Q1 2025 Camden Property Trust Earnings Call
Yeah.
Okay.
Yeah.
Yeah.
Yeah.
Yeah.
Yes.
Okay.
Okay.
Sure.
Unknown Executive: River of souls, desertion's the way I call Chose a girl Through a way that's dark Now these hands, they all know our name 6th and South is our claim to fame I can hear him say Good morning, and welcome to Camden Property Trust first quarter 2025 earnings conference call.
Graham.
[music] did.
Did that.
[music].
Sure.
Oh.
[music].
Okay.
[music].
Okay.
[music].
Six.
Yes.
Okay.
[music], how can we answer.
Yes.
[music].
And al.
[music].
Good morning, and welcome to Camden Property Trust first quarter 2025 earnings Conference call.
Kimberly Callahan: I'm Kim Callahan, Senior Vice President of Investor Relations.
Kim Callahan senior Vice President of Investor Relations joining.
Rick Campo: Joining me today are Rick Campo, Camden's Chairman and Chief Executive Officer, Keith Oden, Executive Vice Chairman, and Alex Jessett, President and Chief Financial Officer.
Speaker Change: Joining me today are Ric Campo Camden's, Chairman and Chief Executive Officer, Keith Oden, Executive Vice Chairman, and Alex <unk>, President and Chief Financial Officer.
Kimberly Callahan: Today's event is being webcast through the investors section of our website at camdenliving.com and a replay will be available shortly after the call ends.
Speaker Change: Days event is being webcast through the investors section of our website at Camden living Dot com and a replay will be available shortly after the call ends and please note. This event is being recorded.
Kimberly Callahan: And please note this event is being recorded.
Speaker Change: Yes.
Kimberly Callahan: Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs.
Speaker Change: Before we begin our prepared remarks, I would like to advise everyone that we will be making forward looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations.
Kimberly Callahan: These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations.
Kimberly Callahan: Further information about these risks can be found in our filings with the SEC and we encourage you to review them.
Speaker Change: Further information about these risks can be found in our filings with the SEC and we encourage you to review them.
Kimberly Callahan: Any forward looking statements made on today's call represent management's current opinions and the company assumes no obligation to update or supplement these statements because of subsequent events.
Speaker Change: Any forward looking statements made on today's call represent management's current opinions and the company assumes no obligation to update or supplement these statements because of subsequent events.
Kimberly Callahan: As a reminder, Camden's complete first quarter 2025 earnings release is available in the investor section of our website at camdenliving.com, and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call.
Speaker Change: As a reminder, camden's complete first quarter 2025 earnings release is available in the investors section of our website at Camden living Dot Com and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call.
Kimberly Callahan: We would like to respect everyone's time and complete our call within one hour, so please limit your initial question to one, then rejoin the queue if you have a follow-up question or additional items to discuss.
Speaker Change: We would like to respect everyones time and complete our call within one hour. So please limit. Your initial question to one then rejoin the queue. If you have a follow up question or additional items to discuss if we are unable to speak with everyone. In the queue today, we'd be happy to respond to additional questions by phone or email after the call concludes at this.
Kimberly Callahan: If we are unable to speak with everyone in the queue today, we'd be happy to respond to additional questions by phone or email after the call concludes.
Rick Campo: At this time, I'll turn the call over to Rick Campo. Thanks Kim.
Ric Campo: Time, I will turn the call over to Ric Campo.
Rick Campo: The on hold music for our call today featured the 1970s rock band Bad This week, Bad Company was finally admitted to the Rock and Roll Hall of Fame, filling one of the most glaring omissions from Rock Music's Hall of Fame.
Ric Campo: Kill the on hold music for our call today feature of the 19 seventies rock band Bad Company.
This week Bad company was finally admitted to the rock and roll Hall of Fame filling in one of the most glaring emissions from rock music Hall of Fame.
Rick Campo: Also in April, Camden was once again named by Fortune magazine as one of the 100 best companies to work This marks the 18th consecutive year Camden has achieved this honor.
Ric Campo: Also in April Camden was once again named by Fortune magazine as one of the 100 best companies to work for this marks the 18th consecutive year Camden has achieved this honor.
Rick Campo: So this April was an excellent month for 100 great companies, but also an excellent month for one bad.
Ric Campo: So this April was an excellent month for 100, great companies, but also an excellent month for.
Speaker Change: For one bad company.
Rick Campo: If Fortune Magazine ever decides to select a best company to work for our Hall of Fame, we suspect Camden would be a first ballot inductee.
Speaker Change: If fortune magazine ever decides to select the best company to work for our Hall of Fame, we suspect Camden would be a first ballot inductee. Thank you to our Camden team for your unwavering commitment to improving the lives of our teammates our customers and our shareholders one experience at a time.
Rick Campo: Thank you to our Camden team for your unwavering commitment to improving the lives of our teammates, our customers, and our shareholders one experience at a time.
Rick Campo: We had a great first quarter and exceeded our operating expectations, beating our guidance by four cents per share.
Speaker Change: We had a great first quarter and exceeded our operating expectations in your guidance by four cents per share clearly in the last month. The operating outlook has become more complicated but the good news is clear new supply has peaked in our markets and apartment absorption continues to be strong in fact, new starts are at one <unk>.
Rick Campo: Clearly in the last month, the operating outlook has become more complicated. The good news is clear. New supply has peaked in our markets and apartment absorption continues to be strong. In fact, new starts are at a 13-year low and are down 80% in Austin and between 65 and 80% in Houston, Denver, Charlotte, Raleigh, Atlanta, Nashville, and Washington, D.C. Rent affordability continues to be a tailwind with wage growth outpacing rent growth by over 300 basis points for the past 28 months. The premium to own versus rent continues to be at historically high levels, making apartment homes more affordable.
Speaker Change: 13 year, low and are down 80% in Austin and between 65 and 80% in Houston, Denver, Charlotte Raleigh, Atlanta, Nashville in Washington D C.
Speaker Change: Rent affordability continues to be a tailwind with wage growth outpacing rent growth by over 300 basis points for the past 28 months the premium to own versus rent continues to be at historically high levels, making apartment homes more affordable Camden Sunbelt markets continue to dominate job growth.
Rick Campo: Camden Sunbelt markets continue to dominate job growth, population growth, and growth in young adult households between 20 and 39 years old. Camden Sunbelt markets are 50 to 60% less expensive for residents than high-cost coastal markets.
Speaker Change: Population growth and growth in young adult households between 20, and 39 years old Camden Sun belt markets are 50% to 60% less expensive for residents and high cost coastal markets. Today's economic uncertainty is not new for US we have positioned our company to do well in all market conditions.
