Q1 2025 Centerspace Earnings Call
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Unknown Executive: Good afternoon, and thank you for attending today's Center Space First Quarter 2025. Ernie's Call.
Speaker Change: Good afternoon, and thank you for attending today's center space first quarter 'twenty 'twenty five.
Jasmine: My name is Jasmine and I'll be your moderator today. All lines will be muted. During the presentation portion of the call, there's an opportunity for questions and answers at the end.
Jasmine: Earnings call. My name is Jasmine and I'll be your moderator today all of us would be muted during the presentation portion of the call what's the opportunity for questions and answers at the end if.
Unknown Executive: If you would like to ask a question, press star one on your telephone keypad.
Jasmine: If you would like to ask a question press star one of your telephone keypad.
Joshua Klaetsch: I would now like to pass the conference over to your host, Josh Klaetsch with Century Space. You may now proceed.
Speaker Change: I would now like to pass the call first over to your host Josh clash with sectors base.
Jasmine: You May now proceed.
Jasmine: Good afternoon, Dennis basis Form 10-Q for the quarter ended March 31, 2025 was filed with the SEC yesterday after the market closed.
Unknown Executive: Center Spaces Form 10-Q for the quarter ended March 31, 2025, was filed with the SEC yesterday after the market closed. Additionally, our earnings release and supplemental disclosure package, as well as an updated investor presentation, have been posted to our website at centerspacehomes.com and filed on Form 8K. 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. These statements are subject to risks and uncertainties discussed in our filing under the section titled risk factors and in our other filings with the SEC.
Jasmine: Our earnings release, and supplemental disclosure package as well as an updated investor presentation have been posted to our website at Dennis based on Dot Com and filed on form 8-K.
Jasmine: It's important to note that today's remarks may include statements about our business outlook and other forward looking statements that are based on management's current views and assumptions.
Jasmine: These statements are subject to risks and uncertainties discussed in our filing under the section titled risk factors.
Jasmine: And in our other filings with the SEC.
Unknown Executive: We cannot guarantee that any forward-looking statements will materialize, and you are cautioned not to place undue reliance on these forward-looking statements.
Jasmine: We cannot guarantee that any forward looking statements will materialize and you are cautioned not to place undue reliance on these forward looking statements.
Unknown Executive: Please refer to our earnings release for reconciliations of any non-GAAP information, which may be discussed on today's call.
Jasmine: Please refer to our earnings release for reconciliations of any non-GAAP information, which may be discussed on today's call.
Anne Olson: I'll now turn it over to Center Space's President and CEO, Anne Olson, for the company's prepared remarks.
Jasmine: I'll now turn it over to center space as President and CEO animals for the company's prepared remarks.
Anne Olson: Hello, everyone, and thank you for joining us.
Jasmine: Hello, everyone and thank you for joining US with me today are Brian Patel, Our Chief Financial Officer, and Graham Campbell SVP of investments in capital markets. It is Friday, and I know, you're all anxious to ask those questions about what our plans are for the weekend, but first we'd like to provide some brief highlights for the quarter.
Anne Olson: With me today are Bhairav Patel, our Chief Financial Officer, and Grant Campbell, SVP of Investments and Capital Markets. It is Friday, and I know you are all anxious to ask us questions about what our plans are for the weekend.
Anne Olson: But first, we'd like to provide some brief highlights for the quarter. Our first quarter demonstrated our team's ability to drive exceptional results with strong occupancy and expense control, bolstering our performance and setting us up well for the remainder of 2025. Multifamily fundamentals are strong with sustained demand driving net absorption across the For us, strong demand translated into our results in several ways, most notably the 120 basis point year over year improvement in our weighted average occupancy for our same store portfolio. As we said today, our average physical occupancy is 96% with April renewal retention coming in around 57%.
Jasmine: Our first quarter demonstrated our team's ability to drive exceptional results with strong occupancy and expense control bolstering our performance and setting us up well for the remainder of 2025.
Jasmine: Multifamily fundamentals are strong with sustained demand driving net absorption across the industry.
Jasmine: For us strong demand translated into our results in several ways.
Jasmine: Notably the 120 basis point year over year improvement in our weighted average occupancy for our same store portfolio.
Jasmine: As we sit today, our average physical occupancy is 96% with April renewal retention coming in around 57% our blended leasing spreads shown on page eight of the Investor presentation filed in connection with our earnings release and supplemental we're up 70 basis points in the first quarter and the positive trend continued into April renewal incur.
Anne Olson: Our blended leasing spreads shown on page 8 of the investor presentation filed in connection with our earnings release and supplemental were up 70 basis points in the first quarter and the positive trend continued into April. Renewal increases have remained steady at a high 2 to mid 3% level, while new lease spreads are improving. After being down 3.5% in Q4 2024, they increased sequentially to negative 1.1% in Q1 and in April they moved to a positive 2.4%. Resident health remains strong, with growth in income levels keeping the rent to income ratio at 21.6%. Bad debt remains in line with expectations at roughly 40 basis points, while low unemployment rates and healthy regional economies point to the continuation of this trend.
Jasmine: Those have remained steady at a high two to mid 3% level, while new lease spreads are improving after being down three 5% in Q4 2024, the increase sequentially to negative one 1% in Q1 and in April they move to a positive two 4%.
Jasmine: Resident health remains strong with growth in income levels, keeping the rent to income ratio at 21, 6%.
Jasmine: Bad debt remains in line with expectations at roughly 40 basis points, while low unemployment rates and healthy regional economies point to the continuation of this trend.
Anne Olson: Much of our footprint with its differentiated focus on Midwest and Mountain West regions of the country continues to benefit from a lack of new supply. Notably, North Dakota is again leading our portfolio with blended leasing spreads of 5.3% year to date, and Omaha has delivered similarly positive results. In our largest market of Minneapolis, leasing spreads are coming in ahead of our portfolio average, and while we are still seeing the impact of supply pressure in Denver, we're optimistic that the demand trend is strong enough to improve new lease rates as the year progresses.
