhance the quality of our portfolio.
Clay Holder: We entered the quarter with nearly $1 billion in combined cash and borrowing capacity under our revolving credit facility, providing a significant opportunity to fund future investment. Our leverage remains low, with net debt to IBIDA at 3.7 times, and at quarter ends, our outstanding debt was approximately 93% fixed, with an average maturity of 7.4 years, at an effective rate of 3.8%. During May, we issued $400 million of seven-year public bonds at an effective rate just below 5.4 percent, using the proceeds to effectively pay off a $400 million bond maturity in June that had an effective rate of 4 percent.
Speaker Change: Providing significant opportunity to fund future investments.
Speaker Change: Our leverage remains low with net debt to IBIDA at 3.7 times. At the quarter end, our outstanding debt was approximately 93% fixed with an average maturity of 7.4 years at an effective rate of 3.8%.
Clay Holder: While our next scheduled bond maturity isn't until the fourth quarter of 2025, we expect to be in the market prior to that date to support ongoing investment opportunities. Finally, we are reaffirming the midpoint of our same-story NOI and core FFO guidance for the year, while revising other areas of our detailed guidance that we've previously provided. Given our operating results achieved through the second quarter, we are making slight adjustments to our guidance associated with rent growth and occupancy.
Speaker Change: While our next scheduled bond maturity isn't until the fourth quarter of 2025, we expect to be in the market prior to that date to support ongoing investment opportunities.
Speaker Change: Finally, we are reaffirming the midpoint of our same-story NOI and core FFO guidance for the year, while revising other areas of our detailed guidance that we've previously provided.
Clay Holder: We are lowering the midpoint of effective rent-worth guidance by 35 basis points to 0.5% and Average Physical Occupancy Guidance by 20 basis points to 95.5% for the year. Total same-store revenue guidance for the year is revised to 0.65%, which also reflects stronger expected rent collection performance over the back half of the year. We are lowering our property operating expense guidance for the year to 4.25% at the midpoint.
Speaker Change: We are lowering the midpoint of effective rent worth guidance by 35 basis points to 0.5 percent.
Clay Holder: As previously mentioned, we have better insight into our real estate tax expense for 2024 and have lowered the midpoint of our guidance to 4%. The lower guidance is primarily due to favorable Texas property valuations as compared to our original expectations. Also, we renewed our property and casualty insurance programs on July 1st and have achieved a combined premium decrease of around 1%. The changes to our property operating expense projections, combined with our updated same-store revenue expectations, result in reaffirming our original expectation for same-store NOI at negative 1.3 percent.
Clay Holder: In addition to updating our SINC 4 operating projections, we are revising our 2024 guidance to reflect favorable trends in G&A and interest expense. As Brad previously mentioned, we also increased the midpoint of our development spend to $350 million.
Speaker Change: In addition to updating our SINC 4 operating projections, we are revising our 2024 guidance to reflect favorable trends in G&A and interest expense.
Clay Holder: The impact of these adjustments, combined with the $0.03 of expected storm costs associated with Hurricane Beryl in the third quarter, resulted in us maintaining the midpoint of our full-year core FSO guidance at $8.88 per share while narrowing the range to $8.74 to $9.02 per share. That is all that we have in the way of prepared comments, so Julianne, we will now turn the call back to you for questions. Thank you. We will now open the call for questions. If you would like to ask a question, please press star and one on your touchtone phone.
Speaker Change: The impact of these adjustments, combined with the three-cent of expected storm costs associated with Hurricane Beryl in the third quarter,
Operator: If you would like to withdraw your question, please press star one again. In the interest of time, the company has requested a two-question limit. Our first question comes from Eric Wolfe from Citi. Please go ahead.
Speaker Change: In the interest of time, the company has requested a two-question limit.
Eric Wolfe: Your line is open. Hey, thanks. I was hoping you could discuss your seasonality assumptions and what you're expecting for the fourth quarter this year versus what you saw last year. Eric, can you repeat that? I lost you a little bit there at the beginning.
Speaker Change: Our first question comes from Eric Wolfe from Citi. Please go ahead, your line is open.
Eric Wolfe: I was hoping you could discuss your seasonality assumptions and what you're expecting for the fourth quarter this year versus what you saw last year.
Eric Wolfe: Sure, I was hoping you could discuss your seasonality assumptions and what you expect for the fourth quarter this year. Okay, gotcha. Yeah, I mean, from a seasonality standpoint, we've seen it, we've seen it play out, kind of like we thought so far, where we continue to see some acceleration through about this time of the year. And then I think as we get later into the fall and winter, we'll see that normal seasonality.
Eric Wolfe: Sure, I was hoping you could discuss your seasonality assumptions and what you expect for the fourth quarter this year.
Eric Wolfe: Now, having said that, and I alluded to it a little bit in my opening comments, we're in a really good spot right now with our current occupancy. We're in a good spot with exposure, lower than what it was this time last year. And so we feel like with what we're seeing, you know, particularly as I mentioned, the asking rents for August are a little bit higher than what they were this time 12 months ago. It's the first time we've seen that in 18 months.
Speaker Change: Okay, gotcha.
Speaker Change: Yeah, I mean, I think from a seasonality standpoint...
Eric Wolfe: We've seen it play out kind of like we thought so far, where we continue to see some acceleration through.
Speaker Change: We're in a really good spot right now with our current occupancy. We're in a good spot with exposure lower than what it was this time last year.
Eric Wolfe: And so we feel like, with what we're seeing, you know, particularly, I mentioned too, the asking rents for August are a little bit higher than what they were this time 12 months ago. It's the first time we've seen that in 18 months, so...
Unknown Executive: So I say that all to say I think the quote normal seasonality could extend out a little bit longer. You know, July is typically when it peaks in a normal seasonality. We think that could extend for a month or six weeks or two months and then start to moderate as we get into the back half of the year. But, you know, the adjustments we made to the pricing guidance were really just on new lease pricing.
Unknown Executive: And most of that was... What occurred in the second quarter, we made a couple minor tweaks to Q3 and Q4, but essentially held our expectations for what we saw for that. So net net, it was really about a 100 basis point decrease in our new lease pricing assumption, renewals holding steady, and that seasonality extending out a little bit more than it typically would. Thanks. That's helpful.
Unknown Executive: And then it looks like you're in guidance includes some uplift from other revenues. Could you talk about what the opportunity looks like there and whether that contribution could potentially increase as we go into 2025? Yeah, I mean, I think it's, it's not a huge piece.
Unknown Executive: I mean, it's growing a little bit more than rents currently, with, you know, where occupancy is, there's, there's fee income, application fee, that sort of thing. So it's providing a little bit, nothing, nothing out of the ordinary. I think, in a normal environment, it would be somewhat in line with rents. I mean, we do have some opportunities over the long term with Wi-Fi, ubiquitous Wi-Fi that we're testing this year.
Speaker Change: It's not a huge piece, I mean, it's growing a little bit more than rents currently with, you know, where our occupancy is, you know, there's fee income, application fee, that sort of thing, so it's providing a little bit.
Speaker Change: Nothing out of the ordinary. I think in a normal environment it would be somewhat in line with rents. I mean, we do have some opportunities over the long term with...
Speaker Change: With ubiquitous Wi-Fi that we're testing this year, and I think over the next several years, that will be a big opportunity for us, but nothing material necessarily in the short term.
Speaker Change: Thank you.
Unknown Executive: And I think over the next several years, that will be a big opportunity for us, but not necessarily material in the short term. Thank you. Our next question comes from Nick Yulico from Scotiabank. Please go ahead, your line is open. Thank you.
Unknown Executive: I just wanted to see, I think, I don't know if you gave him your apologies, but is there a way to get just sort of the blended lease pricing that is assumed for the back half of the year? I know you said you adjusted the full year. I just want to make sure we're clear on that.
Speaker Change: Thank you. I just wanted to see, I think, I don't know if you gave his apologies, but is there a way to get just sort of the blended lease pricing that is assumed for the back half of the year? I know you said you adjusted the full year. I just want to make sure we're clear on that.
Unknown Executive: Yeah, so for the blended for the back half of the year, you know, we're on average, we're well, I would say this for full year new leases, we're somewhere in the four and a quarter range, which is about 100 base points lower than what it was in our original guidance. And we're still in that mid four to five range of renewals. And so, you know, somewhere in the.5 to 1% blended in the back half of the year is how that plays out. Okay, great. Thanks.
Speaker Change: yeah so for for blended for the back half of the year you know we're on average we're well I would say this for full year new lease we're somewhere in the four and a quarter range
Speaker Change: which is about 100 base points lower than what it was in our original guidance. And we're still in that mid 4 to 5 range of renewals. And so, you know, somewhere in the...