Rick Campo: Today's economic uncertainty is not new for us. We have positioned our company to do well on all market conditions with a strong balance sheet, a geographically diverse portfolio, and a great team. Well, you're in the Sun Belt because that's where the growth is. And the Sun Belt has historically weathered tougher economic conditions better and bounced back faster than other markets. People always need a place to live, and our Camden teams will welcome them home.
Speaker Change: With a strong balance sheet, a geographically diverse portfolio and a great team where you are in the sunbelt, because that's where the growth is in the sunbelt has historically, whether tougher economic conditions, better and bounce back faster than other markets people always need a place to live and our Camden teams will welcome them home.
Keith Oden: Thank you, and Keith Oden is up next. Thanks, Rick. Operating conditions across our portfolio are playing out as we expected.
Speaker Change: Thank you Keith AUM is up next.
Speaker Change: Thanks, Rick operating conditions across our portfolio are playing out as we expected and our market outlook on last year's call. We projected our top five markets for revenue growth. This year would be Tampa L. A Orange County, San Diego Inland Empire, Washington D C Metro in Houston.
Keith Oden: In our market outlook on last year's call, we projected our top five markets for revenue growth this year would be Tampa, LA Orange County, San Diego Inland Empire, Washington, D. C. Metro and Not surprisingly, those were in fact the top five performers for the quarter, with same property revenue growth ranging from 1.3% to 4.5% in those markets, compared to our overall portfolio at 0.8%. Rental rights for the first quarter had effective new leases down 3.1% and renewals up 3.3% for a blended rate of negative 0.1%. This was in line with our expectations for the quarter and reflected a 100 basis point improvement from the negative 1.1% blended rate.
Speaker Change: Not surprisingly those were in fact, the top five performers for the quarter with same property revenue growth ranging from one 3% to four 5% in those markets compared to our overall portfolio at 0.8%.
Speaker Change: Rental rates for the first quarter had effective new leases down three 1% and renewals up three 3% for a blended rate of negative 1%. This was in line with our expectations for the quarter and reflected a 100 basis point improvement from the negative one 1% blended rate we reported.
Keith Oden: We reported it in the fourth quarter of 24. Our preliminary April results are also on track and showing improvement versus the first quarter of 25. Occupancy for the first quarter showed slight improvement, averaging 95.4% versus 95.3% in the fourth quarter of 24. And we expect occupancy to remain relatively stable for the remainder of the year.
Speaker Change: Or did it in the fourth quarter of 'twenty four.
Speaker Change: Our preliminary April results are also on track and showing improvement versus the first quarter of 'twenty five.
Speaker Change: Occupancy for the first quarter showed slight improvement, averaging 95, 4% versus 95, 3% in the fourth quarter of <unk> 24, and we expect occupancy to remain relatively stable for the remainder of the year.
Keith Oden: Renewal offers from May, June and July were sent out with an average increase of Turnover rates across our portfolio remain very low and our first quarter 25 annualized net turnover rate of 31% was one of the lowest in our company's We attribute this in part to continued low levels of move outs for home purchases, which were 10.4% this quarter, along with high resident retention, driven by the hard work, dedication and commitment of our team members and delivering exceptional service and support to our customers, as indicated by our customer sentiment score. Camden's customer sentiment score was 91.1 for the first quarter of 2025.
Speaker Change: Renewal offers for May June and July were sent out with an average increase of four 2%.
Turnover rates across our portfolio remained very low in our first quarter 'twenty five annualized net turnover rate of 31% was one of the lowest in our company's history.
Speaker Change: We attribute this in part to continued low levels of move outs for home purchases, which were 10, 4% this quarter along with high resident retention driven by the hard work dedication and commitment of our team members and delivering exceptional service and support to our customers as indicated by our customer sentiment.
Speaker Change: Sure.
Speaker Change: Camden's customer sentiment score was 91, one for the first quarter of 2025. This is the highest score we have ever received since we began measuring customer sentiment in 2014, and clearly demonstrates the appreciation and satisfaction of our residents and customers feel for Camden.
Keith Oden: This is the highest score we have ever received since we began measuring customer sentiment in 2014 and clearly demonstrates the appreciation and satisfaction our residents and customers feel for Camden.
Keith Oden: And as Rick mentioned earlier, we're proud to have been recognized for the 18th consecutive year as one of the 100 best companies to work for by Fortune magazine, most recently ranking number 18. Thank you team Camden for your energy and commitment to maintaining a truly amazing work environment. We know that happy team members, along with happy residents and customers, ultimately lead to happy shareholders.
Speaker Change: And as Rick mentioned earlier, we are proud to have been recognized for the 18th consecutive year as one of the 100 best companies to work for by Fortune magazine, Most recently ranking number 18.
Speaker Change: Thank you team Camden for your energy and commitment to maintaining a truly amazing work environment.
Alex: We know that happy team members, along with happy residents and customers ultimately lead to happy shareholders. I will now turn the call over to Alex suggest that cabinet's, President and Chief Financial Officer.
Alexander Jessett: I'll now turn the call over to Alex Jessett, Camden's President and Chief Financial Officer. Thanks, Keith. I'll begin today with an update on our recent real estate and capital markets activities, then move on to our first quarter results and our guidance for second quarter and full year 2025. We have been active this year on both the acquisition and development front. Completing two acquisitions for a total of $199 million and commencing construction on one new development community with a total estimated cost of $184 million. Our acquisitions to date included Camden-Leander, a newly constructed 352-unit suburban Austin community, and Camden-West Nashville, a 435-unit community built in 2012.
Alex: Thanks, Keith I'll begin today with an update on our recent real estate and capital markets activities, then move on to our first quarter results and our guidance for second quarter and full year 2025.
Alex: We have been active this year on both the acquisition and development fronts.
Alex: Pleading to acquisitions for a total of $199 million and commencing construction on one new development community with a total estimated cost of $184 million.
Alex: Our acquisitions to date included candidly under a newly constructed 352 unit suburban Austin community and Camden West Nashville, a 435 unit community built in 2020.
Alexander Jessett: During the quarter, we also broke ground on Camden Nations, a 393-unit Nashville development community which is expected to open for leasing in early 2028. These transactions enhance our presence in two of the fastest-growing, high-demand markets in the nation, and will ultimately serve to double our presence in a dynamic national market. We continue to make progress leasing up our three development communities which completed construction during 2024. Camden Woodmill Creek and Camden Longmeadow Farms are single-family rental communities located in suburban Houston. along with Camden Durham, a traditional multifamily community located in the Raleigh-Durham market of North Carolina.
Alex: During the quarter. We also broke ground on Camden Nations at 393 unit Nashville development community, which is expected to open for leasing in early 2028.
Alex: These transactions enhance our presence in two of the fastest growing high demand markets in the nation and will ultimately serve to double our presence in the dynamic Nashville market.
Alex: We continue to make progress leasing up our three development communities, which completed construction during 2020 for.