Jasmine: Much of our footprint with its differentiated focus on Midwest and mountain West regions of the country continues to benefit from a lack of new supply.
Jasmine: Notably North Dakota is again meeting our portfolio with blended leasing spreads of five 3% year to date and Omaha has delivered similarly positive results.
Jasmine: In our largest market of Minneapolis leasing spreads are coming in ahead of our portfolio average and while we are still seeing the impact of supply pressure in Denver, we're optimistic that the demand trend is strong enough to improve new lease rates as the year progresses.
Anne Olson: We feel great about the first quarter, even if it was uneventful. When considering the macroeconomic environment and its impact on our results and strategic direction, we are reaffirming our guidance for the full year. We're going to maintain discipline on all areas within our control and be ready to take advantage of opportunities to advance our platform.
Speaker Change: We feel great about the first quarter, even if it was uneventful when considering the macroeconomic environment and its impact on our results and strategic direction. We are reaffirming our guidance for the full year, we're going to maintain discipline on all areas within our control and be ready to take advantage of opportunities to advance our platform Grant will now share an overview of the state of.
Grant Campbell: Grant will now share an overview of the state of the market and how it plays into our continued growth.
Grant: The market and how it plays into our continued growth.
Grant Campbell: Thanks, Anne, and good afternoon, everyone. Within the investment landscape, we are seeing apartment demand remain resilient, while new supply additions continue on a downward trend. As we look forward to the next 12 months, we expect only a 2.2% expansion of apartment stock in our market. This is down from a 3.8% increase over the prior year and compares favorably to historical absorption levels. We anticipate this dynamic will continue to shift in our favor. Recent macroeconomic events have brought real-time volatility to capital markets, though the amount of capital desiring to be in the multifamily space remains high, driven by forecasts for near-term strengthening of underlying rent growth and the long-term durability of the asset class.
Grant: Thanks, Dan and good afternoon, everyone within the investment landscape, we are seeing apartment demand remained resilient, while new supply additions continue on a downward trend.
Grant: As we look forward to the next 12 months, we expect only a two 2% expansion of apartment stock in our markets. This.
This is down from a three 8% increase over the prior year and compares favorably to historical absorption levels.
Grant: We anticipate this dynamic will continue to shift in our favor.
Grant: Recent macroeconomic events have brought real time volatility to capital markets. So the amount of capital desiring to be in the multifamily space remains high driven by forecast for near term strengthening of underlying rent growth and the long term durability of the asset class.
Grant Campbell: This continues to bolster pricing on most transactions, even in an environment where broader uncertainties persist. In Colorado and Minneapolis, where 59% of our NOI is generated, institutional quality assets are pricing at mid to high 4% and low 5% cap rates respectively. This represents favorable private market pricing compared to that implied by our stock.
Grant: This continues to bolster pricing on most transactions, even in an environment, where broader uncertainties persist.
Grant: In Colorado, and Minneapolis were 59% of our NOI is generated institutional quality assets are pricing at mid to high 4% and low 5% cap rates respectively.
Grant: This represents favorable private market pricing compared to that implied by our stock price.
Grant Campbell: On the capital allocation front, we will remain focused this year on enhancing our differentiated Mountain West and Midwest geographies. We have fortified our balance sheet, enhanced our capital positioning, and will continue evaluating a variety of new investment opportunities to advance our strategic plan.
Grant: On the capital allocation front, we will remain focused this year on enhancing our differentiated mountain west and Midwest geography.
Grant: We have fortified our balance sheet enhanced our capital positioning and we will continue evaluating a variety of new investment opportunities to advance our strategic plan.
Grant Campbell: Current Public Market Pricing and Private Market Pricing are experiencing a disconnect and this will have to be considered in any transaction we explore. On top of this, we are mindful that market exposures, leverage, share liquidity and scale are important considerations for investors. These variables sometimes compete with each other, and we will continue holistically evaluating and managing all of these considerations as we further implement capital allocation strategies to increase the quality of our cash We are up to the task based on our track record of execution and pursuit of better every day.
Grant: Current public market pricing and private market pricing are experiencing a disconnect and this will have to be considered in any transaction we explore.
Grant: On top of this we are mindful that market exposures leverage share liquidity and scale are important considerations for investors. These.
Grant: These variables, sometimes compete with each other and we will continue holistically evaluating and managing all of these considerations as we further implement capital allocation strategies to increase the quality of our cash flow.
Grant: We are up to the task based on our track record of execution in pursuit of better every day.
Bhairav Patel: And with that, I'll turn it over to Bhairav to discuss our overall financial results for Q1 and outlook for the remainder of 2025.
Grant: And with that I'll turn it over to Bob to discuss our overall financial results for Q1 and outlook for the remainder of 2025.
Bhairav Patel: Thanks, Grant.
Bob: Thanks, Greg and Hello, everyone last night, we reported core <unk> of $1 21 per diluted share for the first quarter driven by a two 1% year over year increase in same store NOI.
Bhairav Patel: And hello, everyone. Last night, we reported core FFO of $1.21 for diluted share for the first quarter, given by a 2.1% year over year increase in same store NOI. NOI and earnings growth were right in line with our expectations and represent a solid start to the year. Revenues from same store communities increased by 3.5% compared to the same quarter of 2024 and benefited from 120 basis point year over year increase in occupancy to 95.8%. That along with exposure at all time lows optimally positions us heading into the The growth in revenue was offset by the expected increase in same-share expenses, which were up 5.8% year-over-year.
Bob: NOI and earnings growth were right in line with our expectations and represent a solid start to the year.
Bob: Revenues from same store communities increased by three 5% compared to the same quarter of 2024 and benefited from a 120 basis point year over year increase in occupancy to 95, 8%.
Bob: That along with exposure at all time lows optimally positions us heading into leasing season.
