Q4 2024 Centerspace Earnings Call
Unknown Executive, Josh Klaetsch
Unknown Executive, Josh Klaetsch
Ezra: Hello everyone and welcome to the Centerspace Q4 2024 Earnings School. My name is Ezra and I will be your coordinator today. If you would like to ask a question please press star followed by one on your telephone keypad. If you change your mind please press star followed by two.
Speaker Change: I will now hand you over to Josh Klaetsch from Centrespace to begin. Josh, please go ahead.
Unknown Executive, Josh Klaetsch
Josh Klaetsch: Good morning. Center Space's Form 10-K for the year ended December 31st, 2024, was filed with the SEC yesterday after the market closed. Additionally, our earnings release and supplemental disclosure package have been hosted to our website at centerspacehomes.com and filed on Form 8-K.
Speaker Change: It's important to note that today's remarks will include statements about our business outlook and other forward-looking statements that are based on management's current views and assumptions.
Speaker Change: These statements are subject to risks and uncertainties discussed in our filing under the section titled Risk Factors and in other filings with the FDC.
Speaker Change: We cannot guarantee that any forward-looking statements will materialize, and you're cautioned not to place undue reliance on these forward-looking statements.
Speaker Change: Please refer to our earnings release for reconciliations of any non-GAAP information, which may be discussed on today's call.
Speaker Change: I'll now turn it over to CenterSpace's President and CEO, Anne Olson, for the company's prepared remarks.
Anne Olson: Good morning, everyone, and thank you for joining CenterSpace's fourth quarter earnings call. With me this morning are Bhairav Patel, our Chief Financial Officer, and Grant Campbell, SVP of Investments and Capital Markets. Before taking your questions, we will briefly cover our 2024 results and discuss our outlook for 2025.
Anne Olson: 2024 was a year of positive platform execution that produced opportunities for strong advancement of our company's financial and market position.
Anne Olson: Our teams did the work to drive stable revenue growth, strong occupancy, and were diligent on expense control while facing the headwinds of supply and market uncertainty.
Anne Olson: During the year, we delivered $4.88 of core FFO per share, driven by sector-leading SAMHSA ROI growth.
Anne Olson: We were able to expand our portfolio in Denver where we purchased the Lydian. We continue to simplify our balance sheet with the redemption of our Series C preferred shares while also improving our leverage profile and float via issuance on the ATM.
Anne Olson: The strong fundamentals of our community were proven, giving us positive blended leasing spreads in every quarter while also ending the year at one of our highest Q4 occupancies.
Anne Olson: We did all this while advancing our mantra of better every day.
Anne Olson: Our team members set a company record, volunteering over 2,700 hours in the communities we serve.
Anne Olson: We increased our aggregate online review scores by 3.5% over the past year.
Anne Olson: had a 16% increase in five-star reviews online and showed improvement in every key metric of our resident satisfaction survey, including a 5.3% increase in overall satisfaction, which contributed to our outstanding same-store resident retention rate of 56.6% for the year.
Anne Olson: We also brought home six industry awards for individual and company performance and were named the Minneapolis Star Tribune Great Workplace for the fifth consecutive year. I'm incredibly grateful to our wonderful team for their commitment, passion, and consistently high standard of performance.
Anne Olson: These excellent results have led to an increase in our distributable cash flow, and I'm proud to share that our Board of Trustees has recognized what we've achieved on this front by announcing an increase to our quarterly dividend to $0.77 per share.
Anne Olson: As we think about our strategic direction for 2025, we will remain vigilant about our cost of capital while leveraging the strong position of our current portfolio. Depending on where capital markets move, this could take different forms, and with that in mind, I'll highlight different paths we've taken and are ready to pursue again as opportunities arise.
Anne Olson: In late 2023, we purchased Lake Vista in Fort Collins, funding the purchase with the disposition of several communities in North Dakota and Minneapolis, which improved our portfolio's operational efficiency and margins while maintaining after-capex cash flow.
Anne Olson: After buying back nearly $10 million in shares, we later issued stock under our ATM, raising $114 million and using the proceeds to both simplify and strengthen our balance sheet.
Anne Olson: We also successfully executed on the acquisition of the Lydian in Denver in an off-market Transaction using both OP units issued at a premium to our current stock price and the assumption of attractive debt
Anne Olson: The toolbox we have to improve the position of the company and pursue growth is full and varied, and our team has demonstrated execution when opportunities arise.