Speaker Change: 0.5 to 1% blended in the back half of the year is how that plays out.
Unknown Executive: And then just a second question is, and you talked about some of the markets where you're seeing more impact from supply, Austin, Atlanta, Jacksonville, as you look at, you know, some of the supply deliveries or what's happening with, you know, competitive concessions in those markets? I mean, do you have any sort of visibility right now on when you think some of those markets would not be as much of a drag on overall new lease pricing? Thanks.
Speaker Change: Okay, great. Thanks. And then just second question is, you know, you talked about some of the markets where you're seeing more impact from supply, Austin, Atlanta, Jacksonville. As you look at, you know, some of the supply deliveries or what's happening with
Speaker Change: You know, competitive concessions in those markets, I mean, do you have...
Speaker Change: Any sort of visibility right now on when you think, you know, some of those markets would be not as much of a drag on overall new lease pricing? Thanks.
Unknown Executive: Yeah, I mean, all those markets are in somewhat of a similar timeline, saw similar peak and starts and deliveries that, you know, frankly, pretty consistent across the portfolio where we saw starts peak in mid-2022, and we're kind of seeing the peak of it right now. So, you know, a market like Austin is still going to be elevated next year, but there isn't going to be quite as much supply as we had this year.
Speaker Change: Yeah, I mean, I think, you know...
Speaker Change: All those markets are in somewhat of a similar timeline, saw similar peak and starts and deliveries that, you know, frankly, pretty consistent across portfolio where we saw
Unknown Executive: Job growth is really strong. So, I think for all three of those in particular, I would expect 2025 to look better than it does in 2024. It's not going to flip to be our lead market, but I think it'll be more in line with the portfolio and be less of a drag in 2025 for sure. And just a quick follow up on that. I mean, is there anything you're seeing just on the ground right now that would point to, you know, some of that concessionary impact, you know, already easing? Or is it still a wait and see?
Speaker Change: And just a quick follow-up on that, is there anything you're seeing just on the ground right now that would point to some of that concessionary impact already easing or is it still a wait and see?
Unknown Executive: Well, we haven't seen it get worse. You know, we saw concessions pick up quite a bit in the back part of 2023 and then come back down, I would say, in early 2024 and then pretty steady throughout 2024. You know, broadly, somewhere between half a month and a month, it's pretty consistent across markets.
Speaker Change: Well, we haven't seen it get worse. We saw concessions pick up quite a bit in the back part of 2023, and then come back down, I would say, in early 2024, and been pretty steady throughout 2024.
Speaker Change: Broadly, somewhere between half a month and a month is pretty consistent across markets.
Speaker Change: There are some pockets with more lease-ups.
Speaker Change: you know, a downtown Austin, probably closer to two months.
Unknown Executive: There are some pockets with more lease ups, you know, downtown Austin, probably closer to two months, midtown Atlanta, probably is, is a worse concessionary environment right now, sometimes pushing three months where there's lease ups, but not really any heavier than it was the last couple quarters. And I think we're in a much more stable environment, both in terms of interest rates and when the supply picture is going to start to look better. So I don't I don't see that necessarily getting any worse from here.
Speaker Change: Midtown Atlanta, probably our worst concessionary environment right now, sometimes pushing three months where there's lease-ups, but not really any heavier than it was, you know, the last couple quarters. And I think we're in a much more stable environment, both in terms of
Unknown Executive: And Nick, this is Eric, just to follow on what Tim is saying. Last late last year in the fourth quarter, there was a lot of uncertainty out there surrounding the demand side of the business and the overall economy and the job market, and supply delivery is really starting to make an impact. And I think that that's what prompted a lot of pretty aggressive concessionary practices in the marketplace late last year.
Unknown Executive: But as the year has continued to unfold, I think we've all been pleasantly surprised by the very strong demand that we continue to see taking place. Stability is more evident than I think people initially feared was possible. [inaudible] Thanks, Eric, Tim. I appreciate it. Our next question comes from Josh Dennerlein from Bank of America. Please go ahead. Your line is open. Yeah, morning, guys. Um, just wanted to touch base on the insurance renewal looking pretty favorable versus maybe what you were forecasting before, just kind of any changes to maybe what you're covering or just, you know, any kind of color on how you got that pretty decent renewal. Yeah, Justice Rob, I guess I'm kind of framing it up.
Speaker Change: [inaudible]
Speaker Change: Thanks, Eric, Tim, appreciate it.
Speaker Change: Our next question comes from Josh Dennerlein from Bank of America. Please go ahead, your line is open.
Josh Dennerlein: Morning, guys. I just wanted to touch base on the insurance renewal. It looked pretty favorable versus maybe what you were forecasting before. Just kind of any changes to maybe what you're covering or just any kind of color on how you got that pretty decent renewal?
Unknown Executive: If you look at the last three years of insurance renewals in the aggregate, our costs have gone up about 50%, and we've had some good positive claims years. We've got long relationships, positive relationships with our insurers, so I think given the claims history and where this wound up, we wound up with the same coverage levels that we had last year. And we just caught a break with a kind of stabilizing insurance market and favorable claims history. Okay, all right, great.
Speaker Change: Justice Rob, I guess kind of framing it up, if you look at the last three years of insurance renewals in the aggregate, our costs have gone up about 50 percent.
Unknown Executive: And then on the real estate taxes, is there any more variability across the rest of the year? Are you kind of locked in at this point for the back half on real estate taxes? And then just how should we think about maybe the cadence from here? [inaudible] Transcripts provided by Transcription Outsourcing, LLC. Hey, Josh, this is Clay.
Speaker Change: Okay, all right, great. And then on the real estate taxes, are there, is there any more variability across the rest of the year? Are you kind of locked in at this point for the back half on real estate taxes? And then just how should we think about like maybe the cadence from here?
Speaker Change: Some of the states have different assessment times, so just trying to think through maybe some kind of lag on a go-forward basis.
Clay Holder: Yeah, I think we have pretty good visibility across the portfolio at this point, with the exception of Florida, and that's the one state that typically lags the rest. I think you should keep in mind, though, that Florida has a cap on their valuations, and so we have a pretty good idea of where they'll hopefully end up. We just don't have the final valuations in on those at this point.
Speaker Change: Hey Josh, this is this is Clay. Yeah, I think we have pretty good visibility across the portfolio at this point with the exception of Florida
Speaker Change: And that's the one state that typically lags the rest. I think, keep in mind though, that Florida has a cap on their valuations, and so we have a pretty good idea of where they'll hopefully end up. We just don't have the final valuations in on those at this point. The other missing piece is around the millage rates.
Michael Goldsmith: The other missing piece is around the millage rate, and that's fairly across the board, but we have pretty good visibility as to what we think that those will be as we wrap up the rest of this year. All right, thanks. Our next question comes from Michael Goldsmith from UBS. Please go ahead. The line is open. Good morning.
Speaker Change: And that's fairly across the board, but we, again, kind of the same story with Florida property valuations. We have pretty good visibility as to what we think that those will be as we wrap up the rest of this year.
Speaker Change: Alright, thanks guys.
Speaker Change: Our next question comes from Michael Goldsmith from UBS. Please go ahead, your line is open.
Timothy Argo: Thanks a lot for taking my question. It sounds like the adjustments to the guidance reflect the pressure in the first half, and the original assumptions for the second half remain relatively unchanged. So what gives you confidence in that, just given typical seasonal slowing trends and also, Yeah, this is Tim, and I mentioned a couple of them. I think one, we're in a really good spot from an occupancy exposure standpoint. As we said here this time last year, we were in a little bit more of a hole in terms of occupancy and exposure.
Michael Goldsmith: Good morning. Thanks a lot for taking my question. It sounds like the adjustments to the guidance reflects the pressure in the first half.
Michael Goldsmith: and the original assumptions for the second half remain relatively unchanged. So, what gives you confidence in that, just given typical seasonal slowing trends and also elevated supply? Thanks.
Speaker Change: Yeah, this is Tim, and I mentioned a couple of them. I think one, we're in a really good spot from an occupancy exposure standpoint. As we said here this time last year, we were in a little bit more of a hole in terms of occupancy and exposure. We're in a better spot this year.
Timothy Argo: We're in a better spot this year, and I think, frankly, a couple of things that I didn't mention in the prior question are, you know, about mid-July of last year was when new lease rates really started to drop off. They hit sort of a cliff there in mid-July and continued that way through December.
Speaker Change: And I think frankly a couple things that I didn't mention in the prior question is, you know, about mid-July of last year is when new lease rates really started to drop off, they hit sort of a cliff there in mid-July.