Bob: The growth in revenue was offset by the expected increase in same store expenses, which were up five 8% year over year.
Bhairav Patel: The primary driver of the increase was property taxes as we received $680,000 in property tax appeal refunds in the first quarter of last year, creating a challenging year-over-year comp for the current quarter. A slight increase relative to expectations and initial assessments received in a couple of jurisdictions also contributed to the increase. However, total expenses were in line with expectations due to offsetting savings across the board on the controllable side.
Bob: The primary driver of the increase was property taxes as we received $680000 in property tax appeal refunds in the first quarter of last year, creating a challenging year over year comp for the current quarter.
Bob: A slight increase relative to your expectations and initial assessments received in a couple of jurisdictions also contributed to the increase.
Bob: However, total expenses were in line with expectations due to offsetting savings across the board on the controllable side.
Bhairav Patel: Turning to guidance, we reiterated our 2025 expectations in last night's press Our Q1 operating performance was right on top of our projections for the quarter and releasing trends evolving as expected, we remain on course to achieve the midpoint of $4.98 per share for Core FFO and year over year same store NOI growth of 2.25%. Other components of our guidance are substantially unchanged. On the capital front, our debt maturity profile remains well-laddered with the minimum maturities this year, a rated average debt cost of 3.6%, and a rated average time to maturity of 5.4 years. In the face of continued broader market volatility, our access to capital remains robust with over 223 million of total liquidity between our cash on hand and our line of credit.
Bob: Turning to guidance, we reiterated our 2025 expectations in last Night's press release.
Bob: Our Q1 operating performance was right on top of our projections for the quarter and the leasing trends evolving as expected. We remain on course to achieve the midpoint of $4 98 per share for core <unk> and year over year same store NOI growth of 2.25%.
Bob: Other components of our guidance are substantially unchanged.
Bob: On the capital front, our debt maturity profile remains well lathered with minimal maturities. This year weighted average debt cost of three 6% and a weighted average time to maturity of five four years.
Bob: The face of continued broader market volatility our access to capital remains robust with over $223 million of total liquidity between our cash on hand, and our line of credit.
Bhairav Patel: To conclude, Q1 was a great start to our year and positioned us to build upon these results throughout 2025.
Bob: To conclude Q1 was a great start to our year and positioned us to build upon these results throughout 2025.
Unknown Executive: And with that, I will turn the line back to the operator for your question. Thank you.
Bob: And with that I will turn the line back to the operator for your questions.
Bob: Thank you.
Unknown Executive: We will now begin the Q&A session. If you would like to ask a question, press star followed by one on your telephone keypad. To remove your question, press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking a question. We will pause here briefly if questions are registered.
Bob: We will now begin the Q&A session.
Bob: If you would like to ask a question star followed by one of your telephone keypad.
Bob: We'll move to a question press star followed by Chi.
Bob: I do want to ask a question press star one.
Bob: As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking a question.
Bob: We will pause briefly ask questions a registry.
Brad Heffern: Our first question comes from Brad Heffern with RBC Capital Markets. You may now proceed.
Bob: Our first question.
Speaker Change: Oh from Brad Heffern with RBC capital markets you May now proceed.
Anne Olson: Hey, everybody. Thanks for taking the question. You said in the prepared comments that operations are trending as expected, but I think the Midwest apartment market as a whole seems to be having a really strong start. Your occupancy is at record levels. I'm just wondering, you know, are you being conservative and modest early in the year? Or is there something that I'm missing? Because it just seems like things are actually ahead of plan.
Bob: Hey, everybody. Thanks for taking my question.
Brad Heffern: You said in the prepared comments that operations are trending as expected, but I think the Midwest apartment market as a whole seems to be having a really strong start your occupancy is at record levels. So I'm. Just wondering are you being conservative and modest so early in the year or is there something that I'm missing because it just seems like things are actually ahead of plan.
Anne Olson: Yeah, thanks for the question, Brad, and happy Friday. You know, this, we did expect that the Midwest was going to be strong this year. And in fact, you know, we're seeing that, as I mentioned, in areas like North Dakota and Omaha, even Minneapolis, which has had positive new lease spread since February in our portfolio. So I think we expected really strong growth, particularly given the strong performance last year. And therefore, we are right on plan. You know, we are seeing, you know, really strong numbers that's leading to a pretty big loss to lease in some of those markets.
Speaker Change: Yes, Thanks for the question, Brad and happy Friday.
Speaker Change: We did expect that the Midwest was going to be strong this year and in fact, we're seeing that as I mentioned in areas like North Dakota, and Omaha, even Minneapolis, which has had positive new lease spreads since February and our portfolio. So I think we expected really strong growth, particularly given the strong performance last year.
Speaker Change: And therefore, we are right on plan.
Speaker Change: Are seeing.
Speaker Change: Really strong numbers, that's leading to a pretty big loss to lease and some of the in some of those markets. So not only thinking about this year, but into next year, we think theres quite a bit of runway in those Midwest market.
Anne Olson: So, you know, not only thinking about this year, but into next year, you know, we think there's quite a bit of runway in those Midwest markets. Okay, got it. And then I think with last earnings, you said the guidance included flat occupancy for 25. I think you said it's up 120 basis points in the first quarter. So are you planning for that, you know, to give away a lot of that occupancy in the peak season in favor of rate? And then and I, you mentioned, you would tell us what you're gonna do for the weekend.
Speaker Change: Okay got it and then I think last earnings you said the guidance included flat occupancy for 25, I think you said, it's up 120 basis points in the first quarter. So are you planning for that to give away a lot of that occupancy in the peak season in favor of rate.
Speaker Change: And then Dan you mentioned, you would tell us where you're going to do for the weekend. So I went through that too.
Anne Olson: So I want to go that too.