Anne Olson: As we sit today, we feel these recent moves leave us well-positioned to advance our vision to be a premier provider of apartment homes in vibrant communities across the Mid and Mountain West and to drive consistent earnings growth for our investors.
Speaker Change: Graham will give some insight into the transaction market and Bhairav will discuss our quarterly results and details of 2025 guidance, but I want to provide an overview of leasing trends.
Speaker Change: For the fourth quarter, same store revenues increased 3.1% over the same period in 2023, bringing full year 2024 same store growth to 3.3%.
Speaker Change: During the quarter, same-store new lease tradeouts were down 3.3%, while renewals were up 3.2%, leading to positive blended leasing spreads of 45 basis points.
Speaker Change: Importantly, we achieved these results while also increasing occupancy to 95.5%, which is a 70 basis point improvement over the same period last year.
Speaker Change: Our footprint, differentiated from other offerings in the public multifamily space, is worthy of attention.
Speaker Change: Our 2024 results demonstrate the consistency and appeal of the Midwest market.
Speaker Change: The majority of our markets experience lower supply, leading to more stable fundamentals. We have excellent resident health, evidenced by lower-than-national-average rent-to-income ratios and low bad debt, and our markets both healthy regional economies.
Speaker Change: North Dakota communities continue to lead the portfolio, with blended spreads of 4.4%, while our Nebraska and Rochester communities also saw strong blended growth at 2.5% and 2.3% respectively.
Speaker Change: I'll also highlight our markets where we have experienced supply pressure. In Minneapolis, blended spreads were up marginally, while in Denver they were down 140 basis points.
Speaker Change: Continued strong absorption in these markets is expected to be a tailwind to our portfolio results, and we believe that this portfolio will produce strong results again in 2025.
Brandt: Brandt will now share an overview of the state of the market and how it plays into our continued growth.
Thanks, Anne, and good morning, everyone.
Brandt: Within the investment landscape, we expect apartment demand and economic growth to remain resilient in 2025. When coupled with the downward trend of new supply additions this year, it bodes well for continued strengthening of underlying fundamentals.
Brandt: In our two largest markets of Minneapolis and Denver, we are past peak deliveries, so recent supply impacts will affect the cadence of absorption and forecasted rent growth this year.
Brandt: In Minneapolis, deliveries peaked earlier when compared to Denver, where high-water mark deliveries were concentrated in the second half of 2024.
Brandt: Given this, we expect to see relative fundamentals improvement sooner in Minneapolis, with Denver positioning itself for more defined tailwinds in 2026.
Brandt: In both Minneapolis and Denver, next 12-month deliveries are forecasted at 1.4% and 2.5% of existing apartment stock, respectively, further highlighting the tapering supply profile.
Brandt: Transaction volumes in our markets improved in 2024, though remain below 2021 and 2022 levels.
Brandt: There is a lot of capital looking for multifamily investments right now, however, real-time transaction velocity is muted, driven by continued interest rate volatility and the bid-ask spread.
Brandt: For instance, recent Mountain West core asset sales that priced at mid to high 4% cap rates inform asset owners' perspective and, coupled with their belief in improving fundamentals over the coming 12 to 18 months, lead to a general lack of real-time transaction velocity.
Brandt: On the capital allocation front, we will remain focused this year on enhancing our differentiated Mountain West and Midwest geography.
Brandt: We continue evaluating a variety of new investment possibilities to grow the company and advance our strategic plan while being mindful of our cost of capital.
Brandt: This could include potential operating partnership unit transactions, acquisitions where we can obtain attractive financing, and mezzanine lending pursuits.
All areas where we have recently been active.
Brandt: Regarding mezzanine capital funding, we have one small funding outstanding today on a new construction community in Minneapolis. That project remains on track, both from a timeline and budget perspective.
Brandt: And with that, I'll turn it over to Bhairav to discuss our overall financial results for 2024 and outlook for 2025.
Bhairav Patel: Thanks, Grant, and good morning, everyone. Last night, we reported core FFO $1.21 per diluted share for the fourth quarter, driven by a 2.1% year-over-year increase in same-store NY.
Bhairav Patel: Revenues from same-store communities increased by 3.1% compared to the same quarter of 2023.
driven by a 2.3% increase in revenue for occupied homes.