Timothy Argo: So that, you know, frankly, creates an easier scenario for us as well. So now, as we sit here at the beginning of August, we're starting to see some of those comparisons. And then, I think, as we said, too, we do expect the impact from supply to start to moderate a little bit in the latter part of the year. I mean, it won't manifest itself too much with seasonality.
Speaker Change: and continue that way through December.
Speaker Change: So that, you know, frankly creates an easier comp scenario for us as well. So now as we sit here at the beginning of August , we're starting to lap.
Speaker Change: Some of those comparisons and then I think as we said too, we do expect.
Speaker Change: The impact from supply.
Speaker Change: to start to moderate a little bit in the back part of the year. I mean, it won't manifest itself too much with seasonality.
Timothy Argo: But, you know, we were in a period of increasing supply this time last year. Well, we think we're in a little bit of a period of decreasing pressure from supply this year. So, I think where we are with occupancy exposure, the comps, the supply situation, and then just continued demand, you know, turnover being low, more of our mixes and renewals, which continues to be our strongest point for pricing, you know, rent income continuing to be solid. I don't see any change in the demand scenario either, other than some of the normal seasonality that we'll see later this year. Thanks for that!
Speaker Change: We were in a period of increasing supply this time last year, while we think we're in a little bit of a period of decreasing pressure for supply.
Speaker Change: Storm Supply this year, so.
Speaker Change: Link to where we are with occupancy exposure, the comps.
Speaker Change: [inaudible]
Speaker Change: Don't see any change on the demand scenario either, other than some of the normal seasonality that we'll see later this year.
Timothy Argo: And my follow-up question is on renewals. How are they trending on an ask versus take basis? Yeah, so we were at 4% in June, and we're actually for or in July, sorry, the next couple months, August, and September, where we expect to be in the four to four and a half percent range, with actually September being more towards the higher end of that range. So we're seeing, and on top of that, our renewal acceptance rates are higher than they were last year, really higher than they've been the last few years. So, continue to see strength there, and expect that to hold up pretty well through the rest of the year. Thank you very much.
Speaker Change: Thanks for that and my follow-up question is on the renewals. How are they trending on an ask versus take rate basis?
Speaker Change: Yes, so we were at 4% in June . We're actually for, or in July , sorry, the next couple months, August-September, we expect to be in the 4% to 4.5% range, with actually September being more towards the higher end of that range. So, we're seeing, and on top of that, our renewal accept rates.
Speaker Change: are higher than they were last year, really higher than they've been the last few years. So continue to see strength there and expect that to hold up pretty well through the rest of the year.
Speaker Change: Thank you very much. Good luck in the back half.
James Feldman: Good luck in the back half. Our next question comes from Jamie Feldman from Wells Fargo. Please go ahead; your line is open.
Speaker Change: Thanks.
Speaker Change: Our next question comes from Jamie Feldman from Wells Fargo. Please go ahead, your line is open.
James Feldman: Great, thank you. I just want to talk some more about the development opportunities. I appreciate your comments about ramping up, you know, to a billion dollars of potential spend. I think a lot of people are excited about all the start the major pullback and starts and what, you know, 2627 could look like in your markets. Can you talk more about how much more you think you could ramp up? Is the land already on your balance sheet? Would you need to go out and buy it?
Jamie Feldman: Thank you. I just want to talk some more about the development opportunities. I appreciate your comments of ramping up to a billion dollars of potential spend.
Jamie Feldman: I think a lot of people are excited about, you know, all the start, the major pullback and starts and what, you know, 26, 27 could look like in your markets. Can you talk more about how much more you think you could ramp up? Is the land already on your balance sheet? Would you need to go out and buy it? And just kind of how large and how would you fund?
Brad Hill: And just kind of how large and how would you fund it? As you throttle up the development pipeline. Yeah, hey, Jamie, this is Brad.
Speaker Change: as you throttle up the development pipeline.
Brad Hill: You know, as we've said in the past, we would feel comfortable, given our balance sheet strength and size, really ramping up our development pipeline to about four to 5% of our enterprise value, which would take our pipeline to call it 1 to 1.2 billion. And, you know, that's really what we've been working with over the last few years. By this time in 2022, our pipeline was about 450 million. And today we've almost doubled that.
Jamie Feldman: Hey Jamie, this is Brad. You know, as we've said in the past, we would feel comfortable, given our balance sheet strength and size, really ramping up our development pipeline to about 4-5% of our enterprise value, which would...
Jamie Feldman: you know, take our pipeline to call it 1 to 1.2 billion and
Speaker Change: You know, that's really what we've been working with over the last few years. This time in 2022, our pipeline was about $450 million, and today we've almost doubled that.
Brad Hill: So we feel really good about the trajectory that we're on. We do have, as I mentioned in my comments, a sufficient pipeline of owned and controlled sites on our balance sheet. We've got about 11 projects now that we currently control.
Jamie Feldman: We feel really good about the trajectory that we're on. You know, we do have, as I mentioned in my comments, we've got a sufficient pipeline of owned and controlled sites on our balance sheet. We've got about 11 projects now that
Clay Holder: A number of those would be ready to start very quickly if construction costs come down or rents improve sufficiently enough to drive the returns up to where we think they need to be. So, we've got a good pipeline ahead of us. We're in a really good spot, and I'll let you handle the other part of that question. Yeah, Jamie, I'll add on to that as far as where we think that funding would come from.
Clay Holder: that we currently control. A number of those would be ready to start, you know, very quickly if construction costs come down or rents improve sufficiently enough to drive the returns up to where we think they need to be. So, we've got a good pipeline ahead of us. We're in a really good spot and, Clay, I'll let you handle the other part of that question. Yeah, Jamie, I'll add onto that as far as where we think that funding would come from. I mean, where we would look to first is to fund that through additional debt, given our leverage at the 3.7 times. And so, we would look to move that up at least to, you know,
Clay Holder: I mean, where we would, where we would look to 1st is to fund that through additional debt, given our leverage at 3.7 times. And so we would, we would look to move that up at least to, you know, to 4 and a half times, maybe 5 times. And that's a significant number. That's almost over a billion dollars.
Clay Holder: So we've got plenty of opportunity there to think about how we would go about funding that, especially in an environment where rates will, we expect, continue to climb over the next year or so. Okay, and then just a quick follow-up on that. So you mentioned if construction costs decline, I mean, where do you, what line items are you watching the most to see if they pull back? Where would that be the most helpful?
Clay Holder: to the four and a half times, maybe five times, and that's a significant number. That's almost over a billion dollars. So we've got plenty of opportunity there of how we would go about funding that, especially in an environment where rates will, we expect, would continue to climb over the next year or so.
Speaker Change: Okay, and then just a quick follow-up on that. So you mentioned if construction costs decline, I mean where do you, what line items are you watching the most to see if they pull back? Where would that be the most helpful?
Brad Hill: You know, certainly, we don't need a lot of decrease in construction costs because the other piece of the puzzle, I think, that we're likely to see a little bit of improvement on is on the schedule side of things, which has extended a bit over the last few years, just given the amount of product that's in the pipeline. So, we don't need construction costs to come down a whole lot to make some of these projects feasible or to get the economics more in line, but we have seen that. The project that we started in Charlotte in the second quarter, we saw construction costs come down by a few million dollars.
Speaker Change: Certainly, we don't need a lot of decrease in construction costs because the other piece of the puzzle I think that we're likely to see a little bit of improvement on is on the schedules side of things, which has extended a bit over the last few years just given the amount of product that's in the pipeline.
Brad Hill: So, we don't need it to come down a lot. I think where you're likely to see that is in some of the margins for some of the contractors out there. We've seen those margins, profit margins, increase substantially over the last couple of years. I think framing and lumber and things of that nature are down right now.
Brad Hill: So, I'm not sure you'll get a whole lot of that, but I think it's going to come from some of the margins. Okay, and then also, as we think about your historically low turnover, do you expect to maintain that kind of retention and renewal pricing power in a potentially lower interest rate environment? Despite some of the pent-up demand for homeownership, we're just trying to understand some of the key drivers that could pull that number back.
Speaker Change: Despite some of the pent-up demand for home ownership, we're just trying to understand, you know, some of the key drivers that could pull that number back. And I don't know if it's in your, you know, your surveys that you get when people move out or just your own
Brad Hill: I don't know if it's in your surveys that you get when people move out, or just your own sense of cycles. Is there a certain mortgage rate you think will make a difference, or just how are you guys thinking about it over the next year or so if rates continue to decline or not? Yeah, I mean, we certainly track the reason for a move out as part of when somebody does move out and track those reasons where they're trending.