Anne Olson: Of course, happy to answer both of those. So we are our projections include occupancy around 95%. As you noted, today, we sit at 96. That positions us really well as we head into those peak leasing, but we do expect it to come off so that the overall average for the year will be 95. If demand continues, you know, we will continue to, you know, push rate and keep occupancy strong.
Speaker Change: Of course happy to answer both of those so we are our projections include occupancy around 95% as you noted today, we sit at 96 that positions us really well as we head into those peak leasing, but we do expect it to come off so that the overall average for the year will be at 95 if demand.
Speaker Change: Continues we will continue to.
Speaker Change: Right and keep occupancy strong.
Brad Heffern: For the weekend, I have some good family plans, Brad, I have some time with my mom and, and my sister's plan for tomorrow. So hopefully some relaxed. Great. Enjoy that. Thanks. Thank you.
Speaker Change: For the weekend I have some good family plans, Brad I have some time with my mom and my sister is planned for tomorrow, So hopefully some relaxing.
Speaker Change: Great and drive that thanks.
Speaker Change: Thank you.
Ami Pobat: Our next question comes from Ami Pobat with PBS. You may now proceed.
Speaker Change: Our next question comes from Amit <unk>.
Speaker Change: With UBS you May now proceed.
Ami Pobat: Hi, thanks. There was some lumpiness in the OpEx this quarter, particularly with elevated increases in real estate taxes and utilities. I understand that real estate taxes, some of that was due to a tough comp last year, but how should we be thinking about growth for the remainder of the year in these two lines? And should we expect any additional lumpiness?
Speaker Change: Alright. Thanks, there was some lumpiness in the Opex this quarter, particularly with elevated increases in real estate taxes and utilities.
Speaker Change: Understand that real estate taxes, some of that was due to a tough comp last year, but how should we be thinking about growth for the remainder of the year in these two lines and should we expect any additional lumpiness.
Bhairav Patel: Hey, thanks, Amy.
Speaker Change: Hey, Thanks, Amy I'm glad we're able to take that one.
Bhairav Patel: I'll ask Bhairav to take that one. Yep, I'll take that one. Yeah, so there is some lumpiness. The lumpiness is expected to be in the first and the fourth quarters. That's when we received, you know, most of our appeals last year. There's another component of the increase, and that is basically some increased assessments that we received recently in a couple of jurisdictions. For example, in Denver, there were a couple of assessments that came in slightly higher. So we have increased our expectations for the year for tax increases to reflect that. The Denver increase are two parts.
Speaker Change: Yes, I'll take that one.
Speaker Change: So there is some lumpiness the lumpiness is expected to be in the first and the fourth quarters.
Speaker Change: When we received.
Speaker Change: Most of our refuse last year there is another component.
Speaker Change: The increase and that is basically some increased assessments that we received recently.
Speaker Change: Couple of jurisdictions for example in Denver. There are couple of assessments that came in slightly higher so we have increased our expectations for the year for tax increases.
Speaker Change: To reflect that the Denver increase of two parts one was a true up for 2024.
Bhairav Patel: One was a true up for 2024 and another one was related to 2025 because, you know, we base 2025 expectations on 2024 results. But that should not be smooth going forward. There's some lumpiness, as I said, that you will see in Q4 because we had some appeals that came in Q4 of last year as well.
Speaker Change: And another one was.
Speaker Change: Related to 2025, because rebased 2025 expectations on 2024 results, but that should not be smooth going forward. There is some lumpiness as I said that youll see in Q4, because we have some appeal that came in Q4 of last year as well, but overall, we have increased the midpoint of our.
Bhairav Patel: But overall, we have increased the midpoint of our non controllable spend by 2.25%. That's a $650,000 increase. And that's really a result of the new assessments we've received most of it in Denver, but also a few in Minneapolis and Nebraska. Got it. Thanks.
Speaker Change:
Speaker Change: Non controllable spend by $2 two 5%, that's a $650000 increase and Thats really a result of the new assessments. We've received most of it in Denver, but also a few in Minneapolis in Nebraska.
Speaker Change: Got it thanks and retention came down in the quarter. So can you talk through some of the moving pieces that might be leading to you're seeing a little bit higher turnover.
Bhairav Patel: And retention came down in the quarter. So can you talk through some of the moving pieces that might be leading to you seeing a little bit higher turnover? Yeah, I can start and Anne can chime in. I mean, there's nothing really specific from a trend perspective that concerns us based on Q1 retention levels. It's also a period where, you know, we have the least number of leases expiring, it's about 14% of our portfolio turns in Q1. There was some noise in Nebraska, as we're close to, you know, the last, we're basically rolling out the last save value add project over there at a will be in the low 50s.
Speaker Change: Yeah, I can start and end can chime in I mean, there was nothing really specific from a trend perspective that concerns us.
Speaker Change: Based on Q1 retention levels.
Speaker Change: Also a period, where we have the least number of leases expiring, it's about 14% of our portfolio turns in Q1, there was some noise in Nebraska as we are close to.
Speaker Change: Last week, we are basically rolling over the last say a value add.
Speaker Change: Project over there a couple of properties that's for some move outs. So normalizing for that you will be in the low <unk>.
Bhairav Patel: And most importantly, April jumped to about 58-59%. And the expirations in April were about 1100 compared to 1850 for Q1 in total. So overall, we do believe that retention will pick up. We've already seen that happening in April, we do expect second quarter to have strong retention. So not really concerned about the recent trend. Great, thank you. Have a good weekend. Thank you.
Speaker Change: And most importantly April jumped to about 50, 859%.
Speaker Change: And the explorations in April were about 1100 compared to $18 50 for Q1 in total. So overall, we do believe that retention will pick up we've already seen that happening in April we do expect second quarter to have strong retention, so not really concerned about the recent trends.
Speaker Change: Thank you have a good weekend.
Speaker Change: Yeah.
Speaker Change: Thank you.
Jamie Fielding: Our next question comes from Jamie Fielding with World Fargo. You may now.