Bhairav Patel: and a 70 basis point year-over-year increase in weighted average occupancy, which stood at 95.5% for the quarter.
Bhairav Patel: Shame store expenses were up by 4.6% year-over-year driven by higher controllable expenses with repairs and maintenance as the largest driver of the increase.
Bhairav Patel: Conversely, non-controllable expenses were down 350 basis points driven in particular by real estate tax refunds received during the quarter.
Bhairav Patel: Turning to guidance, we introduced our 2025 expectations in last night's press release.
Bhairav Patel: For the year, we expect core FFO of $4.98 at the midpoint, which would be roughly 2% growth over 2024's final results and $0.18 or 3.75% ahead of our initial guidance for last year.
Bhairav Patel: Guidance assumes that at their midpoint, same-store net operating income grows by 2.25 percent, same-store revenue grows by 2.5 percent, and same-store expenses grow by 3 percent.
Bhairav Patel: Revenue growth assumes blended leasing spreads of 2.4% and holding occupancy of 2024 levels.
Bhairav Patel: Within expenses, controllable expenses are expected to increase by 2% at the midpoint, while non-controllable expenses increase by 4.5% as we are comparing to a 2024 where real estate taxes had several one-time benefits from refunds.
Bhairav Patel: The anticipated expense growth will be curtailed due to the benefits of centralization initiatives rolled out in 2024 as well as a favorable insurance renewal that saw our premiums go down by approximately 12% or almost $900,000.
Bhairav Patel: On other components of guidance, we expect G&A and property management expenses for the year to range between $27.9 and $28.4 million, and interest expense to range between $38.8 to $39.4 million.
Bhairav Patel: The year-over-year interest expense increase is primarily driven by the debt assumed in conjunction with the Lydian acquisition.
Bhairav Patel: On capital expenditures, we expect value-add expenditures of $16 to $18 million for the year, while we expect recurring CapEx for home to average $1,150 per unit.
Bhairav Patel: Our rally at spending has tapered year over year due to the recently softer market rents coupled with a higher cost of capital. No additional acquisitions, dispositions, issuances, or borrowings are factored into our guidance.
Bhairav Patel: Please note that in 2025 our same store pool will exclude two communities, the Lydian which we acquired in 2024 and the Bosque, a community which is undergoing a full-scale repositioning and has previously been known as Woodland Point.
Bhairav Patel: On the capital front, I'll reiterate our progress from 2024. We sold nearly 1.6 million shares under the ATM program, raising gross proceeds of nearly $114 million, retired the series C preferred, and improved our net debt plus preferred leverage profile by half return.
Bhairav Patel: To conclude, it was a very active and productive year across the board. We achieved strong operating results, strengthened our balance sheet, simplified our capital structure, and expanded our portfolio in one of our desired markets.
Bhairav Patel: We look forward to building upon these results in 2025. And with that, I will turn the line back to the operator for your questions.
Unknown Executive, Josh Klaetsch
Speaker Change: Thank you very much. We will now open the floor for the Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad now.
Bhairav Patel: Please ensure your device is unmuted locally. If you change your mind or your question has already been answered, please press star followed by two.
Speaker Change: Our first question comes from Brad Heffern with RBC Capital. Brad your line is now open, please go ahead.
Speaker Change: Hey, morning, everybody. Just starting with your top two markets, at least in the market data that we see, Minneapolis has been improving in recent months. Denver seems to be weakening, if anything. Does that align with what you're seeing in your portfolio? And can you just sort of compare and contrast the fundamental market drivers there? Unknown Speaker
Yeah, good morning, Brad, and thanks for the question.
Speaker Change: It does align with what we're seeing, you know, supply pressure has eased in Minneapolis earlier than Denver. Both markets have had very strong absorption.
Speaker Change: So while our new lease rates have been, you know, less there than in our other markets where we didn't see supply, they are turning the corner. And I would also point out that we've been able to hold occupancy in those markets and even drive occupancy up a little bit. So, you know, our projects are all stabilized and most aren't competing.
Speaker Change: with the brand new projects coming online. But there is the downstream ripple effect. I think what you indicated does align well, a little bit softer in Denver than Minneapolis, but both have good prospects for 2025 and 2026, given the supply pipeline diminishing.
Speaker Change: Okay, got it. And then maybe just for the rest of the markets that are harder for us to track, can you just give your expectations for 25 performance of those and maybe any that stand out one way or the other?