Speaker Change: Yeah, I mean we certainly track the reason for move out as part when somebody does move out and track those reasons where they're trending and certainly the
Timothy Argo: And certainly, the decrease in move outs by home has been helpful to overall turnover. So, I do think it will pick up if and when rates start to drop. But, I mean, it's still probably needs to be a fairly material drop.
Speaker Change: Thank you.
Eric Bolton: If you think about single-family home prices, even, you know, ignoring the level of interest rates, those have continued to go up, even as rents have started to moderate. And so, you know, with current interest rates. [inaudible] I don't think it would be as big of a deal. I don't think it would be a one-for-one trade-off. We would have some benefits on the revenue side as well. And Jamie, this is Eric.
Speaker Change: even, you know, ignoring the level of interest rates. Those have continued to go up even as rents have started to moderate. And so, you know, with current interest rates...
Speaker Change: Somebody buying a house, their average payment is going to be about 40-50% higher than our average rent. To fill that gap, it would take quite a decrease in interest rates. I do expect at some point turnover to pick up a little bit.
Speaker Change: You know, usually when that happens, if interest rates are dropping and people are buying homes, it typically speaks to a pretty strong economy as well, so we typically see that hold up okay as rents start to move.
Speaker Change: as a part of that, so I don't think it would be as big of a, I don't think it would be a one-for-one trade-off. We would have some benefits on the revenue side as well.
Eric Bolton: I'll add to what Tim said. Right now, the median house principal interest payment in our markets is about 40% higher on average than our average rent, so there is a pretty significant modification or moderation in the purchase of single-family housing that's going to have to take place before I think we get back to the level of turnover that we saw going back four or five years ago. I think that we've been in a steady decline of resident turnover for quite a few years, and I think it'll likewise take a few years to get back to perhaps where we were some years ago. Okay, great.
Eric: And Jamie, this is Eric. I'll add to what Tim said. You know, right now, that, you know, the median house principal interest payment in our markets is about 40% higher on average than our average rent. So, there is a pretty significant modification or moderation in the purchase of single family housing that's going to have to take place before, I think, we get back to the level of turnover that we saw going back four or five years ago. I think that we've been in a steady decline of resident turnover for quite a few years, and I think it will likewise take a few years to get back to perhaps where we were some years ago.
Jamie Feldman: Okay, great. Thanks for your thoughts.
James Feldman: Thanks for your thoughts. Our next question comes from Richard Anderson from Wedbush. Please go ahead.
Richard Anderson: Your line is open. Thanks. Good morning.
Speaker Change: Our next question comes from Richard Anderson from Wedbush. Please go ahead, your line is open.
Richard Anderson: So if you can help me sort of marry a few things here, you know, sounded very optimistic, looking out, you know, beyond the, you know, the near-term supply, maximum impact to new lease is behind you, as you said, and August is looking good, yet you lowered your new lease rate guidance. I'm, I'm just curious, is this kind of like the final hurdle to clear type of thing? Or the beatable situation in the back half of this year? I'm just curious, you know, if you can sort of bring those two pieces together.
Richard Anderson: Thanks, good morning. So if you could help me sort of marry a few things here. You know, sounded very optimistic, you know, looking out, you know, beyond the, you know, the near-term supply.
Speaker Change: Maximum impact to new lease is behind you, as you said, and August is looking good, yet you lowered your new lease rate guidance.
Speaker Change: I'm just curious, is this kind of like final hurdle to clear type of thing, or the beatable situation in the back half of this year? I'm just curious if you can sort of bring those two.
Unknown Executive: Yeah, I'll comment just on the new lease rate piece. I mean, the biggest modification, if you will, was the Q2 new lease rates being a little bit lower than what we had initially dialed in. And as I commented, just people shopping a little longer, being a little more selective in this elevated environment; we tweaked the cadence of new lease rates a little bit in the back half of the year, but do think, as I said, that seasonality extends out a little more.
Speaker Change: pieces together for me.
Speaker Change: Yeah, I'll comment just on the newly straight piece. I mean it was, you know, the...
Speaker Change: The biggest modification, if you will, was the Q2 new lease rates being a little bit lower than what we had initially dialed in.
Speaker Change: [inaudible]
Unknown Executive: So really, the impact on our revenue guidance and the new lease pricing was, primarily, what would occur in Q2, then you obviously have that carried over into the back half of the year, whereas, you know, as good or better new lease rates in the back half don't impact quite as much of the current year, but certainly play into 2025. Okay, great.
Speaker Change: primarily what would occur in Q2 then you obviously have that carrying over the back half of the year whereas you know you know as good or better new lease rates in the back half don't impact quite as much of the current year but certainly play into 2025.
Unknown Executive: And then the second question is, when you think about, kind of looking into 2025, just from your experience and history, and dealing with, you know, pockets of supply that have happened in your careers many times, so you're accustomed to this. How does the cadence of 2025 kind of look when you think about what you know is coming Delivered and then the tale of that as it leases up? Does 2025 sort of hit the ground running? Or is it sort of a slow evolution?
Speaker Change: Okay, great. And then the second question is, when you think about...
Speaker Change: You know, kind of looking into 2025.
Speaker Change: Just in your experience and history in dealing with, you know, pockets of supply that have happened in your careers, you know, many times, so you're accustomed to this. How does the cadence of 2025 kind of look when you think about what you know is coming?
Unknown Executive: And you don't really get, you know, back to a real growth story of significance until, you know, a year into the year, if that, Yeah, it does. I mean, I think the seasonality will be pretty typical, you know, there, and there will still be supply pressure next year. It's going to be less than, but it's not, you know, nothing, it's still going to be there.
Speaker Change: to be delivered, and then the tail of that as it leases up. Does 2025 sort of hit the ground running, or is it sort of a slow evolution and you don't really get, you know, back to a, you know, a real growth story of significance until...
Speaker Change: a year into the year, if that makes sense.
Unknown Executive: So I think what you'll see play out as we get into spring and summer, that we'll start to see the new lease rates accelerate, we'll see that the blended lease over lease improve, but that's going to obviously take 12 months kind of feed through all the leases. So what I would expect is to start to see some some pricing power on blended lease over lease and spring summer 2025. And then really, you know, not hugely play out in terms of revenue growth until you get late into 2026.
Speaker Change: Yeah, it does. I mean, I think the seasonality will be pretty typical.
Speaker Change: And there will still be supply pressure next year. It's going to be lessened, but it's not, you know, nothing. It's still going to be...
Speaker Change: there. So I think what you'll see play out, particularly as we get into the spring and summer, that we'll start to see the new lease rates accelerate. We'll see that blended lease over lease.
Speaker Change: improve but that's going to obviously take 12 months kind of feed through all the leases so what I would expect is to start to see some some pricing power on blended lease over lease and spring summer 2025
Unknown Executive: And I think it really sets up for a good earnings growth into 2026. And then even less supply pressure there where you really start to see that revenue growth pick up late in 25 and into 2026. Okay, great. Thanks for the call.
Speaker Change: And then really, you know, not hugely play out in terms of revenue growth until you get late 25 into 2026. And I think it really sets up for a good earn-in into 2026 and then even less supply pressure there where you really start to see that revenue growth pick up late 25 and into 26.
Austin Wurschmidt: I appreciate it. Our next question comes from Austin Wurschmidt from KeyBank Capital Markets. Please go ahead.
Speaker Change: Okay, great. Thanks for the call. I appreciate it.
Austin Wurschmidt: Your line is, I want to piggyback on a little bit off the last question there, Tim, encircling back to Tim's comments on asking rents turning positive in August. Yes, I mean, I think similar probably gets into early to mid next year.
Speaker Change: Our next question comes from Austin Werschmitt from KeyBank Capital Markets. Please go ahead, your line is open.
Austin Werschmitt: Yeah, thanks everybody. And piggybacking a little bit off the last question there, Tim, encircling back to Tim's comments on asking rents turning positive.
Austin Werschmitt: In August, I guess with comps easing from here, what's sort of your expectation for the trend in asking rents through this year and into 2025, and maybe seasonality aside later this year, when do you expect, you know, positive asking rents to translate into positive new lease rate growth?
Unknown Executive: I mean, if you want to use kind of our new lease rates as a proxy for market rents, we have seen where July new lease rents were about 4% or so higher than we were at the beginning of the year. So it's certainly closing that gap. And I don't, you know, it'll moderate some in the wintertime with seasonality, but I would think probably it's going to be kind of spring, early summer that we start to see that manifest itself and turn into positive new lease rates. That would be my guess. If you look closely, so if you look, I'll be clear on how I'm defining this.
Speaker Change: Yeah, I mean I think similar probably probably gets into early mid next year. I mean we have seen
Austin Werschmitt: If you want to use kind of our new lease rates as a proxy for market rents, we have seen
Austin Werschmitt: with where July new lease rents were about 4% or so higher than we were at the beginning of the year. So it's certainly closing that gap and it'll moderate some in the wintertime with the seasonality.