Speaker Change: Our next question comes from Jamie Feldman with Wells Fargo. You May now proceed.
Jamie Fielding: Great, thank you.
Jamie Feldman: Great. Thank you.
Jamie Fielding: I was hoping that you could talk more about Denver with the lowest new and renewal rate growth in your portfolio year to date. How do you see that market playing out over the rest of the year? When do you think we might see an inflection in rents there, particularly new rates growth? And do you think Denver stays weak in the 26th?
Speaker Change: I was hoping you could talk more about Denver.
Speaker Change: With the lowest new and renewal rate growth in your portfolio year to date, how do you see that market playing out over the rest of the year. When do you think we might see an inflection in rents there.
Speaker Change: Particularly new rate growth.
Speaker Change: And do you think Denver stay weak into 'twenty six.
Anne Olson: Yeah, great questions, Jamie. I think lots of eyes on Denver and some good data points from our other public peers as well. So we've seen, you know, as we look at April, we have about a 200 basis point improvement in newly spreads, you know, between March and April alone. So you know, some really good traction there. It's about 270 basis points better than Q1 as a whole, as we look just at the April results.
Jamie Feldman: Yeah, great great questions, Jamie I think a lot's of eyes on Denver, and some good data points from our other public peers as well. So we've seen you know as we look at April we have about a 200 basis point improvement in new lease spreads.
Jamie Feldman: Between March and April alone. So some really good traction there, it's about 270 basis points better than Q1 as a whole.
Jamie Feldman: As we look just at the April results. So when we think about peak supply you know really being kind of end of second in the third quarter later in the year I think 12 months out is where we believe will really start to see that inflection point in in the rates. So hopefully into Q3, we start to.
Anne Olson: So when we think about peak supply, you know, really being kind of end of second into third quarter, later in the year, I think, you know, 12 months out is where we believe we'll really start to see the inflection point in in the rates. So you know, hopefully, into Q3, we start seeing that those newly those projects that were delivered in the fall of last year are starting to get stabilized. The demand we is very strong in Denver, the absorption has been pretty good. And the demand at our properties has been strong, helping us to keep occupancy higher.
Jamie Feldman: That those newly those projects that were delivered in the fall of last year are starting to get stabilized the demand is.
Jamie Feldman: It was very strong in Denver that absorption has been pretty good and.
Jamie Feldman: The demand at our properties has been strong helping us to keep occupancy higher so.
Anne Olson: So you know, part of that is, is that the new the new projects do have higher rates overall. And so we feel really well positioned to see an inflection yet this year, and believe that our lease rates will turn positive, you know, towards the end of the year, but we've seen strong demand for our products in Denver, we don't think that will taper off. And we think that they will, you know, bring us into the end of the year positive, and positive into 2026.
Jamie Feldman: Part of that is is that the new the new projects that do have higher rates overall, and so we feel really well positioned to see an inflection yet this year and believe that our lease rates will turn positive towards the end of the year, but we are seeing strong demand for our products in Denver, We don't think that will taper off and we think that they will.
Jamie Feldman: You know bring us into the end of the year positive and positive into 2026.
Anne Olson: Okay, thank you for that.
Okay. Thank you for that.
Anne Olson: And then Just thinking about North Dakota, which is continuously one of your strongest markets with the highest new and renewal rate here to date.
Jamie Feldman: And then.
Jamie Feldman: Just thinking about North Dakota, which.
Jamie Feldman: Continues to be one of your strongest markets with the highest new and renewal rate year to date.
Anne Olson: Does this change your view at all on capital recycling there in the more institutional markets? Can you consider weaker fundamentals in markets like Denver, and probably much more competitive pricing on transactions? Yeah, you know, that's a great question. It doesn't change our thinking on that overall. You know, we do like the stability that the Midwest provides because you know, when there's supply elsewhere, you know, there's usually not as much in the Midwest and the demand has stayed strong. There are still you know, those markets still remain small and so they can have sometimes a little bit more volatility, you know, a little bit of supply in a in a town like Bismarck can impact our The liquidity is still more limited in those in those markets.
Jamie Feldman: This change your view at all on capital recycling there in the more institutional markets. When you consider weaker fundamentals in markets like Denver.
Jamie Feldman: And probably much more competitive pricing on transactions.
Jamie Feldman: Yeah, that's a great question it doesn't change our thinking on that overall.
We do like the stability that the Midwest provides because when there's supply elsewhere.
Jamie Feldman: There is usually not as much in the Midwest and the demand has stayed strong there are still those markets still remain small and so they can have sometimes a little bit more volatility a little bit of supply in a in a town like Bismarck can impact our results. The liquidity is so more limited in those in those markets.
Anne Olson: And I mean, there are reasons why North Dakota didn't see as much supply last year. And those are really related to the underlying fundamentals of job and population growth. So, you know, being there has been great for us. And it's really provided a good balance to our markets like Denver, where the supply really did impact our new lease rates. But it's still we still are thinking about capital recycling into markets that have stronger liquidity, more visibility for our investors, you know, and longer term growth prospects related to underlying fundamentals of population and job growth.
Jamie Feldman: I mean, there are reasons why north Dakota didn't see as much supply last year and those are really related to the underlying fundamentals of job and population growth. So.
Jamie Feldman: Being there has been great for us and it's really provided a good balance to our markets like Denver, where the supply really did impact our new lease rates, but it's still we still are thinking about capital recycling into markets that have stronger liquidity more visibility for our investors.
Jamie Feldman: And longer term growth prospects related to underlying fundamentals of population and job growth.
Anne Olson: Okay, thank you very much.
Jamie Feldman: Okay. Thank you very much.
Jamie Feldman: Thanks.
Rob Stevenson: Our next question comes from Rob Stevenson with Cheney. You may now proceed.
Jamie Feldman: Our next question.
Speaker Change: It comes from Rob Stevenson with Janney you May now proceed.