Unknown Executive, Josh Klaetsch
Speaker Change: Morning, Brett. Yes, with the rest of the markets, 2025 looks.
Speaker Change: a lot more like 2024 where we don't really see a lot of supply coming online in our smaller markets. So
The expect.
Speaker Change: blended spreads over there to be pretty healthy as we wait for especially Denver to kind of turn the corner, as Anne said. And Minneapolis, as you said, is kind of on its way back to normalization.
Unknown Executive, Josh Klaetsch
Speaker Change: Our next question comes from John Kim with BMO. John, your line is now open. Please go ahead.
John Kim: Thank you. On the guidance this year, you mentioned, Bhairav, 2.4% blended.
John Kim: Can you just break that down between new and renewal, and also when you look at it versus 2024 that doesn't seem to be that much improvement. And I'm wondering if you can comment on that.
Bhairav Patel: Good morning, John. Yes, in terms of the blended spreads of 2.4%, we expect renewals.
John Kim: to lead new lease spreads as we expect to kind of digest supply in some of the larger markets especially. So we would say at this point we look at renewals at about 3% with new leases at around you know high 1% to 2% range.
in terms of, you know, comparison versus 2024.
John Kim: You know, I think the small markets are going to be roughly in line with 2024 or so.
John Kim: But we'll see as leasing season kind of comes in, you know, what the initial trends look like. So for now, we're forecasting pretty normalized growth that we saw the pre-pandemic.
Unknown Executive, Josh Klaetsch
Speaker Change: Yeah, I was just wondering, because you're starting off at a higher occupancy point than you were last year. You mentioned that retention rates are higher as well. So the ability to push renewals, it seems like would have been more prevalent this year than last year. But
Speaker Change: I'm just wondering how much conservatism is baked in in this in this guidance
Speaker Change: Yeah, John, there is some conservatism, I'd say, with respect to renewal rates, that high retention rate, you know, that's really a high watermark. And we're really trying to weigh out, you know, if you go back, you know, three, four years, those retention rates were really hanging around 50%.
Speaker Change: So I'd say, you know, if in fact we do achieve very high retention again in 2025, there is some room, you know, for betterment and particularly to push on the push on the renewal rate.
Speaker Change: But, you know, a lot remains to be seen there, particularly with will the single-family housing market rebound? Where are interest rates going? How long will, you know, the average age of our resident is increasing, the average tenure is increasing. So, you know, we think that trend will continue.
Speaker Change: We don't know where it will taper off. So our assumptions in the guidance for retention aren't quite to where we hit in 2024.
Speaker Change: Okay, and then my next question is on acquisition and disposition activity expect this year. The grant mentioned cap rates in the mid to high 4% range in Mountain West. Is that prevalent in markets that you're looking at today? And what's your appetite to acquire with initial negative leverage?
Unknown Executive, Josh Klaetsch
John Kim: Yeah, good morning, John. So, as you alluded to, and as mentioned, there are trades for well-located core assets pricing in that, you know, kind of mid to high four range.
However, we are very mindful of our cost of capital.
John Kim: positive leverage, I'll say that could come in a number of different respects. It could be acquisitions where we could obtain some attractive financing.
John Kim: could be OP unit transactions where there's a little bit more.
John Kim: structural creativity that can be employed. Generally speaking, we're not going through, you know, three rounds of bidding on a marketed process to buy a mid four cap deal that doesn't include some of those other things that I alluded to.
And do you expect to be net acquirers this year?
Unknown Executive, Josh Klaetsch
John Kim: We hope so. I mean, you know, we really do appreciate that scale is something that we need for the company. And that comes from external growth. So, but, you know, we are we're committed to continuing to enhance the portfolio overall. So if acquisition opportunities come to us that require capital recycling, you know, we we've shown that we've been able to do that.
John Kim: Keeping it AFFO positive, you know, I'm on the cash flow line. So we will continue to employ that but we would like to be met acquirers.
Thank you.
Unknown Executive, Josh Klaetsch
Unknown Executive, Josh Klaetsch
John Kim: Our next question comes from Rob Stephenson. Rob, your line is now open. Please go ahead.
Rob Stephenson: Good morning, guys. Bhairav, what is the key factor or factors that drive the same-sore expense guidance towards the 2% end versus the 4% end in the guidance range?
Morning, Rob. With respect to expenses, there's a couple of.
Initiatives.