Alex: Camden Wood Mill Creek, and Camden Longmeadow farms, our single family rental communities located in suburban Houston, along with Cameron Dura at traditional multifamily community located in the Raleigh Durham market in North Carolina and.
Alexander Jessett: and we expect to achieve stabilization at each of these communities later this year. In addition, we recently began a lease up at Camden Village District. 369 unit new development in Raleigh, which is currently 14% leased and 8% occupied. At the midpoint of our guidance range, we are still anticipating $750 million of both acquisitions and dis- While we did not complete any dispositions during the first quarter, we are actively marketing a few of our older, more capital intensive assets for sale and anticipate some closings in either the second or third quarters of 2025. Our original guidance for development starts in 2025 was $175 million to $675 million, and to date we have started $184 million.
Alex: And we expect to achieve stabilization at each of these communities later this year.
Alex: In addition, we've recently began lease up at Camden Village District, a 369 unit new development in Raleigh, which is currently 14% leased and 8% occupied.
Alex: At the midpoint of our guidance range, we are still anticipating $750 million of both acquisitions and dispositions.
Alex: While we did not complete any dispositions during the first quarter. We are actively marketing a few of our older more capital intensive assets for sale and anticipate some closings in either the second or third quarters of 2025.
Alex: Our original guidance for development starts in 2025 was $175 million to $675 million and to date, we have started a $184 million.
Alexander Jessett: We will continue to monitor market conditions and may start additional projects later this year. Additionally, in the first quarter, we entered into a $600 million commercial paper program to supplement our existing line of credit. As our line of credit backstops this commercial paper program, we have not gained incremental borrowing capacity. So we have successfully added another financing vehicle, which often produces lower interest Turning to financial results, last night we reported core funds from operations for the first quarter of $189.8 million or $1.72 per share, four cents ahead of the midpoint of our prior quarterly guidance.
Alex: We will continue to monitor market conditions and May start additional projects later this year.
Alex: Additionally, in the first quarter, we entered into a $600 million commercial paper program to supplement our existing line of credit.
Alex: As our line of credit Backstop. This commercial paper program, we have not gained incremental borrowing capacity. So we have successfully added another financing vehicle, which often produces lower interest rates.
Alex: Turning to financial results last night, we reported core funds from operations for the first quarter of $189 $8 million or $1 72 per share four cents ahead of the midpoint of our prior quarterly guidance.
Alexander Jessett: Two cents of this outperformance came from higher revenues resulting from the combination of lower than expected bad debt, higher occupancy, and higher other income. One cent of the outperformance came from favorable timings of repair and maintenance and property tax refunds, partially offset by slightly higher utility expenses. The remainder of our outperformance came from lower than anticipated interest expense, along with a time limit of fee income and overhead expenses. While we are pleased with our strong first quarter outperformance, at this point we are not adjusting our full year same-store guidance. However, we are increasing the midpoint of our four-year core FFO guidance by three cents per share from $6.75 to $6.78.
Alex: Two cents of this outperformance came from higher revenues, resulting from the combination of lower than expected bad debt higher occupancy and higher other income.
Alex: One set of the outperformance came from favorable timing of repair and maintenance and property tax refunds, partially offset by slightly higher utility expenses.
Alex: The remainder of our outperformance came from lower than anticipated interest expense, along with the timing of fee income and overhead expenses.
Alex: While we are pleased with our strong first quarter outperformance at this point, we are not adjusting our full year same store guidance.
Alex: However, we are increasing the midpoint of our full year core <unk> guidance by <unk> <unk> per share from $6 75 to $6 78.
Alexander Jessett: primarily resulting from lower projected interest expense incurred through our new commercial paper program. Under this program, we are currently borrowing at rates approximately 50 basis points below those of our line of credit. We anticipate an average of $565 million outstanding under the commercial payable program for the remainder of the year at an average rate of 4.2%. We also provided earnings guidance for the second quarter of 2025. We expect core FFO per share for the second quarter to be within the range of $1.67 to $1.71, representing a three cent per share sequential decline in the midpoint, primarily resulting from an approximate two cent sequential decrease in same store NOI, as higher expected revenues during our peak leasing periods are offset by the seasonality of certain repair and maintenance expenses and the timing of our annual merit increase.
Alex: Primarily resulting from lower projected interest expense incurred through our new commercial paper program.
Alex: Under this program. We are currently borrowing at rates approximately 50 basis points below those of our line of credit we.
Alex: We anticipate an average of $565 million outstanding under the commercial paper program for the remainder of the year at an average rate of four 2%.
Alex: We also provided earnings guidance for the second quarter of 2025.
Alex: We expect core <unk> per share for the second quarter to be within the range of $1 67 to $1 71, representing a three cent per share sequential decline at the midpoint, primarily resulting from an approximate <unk> <unk> sequential decrease in same store NOI as higher expected revenues during our peak leasing periods are offset by the.
Alex: Seasonality of certain repair and maintenance expenses and the timing of our annual merit increases.
Alexander Jessett: A $0.02 increase in interest expense due to higher borrowings and a $0.01 increase in overhead costs due to timing of various public company This $0.05 per share sequential decrease in core FFO is partially offset by $0.02 of additional earnings from our new developments and completed and pro forma net acquisition. Non-core FFO adjustments for 2025 are still anticipated to be approximately 10 cents per share and are primarily legal expenses and expense transaction pursuits.
Alex: A two step increase in interest expense due to higher borrowings and a one cent increase in overhead costs due to the timing of various public company fees.
Alex: This five cent per share sequential decrease in core <unk> is partially offset by <unk> <unk> of additional earnings from our new developments and completed and pro forma net acquisitions non.
Alex: Non core <unk> adjustments for 2025 are still anticipated to be approximately <unk> 10 per share and are primarily of legal expenses and expense transaction pursuit costs. At this time, we'll open the call up to questions.
Unknown Executive: At this time, we'll open the call to questions. Thank you.
Unknown Executive: We will now begin the question and answer session. To ask a question, you may press star one on your telephone keypad.
Alex: Thank you we will now begin the question and answer session.
Alex: So to ask a question you May press Star then one on your telephone keypad.
Unknown Executive: If you are using a speakerphone, we ask that you please pick up your handset before pressing the key. To withdraw your question, please press star 102.
Alex: If you were using a speaker phone we ask that you. Please pickup your handset before pressing the keys.
Alex: Your question. Please press Star then two.
Eric Wolfe: Our first question today comes from Eric Wolfe at Citi. Please go ahead. Hey, thanks. You mentioned that you're maintaining your same store guidance given the recent macro uncertainty.
Eric Wolfe: Our first question today comes from Eric Wolfe with Citi. Please go ahead.
Eric Wolfe: Hi, Thanks, you mentioned that you are maintaining your same store guidance given the recent macro uncertainty just.