Jamie Feldman: Okay.
Rob Stevenson: Good afternoon, guys. Anne or Grant, page 20 of the slide deck has supply in second quarter spiking back up in your markets. Can you talk about what markets or sub markets where you still have significant supply to deal with over the remainder of the year and any markets where you're not yet on the backside of the supply wave?
Speaker Change: Hi, good afternoon guys.
Andrew Page 20 of the slide deck has supply and second quarter spiking back up in your markets can you talk about what markets or Submarkets, where you still have significant supply to deal with over the remainder of the year and any markets, where youre not yet on the back side of the supply wave.
Grant Campbell: Yeah, good afternoon, Rob. Good question. I think most notably, you know, recent supply in Denver, as Anne alluded to in her earlier comments, we're still working out the backside of that. As we work through 2025, you know, roughly 18,000 units were delivered in Denver over the past 12 months. A little over 50% of those were in urban and urban adjacent neighborhoods, and about 47% of those deliveries were in suburban locations. So that is one market where, although the go forward pipeline has significantly shrunk to below historical averages, we still are working through that tail. Rochester, Minnesota would be another market within our portfolio where if you look at our markets outside of Minneapolis and Denver, next 12 months forecasted deliveries are very minimal, I'd call it zero to two and a half percent of existing stock.
Speaker Change: Yeah. Good afternoon, Rob Good question I think most notably recent supply in Denver as Anne alluded to in her earlier comments, we're still working out the.
Speaker Change: On the back side of that as we work through 2025, roughly 18000 units were delivered in Denver over the past 12 months, a little over 50% of those were in urban and urban adjacent neighborhoods and about 47% of those deliveries were in suburban locations. So that is one market where.
Speaker Change: Although the go forward pipeline as significantly shrunk to below historical averages. We still are working through that tail Rochester, Minnesota would be another market within our portfolio, where if you look at our markets outside of Minneapolis and Denver.
Speaker Change: Next 12 months' forecasted deliveries are very minimal I would call. It zero to two 5% of existing stock the exception would be Rochester at about four and a half.
Grant Campbell: The That equates to about 500 new units delivering to that market. And anecdotally, I would comment on the other side of that equation. If you look at job growth within our portfolio, Rochester ranks as a top five metro in all of the United States in terms of job growth as of March. So I think you're seeing the dynamics there of healthcare and education, bringing a lot of employment to that region, some supplies. Okay, and then in the the deck where you were showing the second quarter to date of same store, leasing update, the 2.4% on new lease growth.
Speaker Change: That equates to about 500, new units delivering to that market.
And anecdotally I would comment on the other side of that equation. If you look at job growth within our portfolio.
Speaker Change: Rochester ranked as a top five metro and all of the United States in terms of.
Speaker Change: Job growth as of March So I think youre seeing the dynamics there of.
Speaker Change: Health care and education, bringing a lot of employment to that region. Some supply is coming.
Speaker Change: Okay.
Speaker Change: And then in the.
Speaker Change: The deck, what you were showing the second quarter to date.
Speaker Change: Same store.
Speaker Change: Leasing update the two 4% on new lease growth what percentage you guys done with second quarter sitting here on may 2nd is that 50% or 66% or more given the leases are signed well in advance of moving.
Grant Campbell: What percentage you guys done with second quarter sitting here on May 2? Is that 50% or 66% or more given that leases are signed well in advance of moving? Yeah, we're probably I'd say 30% we've sent out through, you know, July 26. But not all of those have come back in yet. So, you know, we probably have a good half of the expirations out quoted, but, but we won't have those all back in. So I'd say between 25 and 30%. of second quarter. for April, May, June? Yes. Yes, that's right. Okay, so there's 80% of the leases left to deal with at this point.
Speaker Change: Yeah, we're we're probably I'd say, 30% we've sent out through July 26, but not all of those have come back in yet. So you know, we probably have a good half of the explorations out quoted but.
Speaker Change: But we won't have those all backend so I'd say between 25 and 30%.
Speaker Change: Second quarter.
Speaker Change: For April May June yes.
Speaker Change: Yes, that's right.
Speaker Change: So there's 80% of the leases Oh, yes left to deal with at this point.
Grant Campbell: that where where they still have time to to provide us their indication. I mean, April in the in the books, but you know, people people do take time, it might be a little bit higher than 30.
Speaker Change: But where they still have time to to provide us their indication.
Speaker Change: I mean April okay.
Speaker Change: The books, but people people do take time, it might be a little bit higher than 30, but.
Anne Olson: Okay, and then last one for me, what drove the 220 basis point sequential decline in Omaha occupancy? Yeah, as Bhairav mentioned, we did have some forced move outs there related to the last wave of value add. So when we complete value add on a turn, you know, you get to the end of the project, and you have units that may not have turned, we do non renew those residents so that we can complete the valuation. So that that created a little bit of noise in Omaha. Bhairav mentioned that earlier. Okay.
Okay, and then last one from me what drove the 220 basis point sequential decline in Omaha occupancy.
Speaker Change: Yeah as Bob mentioned, we did have some forced move outs there related to the last wave of value add so when we complete value add on or turn them.
Speaker Change: You get to the end of the project and you have units that may not have turned we do nonrenewed. Those residents. So that we can complete the evaluation so that that created a little bit of noise in Omaha, Gaurav mentioned that earlier.
Unknown Executive: All right. Thanks, guys. Have a good weekend. Thanks.
Speaker Change: Okay, Alright, thanks, guys have a good weekend.
Speaker Change: Okay.
Alexander Goffart: Our next question comes from Alexander Goffart with Piper Sailor. You may now proceed.
Speaker Change: Our next question.
Moderator: Comes from Alexander Goldfarb with Piper Sandler you May now proceed.
Alexander Goffart: Hey, good afternoon out there. One, have to say, always love the strong North Dakota. You know, that's been, you know, those markets have been good over the years.