Rob Stephenson: You know that we are hoping benefit us on a year-to-year basis one of them being the centralization
Rob Stephenson: effort that we expect will benefit us to the tune of about half a million dollars, which is keeping the expenses lower. The other component is insurance costs, as I mentioned in my prepared remarks.
Rob Stephenson: We had a really favorable renewal after a couple of years of, you know, almost 20% growth, so we saved $900,000 on premiums alone. So those are the two components that really keep expenses on the low end.
Speaker Change: Okay, that's helpful. And then the same store recurring CapEx per home guidance is up about 11% at the midpoint of your 25 guidance. Is this increase just inflationary or is the scope of the 25 projects meaningfully greater than the 24 ones to drive that big of an increase?
Speaker Change: Yeah, so, you know, with respect to the year-over-year increase, that's really being driven by timing of projects.
Speaker Change: Where what we reported for 2024 is below what the midpoint was for our guidance for 2024. So we push some projects into 2025. So the year over year increase is really driven by timing, not really a scope of projects on an annual basis, but just when we were able to kind of wrap up some of those projects, it was in the first quarter of this year.
Speaker Change: Okay. And then last one for me, Anne, how different is the retention rate by markets, especially, you know, Minneapolis and Denver, I guess, your more institutional markets versus some of the smaller markets?
Speaker Change: and, you know, how is that impacting, you know, the, when you look at it, the market in terms of rental rate growth expectations for 25 here.
Speaker Change: Yeah, we've seen a lot more stability and higher retention in the smaller markets or the tertiary markets and that you can see that in those rates where we're able to push renewals higher and get some pricing power on new leasing and also just their occupancy.
Speaker Change: In Denver and Minneapolis, where there has been more supply, there's more choice.
I'd say, you know, our high supply.
Unknown Executive, Josh Klaetsch
Speaker Change: And then, you know, that's that's offset by markets like buildings in Rapid City where we have, you know, several communities where we have very, very high, high retention rates.
Speaker Change: But yeah, in the market where there has been more supply, we just we do see lower retention rates and that is being offset by higher retention in the smaller market.
Speaker Change: Okay, and then I guess the last one for me is in terms of non-rent revenue, the fees and all the other sort of associated stuff, how fast is that growing on an annual basis for you guys versus sort of the core rental rate and is that sort of a positive boost or a drag to overall rent revenue growth?
Speaker Change: So yeah, with respect to 2025, it's going to grow in our expectation in line with the rest of the rental revenue items.
Speaker Change: For the last couple of years, as you may have noted, we rolled out the RUPS program, so there was some noise just due to the rollout of the RUPS program. So going forward, we are looking at it on a normalized basis, and it is growing in line with other rental revenue.
Speaker Change: Okay, that's very helpful. Thanks, guys. Appreciate the time this morning.
Speaker Change: Our next question comes from Rich Anderson with Wedbush. Rich, your line is now open, please go ahead.
Okay, thanks and good morning.
Speaker Change: The path to get to a more optimal sort of balance in your portfolio, I know we've talked about, you know, maybe 18 to 24 months.
Speaker Change: to sort of get to a 75-25-ish type split between institutional and secondary. Correct me if I'm wrong on that. Is it fair to say that that appears as that's going to be extended significantly more?
Speaker Change: further out than, you know, 18 or 24 months, just because of how the markets are behaving. And, you know, what should our expectations be about, you know, the path, the timeline path to get to something that is more in line with what you're thinking long term.
Speaker Change: Yeah, thanks, Rich, for joining us and appreciate the question. I think you're hitting the nail on the head. We need transaction volume and opportunities. You know, we need sellers in order to be a buyer. And while we have the desire, and I believe we have the platform to execute quickly on opportunities, particularly creative opportunities, that will advance
Our portfolio strategy.
Speaker Change: The lack of transaction volume over the past couple years has been an issue. Now that being said, we have been adding, you know, we added in Fort Collins, we've added in Denver. And we've also changed that mix a little bit by trimming some of those smaller markets. So we disposed in North Dakota, we've trimmed
Speaker Change: Minneapolis just slightly. So, you know, we're going to continue to work on that portfolio strategy. But, you know, timeline may be a little bit longer. But as I indicated in our remarks,
Speaker Change: Our goal is to be nimble and ready, and we feel like, particularly in 2024, we prove that the platform is ready to take advantage when those opportunities come, and we're going to continue mining them wherever we can.