Rick Campo: I'm just curious if there wasn't that uncertainty, and you're more in like an environment like we were last year, maybe earlier this year, when you gave guidance, would you have raised your same store revenue? Would you have lowered same store expense? Just trying to see you like what you know how the environment is impacting your guidance. Clearly the environment has everyone's head spinning in America, maybe the world today. And I would say that that definitely has, that the uncertainty is the kind of the watch word today. And if we had more certainty about what the summer was going to look like and what the end of the year was going to look like, we might have been more constructive on our guidance exchange, but that isn't where we are today.
Eric Wolfe: Curious if there wasn't that uncertainty and you're more than like an environment. Like we were last year. Maybe earlier. This year. When you gave guidance, but would you have raised your same store revenue would you have lowered same store expense.
Eric Wolfe: Just trying to see like what how the environment is impacting your guidance specifically thanks.
Eric Wolfe: Clearly the environment has everyone's head spinning.
Eric Wolfe: In America, maybe the world today.
Eric Wolfe: And I would say that that.
Eric Wolfe: That definitely has that.
Eric Wolfe: The uncertainty is the kind of the watch word today.
Eric Wolfe: And if we had more certainty about what the summer was going to look like and what the end of the year was going to look like we might have been more constructive on our guidance change but.
Eric Wolfe: That isn't where we are today. So we are going to be I think like most other folks in a wait and see mode. We feel really good about where we are we have seen really no cracks in the in the.
Rick Campo: So we are going to be, I think, like most other folks in a wait and see mode. We feel really good about where we are. We have seen really no cracks in the ice, if you want to call it that, for the business. Things are, you know. going along very well for our business. But on the other hand, you know, when you have these wild gyrations in the market and uncertainty about jobs long term, you have to be a little cautious.
Eric Wolfe: In the ice if you want to call it that for the for the business.
Eric Wolfe: It's things are are.
Eric Wolfe: Going along very well for Ferrari.
Eric Wolfe: For our business, but on the other hand.
Eric Wolfe: You have these wild wild gyrations in the market and uncertainty about jobs long term you would have to be a little cautious.
Eric Wolfe: Thank you.
Eric Wolfe: Okay.
James Feldman: And our next question today comes from Jamie Feldman at Wells Fargo. Please go ahead. Great, thank you.
Speaker Change: Thank you and our next question today comes from Jamie Feldman at Wells Fargo. Please go ahead.
Great. Thank you.
James Feldman: Can you talk about which of your Sunbelt markets you're seeing quicker stabilization of deliveries where new leases could turn positive as we enter peak leasing? And then in the opposite side, you know, where do you think you'll see the biggest drag, whether it's Austin, Nashville, Raleigh, or some of the more pressured, but just trying to get an update on on when things could turn positive across the more challenged markets? Thank you.
Jamie Feldman: Can you talk about which of your sunbelt markets Youre seeing quicker stabilization of deliveries were new leases could turn positive as we enter peak leasing.
Jamie Feldman: And then in the opposite side, you know where do you think youll see the biggest drag whether it's Austin Nashville, Raleigh, or some of the more pressured but just trying to get an update on on when things could turn positive across the more challenged markets. Thank you.
Rick Campo: Yeah, so Nashville and Austin clearly are going to continue to be challenged throughout 2025. The level of deliveries in both of those markets came down slightly this year, but not meaningful difference between 2024 and 2025 deliveries. The good news is they trail off pretty significantly towards the back half of 2025. So, you know, things should, you know, there's there's I think there's a good chance for improvement in those two markets. And again, that's measured by the trade out on new leases at some point in 2025, hopefully getting to a closer to a positive number.
Speaker Change: Yes, so so Nashville, and Austin, clearly, we're going to continue to be challenged throughout 2025.
Speaker Change: The level of deliveries in both of those markets came down slightly this year, but not meaningful difference between $24 25 deliveries. The good news is they trail off pretty significantly towards the back half of 2025. So.
Speaker Change: It should.
Speaker Change: Theres I think theres, a good chance for improvement in those two markets.
Speaker Change: That's measured by the trade out on new leases at some point in 2025, hopefully getting to closer to a positive number. So those two are.
Rick Campo: So those two are clearly kind of in their own little category.
Speaker Change: Clearly kind of in their own little category. The other markets that performed well for us in the first quarter are the markets that have had the better supply demand ratios, both last year and into this year and they're going to continue I think they'll continue to perform at the top of our portfolio and that would be DC.
Rick Campo: The other markets that perform well for us in the first quarter are the markets that have had the better supply demand ratios both last year and into this year. And they're going to continue. I think they'll continue to perform at the top of our portfolio. And that would be, you know, D.C. Metro, Houston for sure. San Diego Inland Empire and L.A. Orange County both had really good quarters for the first quarter. I would expect that those will, because they're responding to the better balance between supply and demand, I think they'll continue to lead the portfolio throughout 2025.
Speaker Change: C Metro.
Speaker Change: Houston for sure.
Speaker Change: San Diego Inland Empire.
Speaker Change: Ed.
Speaker Change: In L. A orange County, both had really good quarters for the first quarter I would expect that those will because they're responding to the better balance between supply and demand I think they will continue to lead the portfolio throughout 'twenty.
Rick Campo: And that's why those those markets were all rated at the top of the pack in our annual scorecard that we that we provided in the first quarter.
Speaker Change: 2025, and that's why those those markets were all right at the top of the pack in our our annual scorecard that we that we provided in the first quarter I.
Rick Campo: I would add that Tampa and Orlando, Tampa is definitely going to be one of the markets that turns the turns in terms of positive, positive, you know, new lease rate growth for sure. The the other thing I would just add to this is that is that while Nashville and and Austin are definitely going to be slower out, we think they're going to be once they come out, they're going to be faster up. And that's why we bought a property in Austin and we bought a property in Nashville and we started development in Nashville. Those two markets, you know, it's always interesting because they're definitely the weapon markets today for oversupply.
Speaker Change: I would add that Tampa and Orlando Tampa is definitely going to be one of the markets that turns it turns.
Speaker Change: In terms of positive same positive new lease rate growth for sure.
Speaker Change: The other thing I would just add to this is that is that while Nashville and.
Speaker Change: And Austin are definitely going to be slower out, we think theyre going to be once they come out they're going to be faster up and that's why we bought a property in Austin and we bought a property in Nashville, when we started development in Nashville, those two markets. You name. It is always interesting because there is definitely the whip in markets today for oversupply, but there are.
Rick Campo: But they're also the best growing markets we have in America from a job growth perspective and future prospects. So when they turn, they're going to turn hard, hard, up and high to the right.
Speaker Change: Also the best growing markets, we have in America from a job growth perspective.