Austin Werschmitt: I would think probably it's going to be kind of spring, early summer that we start to see that manifests itself into positive new lease rates would be my guess.
Speaker Change: And then I guess with this move in asking rent, where does that put the portfolio today from a loss or gain-to-lease perspective?
Unknown Executive: If you look at all the leases we did in July, it's about 2% higher. So 2% loss on lease compared to our in-place rents. Certainly, we're sitting at kind of the peak demand, if you will, or the peak pricing in a typical seasonality. So I think that edges back down a little bit later in the year, but it's about 2% right now. Our next question comes from John Kim from BMO Capital Markets. Please go ahead.
Speaker Change: If you look, so if you look, I'll be clear on how I'm defining this, if you look at all the leases we did in July, it's about 2% higher, so 2% loss to lease compared to our in-place rents. Certainly, we're sitting at kind of the peak demand, if you will, or the peak pricing in a typical seasonality, so I think that edges back down a little bit later in the year, but it's about 2% right now.
Speaker Change: That's helpful. Thanks for the time.
Austin Werschmitt: Our next question comes from John Kim from BMO Capital Markets. Please go ahead, your line is open.
John Kim: Your line is open. Thank you, Tim. In your prepared remarks, you mentioned absorption is the highest it's been since the third quarter 21, and I'm wondering what's driving this. A few years ago, we did have strong net migration trends to your markets, but that seems to have softened a bit. So I just wanted to know, what do you think is driving demand right now? Yeah, I mean, I think it's a little bit of a lot of factors.
John Kim: Thank you. Tim, in your prepared remarks you mentioned absorption is the highest it's been since the third quarter of 21 and I'm wondering what's driving this. A few years ago we did have the strong net migration trends to your markets but that seems to have softened a bit.
Speaker Change: So I just wanted to know, what do you think is driving the man right now?
Timothy Argo: I mean, we have job growth been a little bit stronger, and we still certainly have stronger job growth in our markets than the broader nationally, and even within migration, we saw it tick back up a little bit at 12% of our move-ins. We're from out of our footprint in Q2 into MAA, which has ticked up a little bit and back to where it was about 12 months ago. We continue to see wage growth and population growth, household formation, and then just the turnover being quite a bit lower, obviously, as well, helps in that absorption, as there are fewer existing units, if you will, to be absorbed that spreads out into those new units coming online. So, yeah, the absorption's been strong now for several quarters.
Tim Argo: Yeah, I mean, I think it's a little bit a lot of factors. I mean, we have job growth has been a little bit stronger, still have certainly stronger job growth in our markets than
Speaker Change: The broader nationally and even within migration we saw it tick back up a little bit at 12% of our move-ins
Austin Werschmitt: were from out of our footprint in Q2 into MAA, which is...
Speaker Change: I'll just go through the numbers. It ticked up a little bit, back to where it was about 12 months ago. Continue to see wage growth and population growth, household formation and then just the turnover being.
Austin Werschmitt: quite a bit lower, obviously, as well, helps in that absorption as there's, you know, less existing units, if you will, to be absorbed that spreads out into those new units coming online. So, you know, the absorption has been strong now for several quarters.
Timothy Argo: Keep it up, if you will, with the new supply, which is why we don't think it will get worse. But I think, you know, all those factors that I mentioned are combining to help drive that demand. Okay, and I wanted to clarify your views on renewal rates. So you had four and a half to 5% in the first half of the year. That's what you're expecting in the second half of the year. I think that's the answer you gave to Nick Yulico.
Austin Werschmitt: Just keeping up, if you will, with the new supply, which is why we don't think it gets worse. But I think all those factors that I mentioned are combining to help drive that demand.
Speaker Change: Okay, I wanted to clarify your views on renewal rates. So you had 4.5% to 5% in the first half of the year.
Speaker Change: That's what you're expecting in the second half of the year. I think that's the answer you gave to Nick Ulico But July softened to 4% so I'm wondering why this month was relatively
Timothy Argo: But July softened to 4%, so I'm wondering why this month was relatively lower than what you're expecting.
Timothy Argo: And are you basically expecting this to ramp up in the fourth quarter? Well, I mean, four to five is kind of our full-year expectation; we were on the higher end of that in the first half of the year, and I think probably a little bit lower end of that in the back half of the year. But we are seeing it, you know. I think August probably is a little better than July, and September is trending a little bit better than August.
Speaker Change: lower than what you're expecting and are you basically expecting this to ramp up in the fourth quarter?
Timothy Argo: So I do think as we get into the back part of the year, our renewals have always held up pretty strong. And with new lease rates increasing, that gap between the two has started to narrow a bit. So I think, you know, again, with the easier comps, I think that'll tend to help renewals as well. But I think you start to trend a little bit more towards that four and a half as you get way back in the back part or in late Q4. I got it.
Speaker Change: Well, I mean, four to five is kind of our full-year expectation. We were on the higher end of that the first half of the year. I think probably a little bit lower end of that in the back half of the year.
Speaker Change: We are seeing it, you know, I think...
Speaker Change: August probably is a little better than July, and September is trending a little bit better than August. So I do think as we get into the back part of the year, I mean, our renewals have always held up pretty strong, and with new lease rates increasing, that gap between the two has started to narrow a bit.
Speaker Change: So I think, you know, again, with the easier comps, I think that'll tend to help renewals as well. But I think you start to trend a little bit more towards that four and a half as you get way at the back part or in the rank Q4.
Haendel Juste: Thank you. Our next question comes from Haendel just from Mizuho. Please go ahead.
Speaker Change: Got it. Thank you.
Speaker Change: Our next question comes from a handouts just from Mizuho. Please go ahead, your line is open.
Haendel Juste: Your line is open. Hey, guys. Thanks for taking the questions. So the first one, I guess, is on the transaction market cap rates. Seems like earlier this year, cap rates were close to six. Now we're getting into the low five.
Brad Hill: Interest rates coming down a bit more. I wouldn't necessarily call it confidence or clarity, but a better feeling of how fundamentals could be trending in the Sun Belt over the next 6-12 months. I'm curious, are sellers now more willing to engage in not only conversations about selling assets; do you expect the cap rate to be lower from here? And then some comments on how you're underwriting IRRs for the assets you bought in the second quarter. Yeah, Haendel. This is Brad.
Speaker Change: Hey, guys. Thanks for taking my question. So, first one, I guess, is on the transaction market cap rates. It seemed like early this year cap rates were close to 6. Now we're getting into the low 5s, interest rates coming down a bit more.
Speaker Change: I wouldn't necessarily call it confidence or clarity, but a better feeling of how fundamentals could be trending in the Sun Belt over the next 6-12 months, so I'm curious.
Speaker Change: Are sellers now more willing to engage in, not only conversations about selling assets, do you expect the cap rate to be lower from here? And then some comment on how you are underwriting IRRs for the assets you bought in the second quarter. Thanks.
Brad Hill: You know, I think certainly, the cap rates that we're seeing in the market are kind of in that 5% range, which, you know, frankly, has been consistent for the last couple of quarters. I think we saw cap rates tick up a little bit in the fourth quarter of last year, and that's since come down around that 5% mark. So, you know, given where the expectations are with interest rates and some of the, you know, the market not being quite as uncertain as it was last year, I mean, I would expect cap rates. We're underwriting deals and the IRRs that we're looking at. Based on our long-term cost of capital, our levered IRR hurdles, call it 8%. Most of our acquisitions are delivering substantially more than that. North of that, just to remind you, we're not buying at five caps.
Speaker Change: This is Brad, you know, I think certainly the cap rates that we're seeing in the market, you know, are kind of in that 5% range, which, you know, frankly, has been consistent for the last couple of quarters. I think we saw cap rates pick up a little bit in the fourth quarter.
Speaker Change: of last year, and that's since come down around that 5% mark. So, you know, given where the expectations are with interest rates in some of the
Speaker Change: the market not being quite as uncertain as it was last year.
Speaker Change: to kind of stay in that range going forward. There is a lot of optimism, as we've talked about, in 26, 27 fundamentals. And so that's certainly being reflected a bit in the transaction market. Interest rates today are calling that 5.5, 5.75 range, you know, so there is a little bit of negative leverage that folks are willing to accept when there's growth on the horizon. So.
Speaker Change: That's kind of where we're seeing cap rates today. In terms of where we're underwriting deals and the IRRs that we're looking at, so based on our long-term cost of capital, our levered IRR hurdles, call it 8%, most of our acquisitions
Speaker Change: are delivering substantially more than that. North of that, just to remind you, we're not buying at 5 caps. The acquisitions that we've executed on and the ones that we have under contract today are in the NOI yields high 5%, close to 6% range. So we're not active at a 5 cap at the moment, but given where our cost of capital is, we're achieving yields and IRRs that are substantially above our current cost of capital.