Speaker Change: Okay, and on the topic of sort of trading, you know, perhaps older or newer, are you willing and if you think about the capex load that might be involved in an older asset versus a newer asset, are you willing to allow for some FFO dilution in this process?
Speaker Change: If at the AFFO line, it's more of a wash, is that a reasonable way to think about how this could happen in the short term?
Speaker Change: It is, and we have, you know, used that exact math to make sure that we aren't diluting the actual, you know, cash flow of the company. So, you know, we have acquired projects and recycled capital where we think it's, you know, net neutral to the cash flow line, but maybe slightly dilutive on earnings.
Speaker Change: We're doing that with real, only in instances where we have real conviction that the growth profile of what we're acquiring is, you know, significantly stronger than what we're disposing of. So not only, not only that CapEx, you know, is lower of those newer assets, but also the growth profile of the rents is higher.
Speaker Change: Is there any quantifying ability of the pipeline right now or is it just so quiet that you really can't form a number at this point?
Unknown Executive, Josh Klaetsch
Speaker Change: Yeah, I mean, I think it would be difficult to speculate, but, you know, I mean, the pipeline probably has
Speaker Change: Generally, I would say half a billion of things that are interesting to us that we're we take on to, you know, that we're working on in some form to get past initial
and Bhairav Patel, Unknown Executive, Josh Klaetsch.
Unknown Speaker seems academically reasonable.
Speaker Change: What is needed there for that to occur is stabilization in interest rates and reduce volatility, which then begs the question, what is the definition of stabilization? Is that 60 days? Is that six months? And
Speaker Change: You know, everyone, including asset owners and potential sellers, have a view there.
Speaker Change: And for instance, in Denver that does inform asset owners' perspective on pricing. So the bid ask spread is real.
Speaker Change: The reduction in interest rate volatility as needed and unless you're a forced seller right. Now are you coming to the end of perhaps the closed end fund.
Speaker Change: There isn't a lot of motivation broadly speaking for groups to transact, where the bulk of the market wants to be from a pricing perspective.
Speaker Change: Okay, great great. Thanks, very much.
Speaker Change: Thank you just as a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad now.
Speaker Change: Our next question comes from Michael Gorman with <unk>.
Speaker Change: <unk> Michael Your line is now open. Please go ahead.
Speaker Change: Uh huh.
Speaker Change: Yeah. Thanks, Good morning, maybe just sticking with the acquisition environment for a moment can you maybe share what are your thoughts on what could.
Speaker Change: Bringing that bid ask spread together right I understand some stability in the interest rates, but that wouldn't necessarily collapsed the spread we're on the tail end of a supply shock moving towards stronger fundamentals I'm. Just wondering what you think is in the pipe for a catalyst to bring them together.
Speaker Change: And do you think the market is going to trend towards the ask or towards where the bid is right now as the market strengthens and maybe more institutional capital comes back into the apartment space.
Speaker Change: Yes, not to sound like a broken record but.
Speaker Change: Want to know what the inputs are quote unquote and if the broader market.
Speaker Change: Settles on interest rates are generally going to be within the band. It allows people to make yes, no decisions versus somewhat being <unk>.
Paralyzed or uncertain on.
Speaker Change: No activity I E. We'll wait to see where the landscape is in 30 to 60 to 90 days. So I do think it's heavily driven around that interest rate volatility. There is a lot of capital seeking multifamily right now that.
Speaker Change: That capital will continue to be aggressive.
Speaker Change: So I think market dependent if youre talking about some of our other Midwest markets.
Speaker Change: That higher profile generally.
Speaker Change: Levered buyer.
Speaker Change: I certainly want neutral to positive leverage.
Speaker Change: So that is going to move.
Speaker Change: More so the way of the bid I would say and in some of these larger institutional markets its going to be a hybrid of.
Speaker Change: Capital continuing to find ways to get aggressive to meet the App. It's also going to be sellers, saying, we feel like volatility has subsided. It says the pricing landscape, we can make a sale decision with conviction and now we're selling at a market price.
Speaker Change: And Michael one other thing to consider about the inputs going in it and you mentioned coming to the end of the supply kind of a large supply wave is.
Speaker Change: If people really start to get constructive about where they think rents are going to go given a lack of new starts that is also an input that could move that can move the pricing towards the app.
Speaker Change: People really started at underwriting aggressive aggressive rent growth.