Speaker Change: <unk> future prospects, so when they turn they're going to turn hard hard up in high to the right.
Unknown Executive: Okay, thanks for that.
Speaker Change: Okay. Thanks for that and then.
Rick Campo: And then, I guess along the same lines, do you have a sense of what you're what you're expecting for new and renewal leases in the second quarter? given some of these are tightening up. Yeah, what I would tell you is, is that the blend for the second quarter for us should be sort of flat to positive 1%. So a good increase from the first quarter and in line with the positive view of how we're looking at everything right now.
Speaker Change: I guess, along the same lines do you have a sense of where you're what you're expecting for new and renewal leases in the second quarter.
Speaker Change: Given some of these are tightening up.
Speaker Change: Yeah, what I would tell you is is that the blend for the second quarter for us should be sort of flat to positive 1%. So.
Speaker Change: Good increase from the first quarter and in line with the positive view of how we're looking at everything right now.
Brad Heffern: And our next question today comes from Brad Heffern with RBC Capital Markets. Please go ahead. Yeah, thanks, morning. Can you give your perspective on DC and Doge? Are you seeing anything on the ground right now? And do you expect to at some point? And when might that be? We are seeing absolutely zero anecdotal information about Doge and the negative effect that I think some people think it's going to have on the DC market. As a matter of fact, DC continues to be really good. High occupancy, very good new lease rate growth and renewal growth. The highest blended lease rates that we have in our system is in DC.
Speaker Change: Thank you and our next question today comes from Brad Heffern with RBC capital markets. Please go ahead.
Brad Heffern: Yes. Thanks. Good morning can you give your perspective on D. C. N does are you seeing anything on the ground right now and do you expect to at some point and when might that be.
We are seeing absolutely zero.
Brad Heffern: Anecdotal information about <unk> and the negative effect that I think some people think it's going to have on the D. C market. It is a matter of fact D. C continues to.
Brad Heffern: Two.
Brad Heffern: Really good high occupancy very good.
Speaker Change: New lease rate growth and renewal growth the highest blended lease rates that we have in our system is in D. C.
Rick Campo: And when you look at it's sort of the same kind of like the initial question I got about guidance, and that is that people's heads are spinning, right? But because of all the rhetoric and all the uncertainty out there, yet on the ground, people are signing new leases at incredibly high rates relative to what they were, and our occupancies are really high, and we haven't had people coming in and saying, oh my God, I've lost my job in the federal government. You need to let me off my lease. We just haven't seen that. If you look at the employment data today, I thought what's really interesting, if you dig down into it, it was obviously a good print nationally, but when you look at the government side of the equation, the actual government, if you take the gross number, was up 10,000.
Brad Heffern: When you look at so it's sort of the thinking.
Brad Heffern: The same kind of like the initial question I got about guidance and that is that the.
Brad Heffern: People's heads are spinning right, but.
Brad Heffern: Because of all the rhetoric and all the.
Brad Heffern: The uncertainty out there yet on the ground people are signing new leases at an incredibly high rates relative to what they were and our Occupancies are really high and we haven't had people coming in and saying Oh My God I've lost my job and the federal government you need to let me off by lease we just haven't seen that when you looked at if you look at the employment data today I thought was really interesting if you dig down into it.
Brad Heffern: Obviously, a good print Nash.
Brad Heffern: Actually but when you look at the government side of the equation I mean government. The actual government. If you take the gross number was up 10000.
Rick Campo: Now, federal government, ex-postal, was down 9,000, but state and local governments were up more than the federal government was down, and so you had an actual increase in government employment in April. I think what's happening out there, when you think about a low unemployment rate, so we have a 4.2 unemployment rate, if you look at the unemployment rate for people that are 25 or older with college educations or higher, the unemployment rate is 3.2%. D.C. has the highest percentage of college graduates, and most of our residents are high or medium income, but they're definitely college students or college graduates, a lot of them, and so you have this situation where even with the noise from 9,000 federal government job losses, you still have so much tightness in the labor market relative to the people that are in our customer base that we just haven't seen a major impact.
Brad Heffern: Federal Government X postal was down 9000, but state and local governments were up more than than the federal government was down and so you had an actual increase in government employment in April so I think what's happening out there and when you think about a low unemployment rate. So we have a $4 two unemployment rate if you.
Brad Heffern: Look at the unemployment rate for people that are 25 or older with with a college.
Brad Heffern: Educations or higher unemployment rate is three 2% D. C has the highest percentage of college graduates.
Brad Heffern: Most of our residents R. R.
Brad Heffern: Our medium income, but theyre definitely definitely college students or college graduates a lot of them and so you have this situation where were even with the noise from 9000 government federal government job losses.
Brad Heffern: Still have so much tightness in the labor market relative to the people that are that are in our customer base that we just haven't seen a major impact in unless you.
Rick Campo: Unless you multiply those government job losses by 5 or 10, then maybe you start having 10 times, then maybe you start having some issues, but a lot of the folks that are losing their jobs are people that own homes and aren't living in apartments. The other part of the equation is 75% of our portfolio is outside the district, and we're in the suburbs, and so to me, there's a lot of discussion, a lot of noise, but absolutely zero evidence. on the ground that it's having any kind of negative effect on our business at all.
Brad Heffern: Supply those government job losses by <unk>.
Brad Heffern: Five or 10 than maybe you start having 10 times than maybe you start having some issues, but but a lot of the folks that are losing their jobs or people that own homes and are living in apartments. The other part of the equation is 75% of our portfolio as it is outside of the district and were in the suburbs and.
Brad Heffern: So to me the there's a lot of discussion a lot of noise, but absolutely zero evidence.
Brad Heffern: On the ground that that is having any kind of negative effect on our business at all.
Rick Campo: I'd add some numbers around that. If you look at our effective blended rent increases for the DMV in the first quarter, it was up over 4%. If you look at signed blended leases, which is obviously a leading indicator of what the second quarter is going to look like. So signed blended leases for the first quarter was higher at 5%. And our occupancy in the DMV is the highest in our system at 97%. So very, very, very strong.
Brad Heffern: I'd add numbers around that if you look at our effective blended rent increases for the DMD in the first quarter. It was up over 4%. If you look at signed blended leases, which is obviously a leading indicator of what the second quarter is going to look like so signed blended leases for the first quarter was higher at 5%.
Brad Heffern: And.
Brad Heffern: Our occupancy in the DMD is the highest in our system at 97% so very very very strong.
Unknown Executive: For more information visit www.FEMA.gov Okay, thank you. Thank you.
Brad Heffern: Okay. Thank you.
Steve Sakwa: And our next question today comes from Steve Sakwa with Evercore ISI. Please go ahead. Yeah, thanks. So Rick, I guess I wanted to follow up on your comment about the development. And I know, you know, you're being a bit careful on, you know, the start, but you know, how are you underwriting construction costs today? And, you know, what are you sort of putting in for for tariff impacts on the part of the development that's being impacted? And, you know, what adjustments if any, are you making on kind of the rent and expense side of things?