Brad Hill: The acquisitions that we've executed on and the ones that we have under contract today are in the NOI yields high 5%, close to 6% range. We're not active at a five-cap at the moment, but given where our cost of capital is, we're achieving yields and IRRs substantially above our current cost of capital.
Haendel Juste: Very helpful. You mentioned in your comments earlier that the rent income in the portfolio is around, I think you said 21%, the lowest in three years. I was curious if you're sensing any rent fatigue, any change in the move-outs due to rents you're seeing in the portfolio? And then can you add some color on concessions usage in the portfolio today, how that compares to last quarter or last year?
Speaker Change: You mentioned in your comments earlier that the rent income
Speaker Change: in the portfolios around, I think you said 21%, the lowest in three years, I was.
Speaker Change: I'm curious if you're sensing any rent fatigue, any change in the move-outs due to rents you're seeing in the portfolio? And then can you add some color on concessions usage in the portfolio today, how that compares to...
Timothy Argo: Yeah, I mean, we did see rent income drop in Q2. That's based on all the residents that moved in in Q2. And we track, we track move ins, you know, our move ins or move outs due to the rent increase are certainly down significantly.
Speaker Change: last quarter, last year. Thanks.
Speaker Change: Yeah, I mean, we did see rent income drop in Q2, and that's based on all the residents that moved in in Q2, and we track move-ins or move-outs due to rent increase is certainly down significantly, so I think that...
Speaker Change: That and the move out to buy a house are the two components that are driving the lower turnover as rents have started to moderate.
Timothy Argo: So I think that and the move outs to buy a house are the two components that are driving the lower turnover as rents have started to moderate. But on the concession question, pretty consistent for us as a portfolio, it's very minimal, somewhere in the half percent to 1% of overall rents is our concession practice. But as I alluded to a little bit earlier, I'd say, you know, broadly, kind of half to month to month is pretty typical.
Speaker Change: On the concession question, you know, pretty consistent for us as a portfolio. It's very minimal.
Speaker Change: half percent to one percent of overall rents is our is our concession practice, but as I alluded to a little bit earlier I'd say, you know, broadly
Speaker Change: [inaudible]
Timothy Argo: In most markets, there are a few pockets where you might see two, where there are some lease-up scenarios. And I mentioned Midtown Atlanta is probably our worst, where you might see two to three. The kind of uptown south in Charlotte, kind of that two-month range, and downtown Austin, in that two-month range.
Speaker Change: and kind of Uptown, South End, Charlotte, kind of in that two-month range, and Downtown Austin in that two-month range. Those are the three pockets I would pick of seeing a little bit higher concession usage, but overall, pretty consistent with what we've seen throughout 2024, I would say.
Timothy Argo: Those are the three pockets I would pick as seeing a little bit higher concession usage, but overall, pretty consistent with what we've seen the last few years. All throughout 2024, I would say. Got it, got it. And one last one.
Haendel Juste: Appreciate the commentary on the insurance cost coming in, the commentary on the marketplace. I'm curious if there's anything that you're perhaps doing any differently in your approach, if you're perhaps self-insuring a bit more. Hey, Haendel. It's Rob again.
Speaker Change: Got it, got it. And one last one, I appreciate the commentary on the insurance cost coming in, the commentary on the marketplace, so I'm curious if there's anything that perhaps you're doing any differently in your approach if you're perhaps self-insuring a bit more. Thanks.
Rob Del Prori: Our retentions are all the same as they were last year, with one exception. We did have to increase our retention by $250,000 on our general liability. So, kind of our slip and fall protection there, just kind of got some pressure from the insurance companies to do that.
Speaker Change: Yeah, Handel, it's Rob again. Yeah, our retentions are all the same as they were last year, one exception. We did have to increase our retention by $250,000 on our general liability, so kind of our slip-and-fall protection there. Just kind of got some pressure from the insurance companies to do that, but the rest of everything stayed the same in terms of...
Speaker Change: what we're doing on retentions.
Speaker Change: Great. Thanks, guys, and best of luck.
Rob Del Prori: But the rest of everything stayed the same in terms of what we're doing on retention. Great. Thanks, guys, and best of luck. Our next question comes from Alexander Goldfarb from Piper Sandler. Please go ahead. Your line is open. Hey, good morning down there.
Speaker Change: Our next question comes from Alexander Goldfarb from Piper Sandler. Please go ahead, your line is open.
Alexander Goldfarb: Two questions. The first is bad debt. Can you just talk a bit about, you know, your resident credit profile now versus pre-pandemic? Are you back to where you were pre-pandemic? And if there are any markets in particular that are still, you know, elevated, and thoughts on why, you know, any elevated markets remain as such? Yeah, we're mostly back to pre-pandemic levels. I mean, I think we're probably, you know, on average, over the long term, 10 to 15 bps higher in terms of delinquency than where we consistently were pre-COVID.
Alexander Goldfarb: Hey, good morning, down there. Two questions.
Alexander Goldfarb: The first is bad debt. Can you just talk a bit about that?
Alexander Goldfarb: You know, your resident credit profile now versus pre-pandemic, are you back to where you were?
Speaker Change: pre-pandemic and if there are any markets in particular that are still, you know, elevated and thoughts on why, you know, any elevated markets remain as such.
Timothy Argo: But, you know, you're talking about 0.3 to 0.4, maybe up to 0.5% of rent. So it's still very low for us and not, not much of an issue. You know, Atlanta, the market's been talked about a lot that has had more pressure. We actually saw that drop to about 0.5% of rents in Q2, down from about 1.3 where it was a year ago. So I think the practices we put in place to try to sort of catch that fraud before they come in the front door are starting to play out and help us there.
Speaker Change: Yeah, we're mostly back to pre-pandemic level. I mean, I think we're probably, you know, on average over a long term, 10-15 BIPs higher in terms of delinquency than where we consistently were pre-COVID, but, you know, you're talking about
Alexander Goldfarb: 0.3 to 0.4, maybe up to 0.5% of rent.
Alexander Goldfarb: still very low for us and not much of an issue. You know, Atlanta's the market that's been talked about a lot that has had more pressure. We actually saw that drop to about 0.5% of rents in Q2.
Alexander Goldfarb: down from about 1.3 where it was a year ago. So I think the, you know, the practices we put in place to try to sort of catch that fraud before they come in the front door.
Timothy Argo: So outside of that, you know, not a lot of pressure across the portfolio, and it continues to be mostly a non-issue for us. Okay, and just confirming what you said. You said normal bad debt is 30 to 40 BIPs, and currently, you're 15 above that. I just want to make sure I heard that right.
Alexander Goldfarb: It's starting to play out and help us there, so outside of that, you know, not a lot of pressure across the portfolio, and it continues to be mostly a non-issue for us.
Speaker Change: Okay, just confirming what you said. You said normal BAD debt is 30 to 40 BIPs and currently you're 15 above that. I just want to make sure I heard that right.
Alexander Goldfarb: Well, I'm saying, you know, our delinquency in Q2, I think, was around 0.3 or 0.4. There's a little bit of seasonality, too. I would say, you know, this pre-COVID, longer-term delinquency was somewhere in the 0.3 range.
Speaker Change: Well, I would say, you know, our delinquency in Q2, I think, was around .3 or .4. There's a little bit of seasonality, too. I would say, you know...
Alexander Goldfarb: pre-COVID, longer-term delinquency was...
Alexander Goldfarb: Somewhere in the 0.3 range, I would guess long term in this new environment, it's probably between 0.4, 0.5 roughly.
Timothy Argo: I would guess long-term in this new environment, it's probably between 0.4 and 0.5, roughly. Okay, and then second question is, a lot of discussion on the call about, you know, the changes in your same store assumptions, changes in rent profile and occupancy, and yet, the big picture is your FFO midpoint stayed the same. And that's despite a three cent hurricane charge in the third quarter.
Speaker Change: Okay, and then the second question is, a lot of discussion on the call about, you know, the changes in your same-store assumptions.
Alexander Goldfarb: changes in rent profile and occupancy.
Speaker Change: And yet, big picture is your FFO midpoint stayed the same, and that's despite...
Speaker Change: a three-cent hurricane charge in the third quarter. So I mean, it sounds like there's a lot of focus on same-store, but ultimately to earnings, it's almost a non-issue. So what's the best way? You give a lot of stats on rents, on
Alexander Goldfarb: So, I mean, there's a lot of focus on the same store, but ultimately, the earnings, it's, it's almost a non-issue. So, you know, what's the best way, you give a lot of stats on rents, on revenue, occupancy, etc. But ultimately, it matters what you guys deliver on the bottom line. So, what's really the key focus or the key driver of the FFO versus all these puts and takes?