Speaker Change: Hey.
Speaker Change: Good afternoon out there.
Speaker Change: One has to say always loved the strong North Dakota.
Speaker Change: Ben you know.
Speaker Change: Those markets have been good over the years, but my first question sort of goes against that.
Anne Olson: But my first question sort of goes against that. Given we're all learning about trade tariffs, and roughly 17% of agriculture exports go to China, just sort of curious how, you know, outside of Denver and Minneapolis, I'm talking, you know, how agriculture affects sort of the local economies and the markets that you're in? Is it a big impact where if there's some pullback in exports that would ripple through those other upper Midwestern markets, or it's pretty far away from the employment centers that, you know, drive your properties? Thanks, Alex. I think it's the latter. So while there is an awful lot of agriculture and as a base in states like North Dakota and even Nebraska, those aren't the driving drivers of the economy in the areas we're in, which is Bismarck and Grand Forks.
Speaker Change: Given we're all learning about trade tariffs and roughly 17%.
Speaker Change: Agricultural exports go to China, just sort of curious how you know.
Speaker Change: Outside of Denver, and Minneapolis I'm talking.
Speaker Change: Agriculture affects sort of the local economies and the markets that you're in is it a big impact where there is some pullback in exports that would ripple through those.
Speaker Change: Other upper Midwestern markets or it's pretty far away from the appointment centers that drive your properties.
Speaker Change: Thanks, Alex I think it's the latter so while there is an awful lot of agriculture and as a base in states like North Dakota, and even Nebraska, those arent the driving drivers of the economy in the areas. We're in which is Bismarck and Grand Forks, those are really driven by <unk>.
Anne Olson: Those are really driven by healthcare and education. Now, obviously, agriculture has a big impact because they're also regional centers. So to the extent there's an impact in the outer areas or the more rural areas of those states, you know, that is where those people would normally come for shopping, you know, to obtain healthcare. So there's probably a little bit more of a secondary effect on the economy up there. And over time, North Dakota has shifted a little bit less agriculture and more onto the oil and gas. So, you know, the rural parts of the state are still, you know, very focused on oil and gas.
Speaker Change: Health care and education now, obviously agriculture has a big impact because they're also regional centers. So to the extent there is an impact in the outer areas or the more rural areas of those states that is where those people would normally come for shopping.
Speaker Change: To obtain health care, so theres, probably a little bit more of a secondary effects on the on the economy up there and over time, North Dakota has shifted a little bit less agriculture, and more onto the oil and gas.
Speaker Change: So the rural parts of the state are still very focused on our oil and gas.
Alexander Goffart: So if you would like to continue to buy North Dakota pasta and sugar made from the sugar beets, that helps.
Speaker Change: Okay. If you continue to buy.
Speaker Change: North Dakota pasta and.
Speaker Change: Sugar made from the sugar beets that helps.
Alexander Goffart: I will add that to my weekend, you know, list of activities, going back to retention, you know, looking historically, I appreciate that you said it jumped up to 58%, you know, in the in April, but you know, over the past year, it's been sort of in the 54%. So it's been, it seems to be trending below what, you know, your your other peer rates are. So just sort of curious, are you seeing, like, you know, either uncompetitive housing, so people can't find a house or economic nervousness as to, you know, it doesn't seem to be something that's in your portfolio.
Speaker Change: I will add that to my weekend.
Speaker Change: Lift through activities.
Speaker Change: Going back to retention looking historically I appreciate that you said it jumped up to 58%.
Speaker Change: In April, but you know over the past year, it's been sort of in the 54%. So it's been it seems to be trending below what you know your your other peer Reits are so just sort of curious are you seeing like.
Speaker Change: Blake either.
Speaker Change: Uncompetitive housing so people can't find a house or economic nervousness as to you know it.
Speaker Change: It doesn't seem to be something thats in your portfolio and just trying to understand the slight difference more than just a few properties in Nebraska why your retention rates are sort of a different level than what we're seeing in the coastal and sunbelt routes.
Anne Olson: I'm just trying to understand the slight difference more than just a few properties in Nebraska, why your retention rates are sort of a different level than what we're seeing in the coastal and Sunbelt region. Yeah, I think one one driver, you know, in addition to Omaha, which we already covered, one driver would be our Denver retention was lower, you know, as we talked about that has higher supply. So there are more choices in the market. So overall, the Q1 retention in Denver was in the mid 40s. That then is offset by, you know, really strong retention in some of our other markets.
Speaker Change: Yes, I think one one driver in addition to Omaha, which we already covered one driver would be our Denver retention was lower.
Speaker Change: We talked about that has higher supply. So there are more choices in the market. So overall the Q1 retention in Denver was in the mid Forty's.
Speaker Change: It is offset by really strong retention in some of our other markets.
Speaker Change: Our forecast and guidance includes an estimation of full year retention at like 51, five. So we're still you know, particularly with April running right in line with where we think there may be some upside there we believe but we really do Denver being a large portfolio.
Anne Olson: Our forecasts and guidance, you know, includes an estimation of full year retention at like 51.5% So we're still, you know, particularly with April running right in line with where we think there may be some upside there, we believe, but we really do, you know, Denver being a large portfolio, you know, it really does, it really will help us when there's some more absorption in that market of the new product, and we can get those retention rates back up. So the housing market, the dynamics that you're experiencing and the unaffordability, same in your markets that we're seeing in the other markets.
Speaker Change: It really does it really will help us when there is some more absorption in that market of the new product and we can get those retention rates back up.
Speaker Change: So the housing market the dynamics that you're experiencing in the Unaffordably same in your markets that we're seeing in the other markets is that right.
Alexander Goffart: Is that right? Yeah, I think that's right. And if you look at the, the investor deck, you know, we do some work and provide some data on housing affordability across our markets. It's, it's very, very similar to what you would see in some of the The Other market, you know, Sunbelt markets and coastal markets, and our people number of residents who are moving out who are saying they're moving out to buy a home was just 6%. Wow. Okay. Thank you.