Speaker Change: Thank you and our next question today comes from Steve <unk> with Evercore ISI. Please go ahead.
Speaker Change: Yeah. Thanks, Rick I guess I wanted to follow up on your comment about the development and I know youre being a bit careful on.
Speaker Change: The smart, but how are you underwriting construction cost today.
Speaker Change: And what are you sort of putting in for tariff impacts on the that part of the development that's being impacted.
Speaker Change: What adjustments if any are you, making on kind of the rent and expense side of things. Thanks.
Rick Campo: Thanks.
Rick Campo: Sure. In terms of cost, we're putting roughly two to 3% in terms of in cost related to tariffs. And the reason it's not more is that, you know, we've been to this movie before, under the administration 1.0, you know, there were tariffs and there were issues and, and COVID created a lot of a lot of interesting supply chain issues, as we all know. And so what a lot of folks have done, including the apartment industry and construction industry, is we have we have tried to get our supply chain more, you know, closer to to our projects.
Speaker Change: Sure.
Speaker Change: In terms of of course, we're putting roughly 2% to 3% in terms of cost.
Speaker Change: The tariffs and the reason it's not more is it.
Speaker Change: We've been to this movie before under the administration of 1.0.
Speaker Change: There were tariffs and there were issues and Covid created a lot of a lot of interesting supply chain issues as we all know and so we had a lot of folks have done including the apartment industry and construction industry is we have we haven't tried to get our supply chain more.
Speaker Change: Or two to our projects end and a lot of effort has gone into into.
Rick Campo: And, and a lot of effort has gone into into, you know, getting supply chains that are that are that are not as vulnerable as Asian supply chains. And, and I would say that that that that's part of the reason why we're, you know, we're talking about two to 3%. On the other hand, if you think about margin compression on the construction, on on contractors, you know, profit margins are coming in, because if you think about the peak construction, we're, we're 50 years, you know, peaks in new construction, and you look at the forward starts, and they're falling off the edge of the earth and, and the, the builders out there that are our subcontractors all see their business shrinking.
Speaker Change: Getting supply chain center that are that are not as vulnerable as Asian supply chains, and I would say that.
Speaker Change: That's part of the reason why we're talking about 2% to 3% on the other hand, if you think about margin compression on the construction.
Speaker Change: On on contractors.
Speaker Change: Profit margins are coming in because if you think about.
Speaker Change: The peak construction, we were 50 years peaks in new construction and you look at the forward.
Speaker Change: Starch and they're falling off the edge of the Earth and the <unk>.
Speaker Change: The builders out there that are our subcontractors all see their business shrinking. So what theyre doing is there is there are shrinking their margins to offset these costs and keep in mind. When you are at a 50 year high on.
Rick Campo: So what they're doing is they're, is they're shrinking their margins to offset these costs. And keep in mind, when you're at a 50 year high on, on construction, the margins are wide, because there's, you know, there's not enough people to go around from a construction from a business perspective. So they there's a lot of room in the margin for, for people to bring that down and, and to offset these kind of costs. So I think that's, that's, that's the good news. The bad news, though, I think is that we are worried that there are going to be certain components, that might have supply chain challenges, and not just price, but just getting the product.
Speaker Change: On construction the margins are wider because there is.
Speaker Change: Theres not enough people to go round.
Speaker Change: Constructive from a business perspective, so there's a lot of room in the margin for.
Speaker Change: People to bring that down and to offset these kind of cost. So I think that's that's that's the good news the bad news, though I think is that we are worried that there are going to be certain components that might have supply chain challenges and not just price, but just getting the product.
Rick Campo: And that's kind of like, you know, are the shelves going to be full of the things that you need. And if there's one component that's not available, that could slow your whole project down. And I think there's a little, there's definitely some risk in that, for sure. In terms of how we're underwriting today, you know, we're underwriting with with a view that, that rents are going to be flat ish, you know, for this year, and then they're going to start to rise next year, at probably better than, than, than, you know, normal rates. And then within in 2728, we're going to have outsized revenue growth.
Speaker Change: And that's kind of like.
Speaker Change: Are the shell is going to be full of the things that you need and if there is one component that's not available that could slow your whole project down and I think theres a little there's definitely some risk in that for sure in terms of how we're underwriting today.
Speaker Change: We are underwriting.
Speaker Change: With a view that that rents are going to be flat ish for this year, and then theyre going to start to rise next year at probably better than that.
Speaker Change: Dan.
Speaker Change: Dan.
Speaker Change: Normal rates and then within in 27 28, we're going to have outsized revenue growth. So we're starting with current rates and then where we are putting in our models.
Rick Campo: So we're, we're starting with current rates. And then we're, we are putting in our models, the the effect of what we think is going to be some of the best rental growth markets that we've seen since the end of the financial crisis. X, maybe the COVID, you know, craziness that happened in 2022.
Speaker Change: The effect of what we think is going to be some of the best rental growth markets that we've seen since the end of the financial crisis.
Maybe the Covid craziness that happened in 2022.
Speaker Change: Thank you and our next question today comes from Handel St Juste with Mizuho. Please go ahead.
Haendel St. Juste: And our next question today comes from Haendel St. Just with Mizzouho. Please go ahead. Hey guys, good morning. Alex, maybe a question for you on just the the FFO guide here. You gave a second quarter guide, we back into kind of full year first half versus second half numbers of kind of 341-ish for the midpoint of first half, 337 the back half of the year.
Speaker Change: Hey, guys good morning.
Speaker Change: Alex maybe a question for you on just the <unk> Guide here you gave US second quarter guide we back in queue.
Speaker Change: I'm kind of full year first half versus second half numbers of kind of 341 ish for the midpoint of the first half 337 in the back half of the year. So I know that market conditions are expected to improve our supply Paul do you have some developments coming online your borrowing costs lower.
Alexander Jessett: So I know that market conditions are expected to improve as supply falls, you have some developments coming online, your barring costs lower, and it's early in the year, but maybe you can help us understand, is anything contemplated in the second half that we're not aware of because, again, there seems to be some deceleration implied in the back half of the year based on this this updated guide. Thanks. Yeah, Handel, absolutely. If you'll remember, we've got 750 million dollars of acquisitions and 750 million dollars of dispositions built into our math, and as I said on the last call, because the the initial assets that we're going to be selling are our older, more capital intensive assets, they are going to be trading at a higher yield than our acquisitions, and so we're going to have some negative impact on that spread on an FFO basis in the latter part of 25, but remember, that's on an FFO basis.
Speaker Change: And it is early in the year, but maybe you can help us understand with anything contemplate in the second half that we're not aware of because.