Speaker Change: revenue, occupancy, etc., but ultimately it matters what you guys deliver on the bottom line. So what's really the key focus or the key driver of the FFO versus all these puts and takes?
Clay Holder: Yeah, a couple points I would make. I mean, obviously, revenue plays into that. And, you know, as we kind of dialed those in and adjusted for that, that first half performance, and what it's going to look like in the back half of the year, and then, you know, achieving what we were, you know, looking forward to in the back half of the year, those all play into that from the revenue standpoint. We feel good about all that. That, you know, feels very achievable.
Speaker Change: Yeah, a couple points I would make. I mean, obviously, the revenue plays into that and
Clay Holder: So, as we kind of dialed those in and adjusted for that first half performance and what it's going to look like in the back half of the year, and then achieving what we were looking forward for the back half of the year, those all play into that from the revenue standpoint. We feel good about all that.
Clay Holder: That field is very achievable, and for all the reasons that Tim previously mentioned, we feel like that's in a good spot. And you kind of get down into the operating expense section. We talked about the real estate taxes and the insurance renewal. Those two things are really offsetting the changes.
Clay Holder: And for all the reasons that Tim previously mentioned, we feel like that's a good spot. And you kind of get down into the operating expense section, we talked about the real estate taxes and insurance renewal, those are really kind of offset, those two things are really offsetting the changes that we have adjusted for and the revenue guidance. And so, if you look back to kind of where we've been running and trending in personnel calls, preparation, and maintenance calls, starting with the first half of the year, there is potential upside there.
Speaker Change: that we have adjusted for and the revenue guidance. And so, if you look back to kind of where we've been running and trending in personnel calls, repair and maintenance calls for over the first half of the year, you know, there is...
Clay Holder: We'll, we'll see how that plays out. But those two things kind of talking to each other and offsetting one another, then it just gets down into below the line there, and then there are some favorable G&A calls, interest expense, and some other items that are really offsetting that 3 cents that we noted for the hurricane there in the third quarter.
Clay Holder: potential upside there, but we'll see how that plays out. But those two things kind of really talking to each other and offsetting one another.
Speaker Change: Then it just gets down into, you know, below the line there, and then there's been some favorable G&A calls, interest expense, and some other items that's really offsetting that three cents.
Speaker Change: that we...
Clay Holder: But overall, this is Eric, just to add to what Clay is saying, you know, I mean, what really drives FFO performance long term is NOI. And, and, and, as you point out, there is a lot of give and takes and a lot of details that we dig into and the market pulls apart, trying to understand sort of what's driving that NOI. But for me, sort of the key takeaway is that, you know, in the midst of clearly record levels of new supply coming into our market, and we kind of feel like we're in the worst of the storm right now, we think that we're, you know, we're seeing sort of bottoming out occurring as it relates to sort of what's happened with new leach pricing. And we think that, particularly as you get into next year late, we think that new lease price is going to hang in there. Then next year, we think it will start to really take off.
Speaker Change: that we noted for the hurricane there in the third quarter. Right, but overall it's...
Clay Holder: Alex, this is Eric. Just to add to what Clay is saying, you know, I mean, what really drives FFO performance long term is NOI. And, you know, and as you point out, I mean, a lot of give and takes and a lot of details that, you know, we dig into and the market pulls apart trying to understand sort of what's driving that NOI. But for me, sort of the key takeaway is that, you know, in the midst of, you know, clearly what sort of record levels of new supply coming into our market, and we kind of feel like we're in the worst of the storm right now, we think that we're, you know, we're seeing sort of bottoming out occurring as it relates to sort of what's happening with new leach pricing. And we think that particularly as you get into
Speaker Change: [inaudible] as a function of some of the new technology we continue to introduce, as well as inflationary pressures beginning to moderate. So ultimately, what really drives FFO is NOI, same story, NOI. And we think that, you know,
Eric Bolton: It'll take a while for it to really build into revenues and ultimately into NOI just because of seasonal factors. But, you know, when you look at what's happening with new lease pricing and recognize that we're kind of in the worst of the storm now, renewal pricing is hanging in there, and we do think that we are likely going to see continued relief on the overall operating expense side of the business as a function of some of the new technology we continue to introduce as well as inflationary pressures beginning to moderate.
Eric Bolton: So, ultimately, what really drives FFO is NOI, same story, NOI, and we think that, you know, when you look at the variables that make up that NOI performance, we think that it's poised to really show some recovery over the next few years. Thank you. Our next question comes from Adam Kramer from Morgan Stanley. Just go ahead; your line is open.
Adam Kramer: When you look at the variables that make up that NOI performance, we think that it's poised to really show some recovery over the next few years.
Adam Kramer: Thank you.
Speaker Change: Our next question comes from Adam Kramer from Morgan Stanley. Just go ahead, your line is open.
Adam Kramer: Great, thanks. I want to ask about the delta between the commenced and signed leases in July. Play that again in the delta.
Adam Kramer: Great, thanks. I'd like to ask about the delta between the commenced and the signed leases in July.
Unknown Executive: Please see the complete disclaimer at https://sites.google.com or at www.google.com. Um, there's about a 50 basis point delta or so. I mean, obviously, with sine, you've got some that'll go into effect at the end of that month and some that'll go into effect later could be ones that end up getting canceled. So we don't, we frankly don't pay a ton of attention to signs, but that's, that's what the Delta is. That's really helpful.
Unknown Executive: And again, the Delta...
Speaker Change: between what yeah just between between the leases that were signed in July and releases that were commenced or effective in July what you reported
Speaker Change: There's about a 50 basis point delta or so. I mean obviously with sign you've got some that will go into effect in the end of that month and some that will...
Unknown Executive: go effect later could be ones that end up getting canceled so we don't we frankly don't pay a ton of attention to sign but that's that's what the Delta is.
Adam Kramer: And then, just as a follow-up, I wanted to ask about kind of capital allocation from a high level, a little bit of focus on this call for development, and maybe the possibility of leaning a little bit more into that. So I guess just kind of given, given kind of where acquisition cap rates are today, and maybe that market is showing some green shoots, given the development opportunity that you talked about, how would you kind of stack rank those two and any other kind of capital allocation, Opportunities and Priorities. Yeah, and this is Brad.
Adam Kramer: That's really helpful. Thank you. And then just as a follow-up, I wanted to ask about kind of capital allocation from a high level. A little bit of focus on this column development and maybe the possibility of leaning a little bit more into that.
Adam Kramer: So I guess just kind of given kind of where acquisition cap rates are today and maybe that market showing some green shoots, given the development opportunity that you talked about, how would you kind of stack rank, you know, those two and any other kind of capital allocation opportunities and priorities?
Brad Hill: Well, I think, you know, our plan from a capital allocation perspective is to, certainly continue to allocate both to acquisition and development. However, we would like to lean a little bit more into the acquisition area given just the immediacy of earnings associated with that. But honestly, given the returns that we've been able to achieve where our yields are 6% and the market was substantially less than that, we've been a little bit slower in the acquisition market.
Brad Hill: Yeah, Adam, this is Brad. Well, I think, you know, our plan from a capital allocation perspective is to
Brad Hill: certainly continue to allocate both to acquisition and development. We would like to lean a little bit more into the acquisition area given just the immediacy of earnings associated with that but you know honestly given the returns that we've been able to achieve where our yields are 6% and the market was substantially less than that you know we've been a little bit slower in the acquisition market.
Brad Hill: I still feel good about our guidance for the year at 400 million development. Again, we've seen opportunities there that have really come to fruition. We've got additional opportunities that we're looking at where third-party developers are not able to get their financing lined up.
Brad Hill: I still feel good about our guidance for the year 400 million development.
Brad Hill: Again, we've seen opportunities there that have really come up. We've got additional opportunities that we're looking at where third-party developers are not able to get their financing lined up, and so we're seeing additional opportunities come to us through that area. So I wouldn't be surprised if in the short term...
Brad Hill: We're seeing additional opportunities come to us through that area. I wouldn't be surprised if, in the short term, we do find additional development opportunities versus acquisition. But from a long-term perspective, we like both of those avenues. I think, generally, they'll be pretty evenly split in terms of acquisition and development on our spend on a yearly basis. Great. Thanks for your time.
Brad Hill: You know, we do find additional development opportunities versus acquisition, but from a long-term perspective, you know, we like both of those avenues, and I think, you know, generally they'll be pretty evenly split in terms of acquisition in development on our spend on a yearly basis.