Speaker Change: Yeah, I think that's right and if you look at the the Investor deck, we do some work and provide some data on housing affordability across our markets. It's very very similar to what you would see in some of the.
Speaker Change: The.
Speaker Change: Other market sunbelt markets in coastal markets and our people number of residents who are moving out who are saying, they're moving out to buy home was.
Speaker Change: Just 6%.
Speaker Change: Well, okay. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you.
Mason Guell: Our next question comes from Mason Guell with Bhairav, you may now proceed. Hey, good afternoon, everyone. Going back to the solid positive inflection you're seeing for new rates in second quarter, can you kind of talk about how you expect new new lease rates to play out for the year? And has there been any change to expected blends for the year? Yeah, it's playing out just about how we thought it would.
Speaker Change: Our next question.
Speaker Change: Comes from May single.
Speaker Change: You May now proceed.
Speaker Change: Hey, good afternoon, everyone going back to the solid positive inflection you're seeing for new rates in the second quarter can you kind of talk about how you expect new lease rates to play out for the year and has there been any change to expected blends for the year.
Speaker Change: Yeah, it's playing out about how we thought it would.
Anne Olson: Sorry, Bravo, I'll start and then you can jump in here. It's playing out just about how we thought it would with respect to where we expected new lease rates to be where we expect the blend to be. And we think that that will continue to improve and then taper off into the fall. Typical seasonality would have us, you know, back negative on new lease rates slightly towards the end of the year. That's still intact. So I think we, our original thesis of how we thought the year would progress is playing out and we don't have any reason to, you know, make any big changes in that, which is part of the reasons why we're affirming the guidance.
Speaker Change: Sorry, Bryan I'll start and then you can jump in here and it's playing out just about how we thought it would with respect to where we expected new lease rates to be where we expect a blend to be.
Speaker Change: And we think that that will continue to improve and then taper off into the fall.
Speaker Change: Typical seasonality would have us back negative on new lease rates slightly towards the end of the year. We that's still intact. So I think we our original thesis of how we thought the year would progress as is playing out and we don't have any reason to make any big changes in that which is part of the reasons why we're we're affirming the.
Bhairav Patel: So Bhairav, anything to add there? I think you covered it. It's, it's in line with expectations with, you know, that us expecting the peak to happen in the May-June, you know, timeframe, and then kind of flattening out from there before it kind of tapers off towards the end of the year. So, you know, everything that Anne said. Got it.
Speaker Change: So rob anything to add there.
Rob Stevenson: I think you covered.
Speaker Change: It's in line with expectations with a.
Speaker Change:
Speaker Change: With us expecting the peak to happen in the May June.
Speaker Change: No timeframe, and then kind of flattening out from there before it kind of tapers off towards the end of the year. So you know everything that handset.
Grant Campbell: And what are you seeing in terms of attractive uses of capital or investment opportunities? And when would you expect to get back into acquisitions?
Speaker Change: Got it and what are you seeing in terms of attractive uses of capital or investment opportunities and when would you expect to get back into acquisitions.
Grant Campbell: Well, we'll let Grant take that one. Yeah, good afternoon, Mason. We certainly do want to take advantage of investing opportunities when it makes sense with opportunities where we can advance our strategic plan. We do like the long term fundamentals of the Mountain West, and we're going to continue to focus on ways where we can enhance the differentiated offering that we can provide in that region. For us, you know, we really like the Colorado portfolio that we've assembled over recent years. I think our goal in any new market would be to execute in a manner consistent with our Denver and Fort Collins growth.
Speaker Change: Well I will let grant take that one yeah. Good good afternoon, Nathan we certainly do want to take advantage of investing opportunities when it makes sense with opportunities, where we can advance our strategic plan.
Speaker Change: Do like the long term fundamentals of the mountain West and we're going to continue to focus on ways, where we can enhance the differentiated offering that we can provide in that region.
Speaker Change: For us, we really like the Colorado portfolio that we've assembled over recent years I think our goal in any new market would be to execute in a manner consistent with our Denver and Fort Collins growth.
Grant Campbell: In terms of what form does that take? Acquisitions, acquisitions that could come with attractive embedded financing. It could be potential MES executions. It's harder to make development math pencil today, but we continue to have those conversations. We're also talking to folks about potential MES executions on recaps of existing assets. And then we always have lines in the water on the OP unit transaction front. So we're, we're turning over a lot of rocks. And when we find something that makes sense, we want to.
Speaker Change: In terms of what form does that take acquisitions acquisitions that could come with attractive embedded financing it could be potential mezz executions harder to make development math pencil today, but we continue to have those conversations we're also talking to folks about.
Speaker Change: Tension mezz executions on recaps of existing assets and then we always have lines in the water on the op unit transaction front.
Speaker Change: So we're we're turning over a lot of rocks and when we find something that makes sense, we want to move on it.
Unknown Executive: Thanks for the caller. Have a great weekend, everyone. Thank you. There are currently no questions registered. So as a reminder, this star wants to ask a question.
Speaker Change: Thanks for the color, Okay, we cannot balloon.
Speaker Change: Thank you.
Speaker Change: There are currently no questions registered so as a reminder, they started one to ask a question.
Unknown Executive: There are no questions waiting at this time, so I'll pass the conference back over to the managing chief for any further remarks.
Speaker Change: There are no questions waiting at this time, so I'll pass the conference back over to <unk> for any further room nights.
Unknown Executive: Well, thanks everyone for joining us. We hope you all have a great weekend and we look forward to seeing many of you in the coming weeks.
Speaker Change: Well, thanks, everyone for joining us we hope you all have a great weekend and we look forward to seeing many of you in the coming weeks.
Speaker Change: Okay.
Unknown Executive: That concludes today's conference call. Thank you for your participation. You may now disconnect your lines.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect your lines.