Speaker Change: Again, it does seem to be some deceleration implied in the back half of the year based on this this updated guidance yeah. They will absolutely if you'll remember we've got $750 million of acquisitions and $750 million of dispositions built into our math and as I said on the last call because the initial app.
Speaker Change: Assets that were going to be selling our older more capital intensive assets. They are going to be trading at a higher yield than our acquisitions and so we're going to have some negative impact on that spread on an <unk> basis in the latter part of latter part of 'twenty five but remember that's on an <unk> basis on an <unk> basis.
Alexander Jessett: On an AFFO basis, these assets will probably trade pretty much in line with one another, and then the second thing you have to remember is that as we're selling these older assets, although the yield is a little higher today, the newer assets that we're buying are going to grow at a faster pace, so the dilution that you're seeing or that we expect to see in the latter part of 2025 should be should be eliminated in pretty short order as we go into 26 and 27 and beyond, but that's that's what you're looking at. Thank you.
Speaker Change: These assets will probably trade pretty much in line with one another and then the second thing you have to remember is that as we're selling these older assets. Although the yield is a little higher today. The newer assets that we're buying are going to grow at a faster pace. So the dilution that youre seeing or that we expect to see in the latter part of 2025 should be it should be eliminated.
Speaker Change: Nate it in pretty short order as we go into 'twenty six 'twenty seven beyond but that that's what you are looking at.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Thanks.
Alexander Goldfarb: And our next question today comes from Alexander Goldfarb with Piper Sandler. Please go ahead. Hey, morning, morning down there. Alex question for you on the commercial paper program. You're following a long list of your other larger REITs that have entered this. And I always whenever I speak to like unsecured, the unsecured mafia, you know, I always hear some pushback on on the CP program. So can you just elaborate a little bit more what the cost advantages, you know, versus the line of credit, why you do it? Is there any impact from the I mean, the unsecured community pretty powerful community, you know, you want them on your good side.
And our next question today comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Speaker Change: Hey, good morning, good morning down there.
Speaker Change: Alex question for you on the commercial paper program.
Speaker Change: You are following a long list of your other larger Reits that have entered this.
Speaker Change: And I always whenever I speak too like unsecured the unsecured Mafia I always hear some pushback on the CP program. So can you just elaborate a little bit more what the cost advantages versus line of credit. While you do it is there any impact from the I mean, the unsecured community is pretty powerful community you want them on your good side.
Alexander Jessett: So is there a pricing impact to your bonds? Or like, why is there all this commotion that I hear about?
Speaker Change: So is there a pricing impact to your bonds are like wiser. All this commotion that I hear about.
Alexander Jessett: So first of all, I absolutely love our unsecured community. So any of you that are out there listening, we love you guys. What I would tell you is those folks that generally were against it, a lot of them have changed their tune. There are a few that are vocal and that push back against it. But the real thing is that you have to be prudent in how you use it. And we're absolutely prudent in how we use it. It is not in addition to your line of credit. It is, as your line of credit backstops it, it is merely a substitute for your line of credit for short-term borrowings.
Speaker Change: So first of all I, absolutely love our unsecured community. So any of you that are out there listening we love you guys.
Speaker Change: What I would tell you is.
Speaker Change: Those folks that generally were against that a lot of them have changed their tune. There are a few that are local and that pushed back against it but but the real thing is is that you have to be prudent in how you use it and we're absolutely can be prudent in how we use it. It is not in addition to your line of credit it is.
Speaker Change: Your line of credit Backstop set it is merely a substitute for your line of credit for short term borrowings.
Alexander Jessett: A lot of the unsecured community gets worried that people will use short-term debt to fund long-term assets. That's absolutely not what we will do. It is just in lieu of our line of credit. The pricing differential is fairly significant, 50 basis points, which obviously, as you can see in our guidance increase, works out to be three cents per share for us in 2025. So that's why we do it. It's a large pricing increase. But we absolutely will use it in a prudent, effective manner. There will be no impact to our bond pricing. As you pointed out, the largest REITs in the REIT universe do have a commercial paper program in place.
Speaker Change: A lot of the unsecured community gets worried that people will use <unk>.
Speaker Change: Short term debt to fund long term assets Thats, absolutely not what we will do it as just in lieu of our line of credit.
Speaker Change: Pricing differential is fairly significant at 50 basis points.
Speaker Change: Which obviously as you can see in our guidance increase works out to be <unk> <unk> per share for us in 2025. So that's why we do it.
Speaker Change: A large pricing increase but we absolutely will will use it in a prudent effective manner, there will be no impact to our bond pricing as you pointed out the the the largest REIT in the REIT universe do you have a commercial paper program in place and so this is not something that we think will cause us any disadvantages on the answer.
Alexander Jessett: And so this is not something that we think will cause us any disadvantages on the unsecured side.
Speaker Change: <unk> side.
Speaker Change: Okay.
Speaker Change: Thank you.
John Kim: And our next question today comes from John Kim with BMO Capital Markets. Please go ahead.
Speaker Change: Thank you and our next question today comes from John Kim with BMO capital markets. Please go ahead.
Unknown Executive: Alex, we love you too. I was wondering on the April commentary of basically showing positive momentum versus the first quarter, I was wondering if you could provide that information on new leases as well. If we look at the CoStar data, it seems like April's kind of stalled out for you and some of your peers. I know that's not really apples to apples comparison necessarily, but I was wondering if you can comment if you've seen any softness on new leases in April. You know, we have not, not at all. So yeah, I'm not sure about the data sources that and what they're pulling, but we're not seeing that one bit.
Speaker Change: Alex We love you too.
Speaker Change: Yeah.
Speaker Change: I was wondering on the APRA.
Speaker Change: The April commentary.
Speaker Change: Basically showing positive momentum versus the first quarter I was wondering if you could provide that information on new leases as well if we look at the Costar data. It seems like April has kind of stalled out for you in some of your peers I know thats not really apples to apples comparison necessarily but I was wondering if you can comment if you've seen any softness on new leases.
Speaker Change: In April.
Speaker Change: Yes, no we have not.
Speaker Change: Not at all so yeah, I'm not sure about the data sources that.
Speaker Change: And what theyre pulling but we're not seeing that one bad in fact, we are seeing the uptick.
Alexander Jessett: In fact, we are seeing the uptick uptick that we would expect going from the first quarter to April.
Speaker Change: <unk> uptake that we would expect going from the first quarter to April.
Unknown Executive: Okay, thank you. Thank you.
Speaker Change: Okay. Thank you.
Speaker Change: Yeah.