Adam Kramer: Our next question comes from Omo Tayo Okusanyo from Deutsche Bank. Please go ahead. Your line is open.
Speaker Change: Great, thanks for the time.
Adam Kramer: Our next question comes from Omo Tayo Okusanyo from Deutsche Bank. Please go ahead, your line is open.
Omo Tayo Okusanyo: My question is more from a regulatory perspective. Again, you have President Biden out there kind of talking about implementing rent control. We're going into an election cycle. Just curious what you think about that. And specifically, if you're also kind of hearing anything in any of your key states where you have exposure about potential rent control laws and kind of going into this current election cycle. Hi, it's Rob.
Omo Tayo Okusanyo: Yes, good morning. My question is more from a regulatory perspective.
Omo Tayo Okusanyo: Again, you have President Biden out there kind of talking about implementing for the rent control, we're going into an election cycle. Just curious what you think about that, and specifically if you're also kind of hearing anything in any of your key states where you have exposure about potential rent control laws and kind of going into this current election cycle.
Rob Del Prori: I'll start off, I guess, with President Biden's 5% Rent Control Proposal and We do think that there's some election year politicking going on there. It does require an active Congress, and this year with a divided Congress, we don't really see that particular effort gain a lot of traction at the federal level.
Rob Del Prori: I'll tell you, Rob, I'll start off, I guess, with President Biden's 5%.
Rob Del Prori: rent control proposal and
Rob Del Prori: We do think that there's some election year politicking going on there. It does require an act of Congress that in this year with the divided Congress, we don't really see that going to get that particular.
Rob Del Prori: And then following up on your state level question, 13 of the states where we operate that represent about 90% of our NOI have a state-level prohibition on local rent control. So we're really not seeing any movement at the state level, and in most instances, it's blocked at the local level. So, in terms of rent control, we're not that concerned about the impact of rent control on our markets. Thank you.
Rob Del Prori: effort will gain a lot of traction at the federal level and then following up on your state level question.
Rob Del Prori: 13 of the states where we operate that represents about 90% of our NOI.
Rob Del Prori: as a state level prohibition on local rent control. So we're really not seeing any movement at the state level and in most of the instances it's blocked at the local level. So in terms of rent control we're not that concerned about the impact of rent control on our markets.
Rob Del Prori: Our next question comes from Anne Chan from Green Street. Please go ahead. Your line is open. Hey, good morning. First question for me: do you expect a reacceleration in growth of any expense line items heading into next year? This is Clay.
Speaker Change: Thank you.
Rob Del Prori: Our next question comes from Anne Chan from Green Street. Please go ahead, your line is open.
Anne Chan: Hey, good morning. Quick question for me. Do you expect a re-acceleration in growth of any expense line items heading into next year?
Anne Chan: As we kind of look into next year, you know, we think that property taxes, I'll start there since it's the biggest line item, but property taxes will continue to run in this 3% to 4% range. And as we've adjusted our guidance, it's at 4% today. We think it can run probably for a period of time, especially given what we've seen and just for the property performance over these past couple of years, given the high supply and seeing some of those income levels come down from those properties.
Anne Chan: This is Clay. As we kind of look into next year, you know, we think that property taxes, I'll start there.
Speaker Change: This is the biggest lawn item.
Anne Chan: but the property taxes will continue to run into this.
Anne Chan: three to four percent ranges. We've adjusted our guidance. It's at four percent today. We think it could run probably in there for a period of time, especially given the
Anne Chan: You know, what we've seen and just for the property performance over these past couple of years given the high supply and seeing some of those income levels come down from those properties.
Anne Chan: Insurance, you know, we had our renewal this year, so we'll enjoy a little bit of that going into the first half of next year as well. And then, you know, it'll be another negotiation at that point.
Anne Chan: Insurance, you know, we saw we had our renewal this year so we'll enjoy a little bit of that going into the first half of next year as well.
Clay Holder: You know, and I wouldn't necessarily expect it to be another decrease by any stretch, but I also don't know that we would expect to see levels of what we saw in the past couple of years at 15%, 20%. So, you know, I think it would be a much more reasonable growth at that level, assuming, you know, claims experience stays pretty favorable with what it has been for us in the past.
Clay Holder: And then, you know, it'll be another negotiation at that point, you know, and I wouldn't expect it to be necessarily another decrease by any stretch, but I also don't know that we would expect to see, you know, levels of what we saw in the past couple of years at 15, 20 percent. So, you know, I think it would be a much more reasonable growth with that level, assuming, you know, claims experience stays pretty favorable with what they've been for us in the past. And then looking at personnel costs, repair and maintenance.
Clay Holder: And then looking at personnel calls, repair and maintenance, marketing costs, and those types of items, you know, we think that those will continue to run at a pretty normal rate. We've seen some moderation in all those categories over the past year. And so we would think that those, you know, we would definitely expect those to jump to a level of what they were going, you know, around 2021, 2022, so a bigger more of an uptick, you know, the 3 to 4% growth range there. Thanks.
Speaker Change: Thank you. Bye. Bye.
Clay Holder: Marketing costs and those types of items, you know, we think that those will continue to run at a pretty normal rate. We've seen some moderation in all of those distinct categories over the past year, and so we would think that those, you know, we definitely would expect those to jump to a level of what they were going, you know, around 2021, 2022. It's a bit more of an up, you know, the 3% to 4% growth rate there.
Anne Chan: And second question, Tim, can you share what your expectations are for new lease growth in Atlanta for this year? And when do you believe the markets will start seeing stronger rate and occupancy trends? Yeah, I mean, Atlanta's been pretty consistently high, single digits in the negative, high negative single digits in the negative 8 to 9% range. We've seen it improve a little bit in the last couple months, and we've seen a little bit of traction and occupancy in July for Atlanta.
Anne Chan: Thanks and second question, Tim can you share what your expectations are for new lease growth in Atlanta for this year and when you believe the markets will start seeing stronger rate and occupancy trend?
Anne Chan: Yeah, I mean, Atlanta's been pretty, Newly's rate's been pretty consistently high single digits in the negative, high negative single digits in the negative 8 to 9 percent range. We've seen it improve a little bit the last couple months and we've seen a little bit of traction and occupancy.
Anne Chan: So, I think, you know, I think it'll follow a similar trend in terms of slowly getting better and starting to show some signs as we get into 2025, but probably take a little while for that one to get back to positive, a little bit longer than some of the other markets we're looking at. All right, thank you. Our last question will come from Linda Tsai from Jefferies. Please go ahead. Your line is open. Yes, hi.
Speaker Change: in July for Atlanta, so I think, you know, I think it'll follow a similar trend in terms of the, you know, slowly getting better and starting to...
Anne Chan: show some signs as we get into 2025, but probably take a little while for that one to get back to positive, a little bit longer than some of the other markets we're looking at.
Speaker Change: All right, thank you.
Speaker Change: Our last question will come from Linda Sy from Jefferies. Please go ahead, your line is open.
Linda Tsai: Where are you sending out renewals for August, and what are you getting for those, and how does that compare to last year and historically? So for both August and September, we're getting in the four to four and a half percent range; we sent out around four, and depending on who accepts and what lease term, that's how you can get a variance there. But I think, you know, this time last year it was somewhere around four and a half to five.
Speaker Change: Yes, hi, where are you sending out renewals for August and what are you getting for those and how does that compare to last year?
Linda Tsai: and historically.
Linda Tsai: So for both August and September we're getting in the four to four and a half percent range. We sent out around four and
Linda Tsai: Depending on who accepts and what lease term, that's how you can get a variance there. So I think this time last year it was somewhere around 4.5 to 5, so we're a little bit shy of that. But expect to be in that 4 to 4.5 range for a period of time.
Linda Tsai: So we're a little bit shy of that, but expect to be in that four and four and a half range for a period of time. And then, with rent-to-income dropping to 21%, do you track how much the average incomes of your residents have increased over the past few years? Yeah, we do.
Speaker Change: And then with rent-to-income dropping to 21%, do you track how much average incomes of your residents have increased over the past few years?
Timothy Argo: It is so right now in Q2, we're about 91,000 or so. The average income that was, if I go back to the beginning of kind of right at the beginning of COVID in early 2020, was about 75,000. So it has trended up quite a bit and generally followed rent growth pretty well. Because, as we said, that rent to income ratio has been between call it 20 and 23% for, you know, for the last four or five years, and it's pretty consistent across the market. I think our highest is 24%, and our lowest is 19%. So it's pretty consistent across markets as well. Thanks.
Timothy Argo: Yeah, we do. It is, so right now in Q2, we're about $91,000 or so is the average income.
Speaker Change: This concludes today's program. Thank you for your participation. You may disconnect at any time.