Speaker Change: Again, that's another input that but I think in 2025 could could change the dynamic of.
Speaker Change: Think most owners and operators, we feel like the fundamentals are really good for some stability and growth, particularly across our portfolio. Hopefully you can see that in our guidance.
Speaker Change: But I think if we start seeing rents really rising in some of those markets where supply has passed peak and there are known to start.
Speaker Change: Some of the buyer could could use that as a reason to get aggressive.
Speaker Change: Yeah.
Speaker Change: That's helpful. Thanks, and then maybe and just in terms of the pipeline that you talked about being smaller than historically typical when you think about looking at the opportunity set in front of you.
Speaker Change: Yes.
Speaker Change: Have the reasons changed for opportunities falling out of that pipeline Ie is.
Speaker Change: Is pricing driving more of those opportunities out of the pipeline.
Speaker Change: Or are you.
Speaker Change: Maybe able to find more of those unique opportunities starting to come to market.
Speaker Change: I think first we're really focused on the unique opportunity. So when I talk about the pipeline I am talking about kind of a traditional pipeline when we're going to buy a community or maybe two communities.
Speaker Change: We're really focused on looking at things that might be more strategic those O. P unit deal maybe portfolio deal because the reason everything is falling out of the pipeline is pricing.
Speaker Change: You used to have a lot of.
Speaker Change: There'd be 25 things in the market in Denver, and we chase the five that we like the balance we felt like we could be a little bit picky.
Speaker Change: Something for everyone, everyone could be a buyer in the.
Speaker Change: <unk> 2021 2022 market and now there's only one winner usually maybe one winter months.
Speaker Change: Because trades are so low so the reason things are coming out of the pipeline really is pricing and uncertainty around what the inputs might be and so our focus really is on building a larger strategic pipeline of larger scale portfolio.
Speaker Change: Potential large deals and we have been able to execute on a few of those.
Speaker Change: Both in scale and on a one off basis. So we're spending quite a bit of time there.
Speaker Change: Great. Thank you.
Speaker Change: Our next question comes from Nathan <unk> with Baird May send your line is now open. Please go ahead.
Speaker Change: Hey, good morning, everyone just going back to the rate goes assumptions are 2025, I guess, how do you expect this to kind of throughout the year.
Speaker Change: Second half expected to be better than the first or should that stay relatively steady throughout the year.
Speaker Change: And was that with respect to Im sorry Nathan.
Speaker Change: At the beginning of your question cut out a little bit with respect to the renewal rate or leasing rate assumptions.
Speaker Change: Yes, the renewal and new I mean, I guess, it's blended I guess, how is that supposed to trend throughout the year.
Speaker Change: Okay great.
Jason: Good morning, Jason.
Jason: We would say that to lead the year as we go through the first half.
Jason: Renewals will lead new leasing spreads.
Jason: And we believe in the second half, we regain some pricing power, especially in the larger markets, where we can see them balance off for the second half of the year, but at least in the initial part of the year as we enter a leasing season, we expect our renewals will lead the new lease spreads, especially in the first half of the leasing season.
Jason: Yeah.
Speaker Change: Great and then can you give any updates on that.
Jason: Don I guess, what assumptions do you have for this to be a trade off.
Speaker Change: Yes, good morning, Nathan that project remains on budget and on track both from a financial perspective, and a timeline perspective.
Speaker Change: First phases of that construction have been turned over to the developer that will continue to happen here as we move through the next one to two quarters, we expect that community to stabilize mid year 2026, along the way, we'll continue our dialogue with the development partner.
Speaker Change: And if everything goes according to plan, we would execute a potential purchase of that community in the middle of 2026.
Speaker Change: Great. Thanks for the time everyone.
Speaker Change: Thanks Nathan.
Speaker Change: Thank you very much we currently have no more questions.
Speaker Change: I'll hand back over to <unk> for any closing remarks.
Speaker Change: Well. Thank you all for joining US today, we are live coming to you live from Denver, where we are at our leadership conference, though I'd be remiss if I didn't indicate.
Speaker Change: Indicate how grateful we are for all the hard work of our team we're going to spend the next few days getting everyone prepared to execute on our expectations for 2025 and look forward to talking to you all next quarter.
Speaker Change: Thank you very much and thank you to all the speakers on today's line that concludes today's conference call. You may now disconnect your lines.
Speaker Change: [music].