Richard Hightower: And our next question today comes from Richard Hightower of Barclays. Please go ahead. Good morning, guys. Yeah, I'll tell you one of the reasons why we always have a blend between Class A and Class B, and a blend between urban and suburban is we know that those different, different classes behave differently at points in time. If you look at over the past four or five years, Class B suburban absolutely was outperforming. But a lot of that was a function of where the supply was, the supply was Class A urban assets. As we're working through the urban Class A supply, what we're actually seeing this year, in actuals in the first quarter, and what we have for the full year is that Class A and urban assets are performing slightly better, pretty close, but still slightly better on that side.
Speaker Change: Thank you and our next question today comes from Rich Hightower of Barclays. Please go ahead.
Rich Hightower: Alright, good morning, guys.
Rich Hightower: So I was wondering if you could.
Rich Hightower: Maybe give us a sense of your projections for a assets versus b assets.
Rich Hightower: In the Sunbelt markets and is there any difference in history. If we go back and look at historical patterns.
Rich Hightower: Because you've got a sort of a different composition of the workforce.
Rich Hightower: Higher income higher education, and all that kind of stuff versus maybe where we stood 10 20 years ago, just how those assets will perform.
Yeah I'll tell you what are the reasons why we always have a blend between class a and class b and a blend between urban and suburban is we know that those different.
Rich Hightower: Different classes behave differently at points in time, if you look at over the past four or five years class B suburban absolutely was outperforming but a lot of that was a function of where the supply was the supply was class a urban assets.
Rich Hightower: As we're working through the the urban class a supply but were actually seen this year in the actuals in the first quarter. What we have for the full year is that class a and urban assets are performing slightly better pretty close, but still slightly better on that side.
Richard Hightower: Okay, that's interesting.
Rich Hightower: Okay. That's interesting and then maybe just a follow up.
Rick Campo: And then maybe just a follow up, but you know, on the 750 million of acquisitions and dispositions, I guess maybe on the disposition side, just help us understand who the buyer pool is, you know, cap rates, capital structures, just, you know, who's got the capacity to buy, who's lending against those assets? Is it a value add, you know, type of plan generally, just what's going on there? Yeah, absolutely. It's value add. What's interesting, there are so many funds out there and a lot of funds that you've never even heard of that have a great deal of capacity.
Rich Hightower: On the 750.
Rich Hightower: Million of <unk>.
Acquisitions and dispositions.
Speaker Change: Maybe on the disposition disposition side, just help us understand who the buyer pool is.
Speaker Change: You know cap rates capital structures, just you know who's got the capacity to buy who is lending against those assets is it a value add type of plan generally with what's going on there.
Speaker Change: Yeah, absolutely it's value add.
Speaker Change: Whats interesting there are so many funds out there and a lot of funds that you've never even heard of that have a great deal of capacity.
Rick Campo: We do have deals in the marketplace, I'll tell you that folks that are showing up that are making strong bids are sort of more of the local operator, local shops with good size funds, good, good operating histories, they are treating them as value add opportunities. If you look at the spread differential on cap rates, as I said, a little while ago, you know, it's probably around 100 basis points on a pure FFO type yield differential between the acquisitions, but that's not what it is once you put real CapEx in because these are older assets, more capital intensive assets, but there's a lot of folks out there with money and they really do like this product type.
Speaker Change: We do have deals in the marketplace I'll tell you that folks that are showing up that are making strong bids or are sort of more of a local operator local shops with good sized funds. Good good operating history. They are treating them as value add opportunities. If you look at the spread differential on cap rates as I said a little.
Speaker Change: While ago.
Speaker Change: Around 100 basis points on a on a pure F F O type yield differential between the acquisitions, but but that's not what it is once you put real capex and because these are older assets more capital intensive assets, but there's a lot of folks out there with money and and and they really do like this product type.
Rick Campo: Yeah, just to put a fine point on that, we have a property in Dallas that we're marketing and I think the number of offers is like 35 offers on it and so it is, you know, it's a bite-sized kind of deal, so there's a lot of people who want to do these size kind of transactions and, you know, and they're right in the sweet spot of Freddie and Fannie financing, and there's really no limit on the financing side of the equation. Insurance companies, banks are still out there in the marketplace, so there's plenty of capital out there and as to Alex's point, even the private capital is probably more aggressive today than the broader maybe pension capital because I think they're out there kind of nervous about the market the way most people are, but these private equity slash sort of private office or family office groups have been consistent buyers and have consistent capital over a long period of time.
Speaker Change: Put a fine point on that.
Speaker Change: We have a property in Dallas.
Speaker Change: <unk> marketing and <unk>.
Speaker Change: And I think the number of hub of offers for like 35 offers on it and so it is it is.
Speaker Change: A bite size kind of deal so theres a lot of people, who want to do the science kind of transactions and and and.
Speaker Change: They're right in the sweet spot of Freddie and Fannie financing, so and there is really no limit on the financing side of the equation insurance companies banks are still out there in the marketplace. So there's plenty of capital out there.
Speaker Change: And to Alex's point, even the private capital is there's probably more aggressive today than the broader maybe pension capital because I think there are out there kind of nervous about the market. The way most people are but these private equity slash.
Speaker Change: Sort of.
Speaker Change: Private office or family office groups have been consistent buyers.
Speaker Change: Consistent capital over a long period of time.
Unknown Executive: Thank you.
Speaker Change: Thank you and our next question today comes from Jana Galan with Bank of America. Please go ahead.
Jana Galen: And our next question today comes from Jana Galen with Bank of America. Please go ahead. Thank you. Good morning. Appreciate your comments on the renewals being sent out at about 4.2%. Can you remind us what the historical take rate is there post-negotiation? I'm sorry, did you say take rate? Yeah, where they kind of settle out on the renewals. Yeah, it's from the from the stated rate or what we go out at, there's usually about a 50 basis point decline to what leases get entered into. You know, our, our renewal rate is is one of the highest that we've seen ever in our company's history.
Jana Galan: Thank you good morning.
Jana Galan: I appreciate your comments on the renewals being sent out at about four 2%.
Can you remind us what the historical take rate is there a place negotiations.
Speaker Change: I'm, sorry did you say take rate.
Speaker Change: Yes, where are they kind of settle out on the renewals.
Speaker Change: Yeah.
Speaker Change: From this from the stated rate or what would go out at there's usually about a 50 basis point decline to what leases get entered into.
Speaker Change: <unk>.
Speaker Change: Our renewal rate is is one of the highest that we've seen.
Speaker Change: However, in our company's history, so it's pretty interesting that.
Alexander Jessett: So it's it's pretty interesting that Despite all of the and maybe Rick's point about head spinning, maybe part of the head spinning is I think I'm just going to stay here where I'm comfortable and where I've been treated well, and renew my lease and kind of think about, you know, reconsider that somewhere down the road. But our renewal rates were really high. And our take rate is about a 50 basis points spread. You know, we're, we're assuming that renewals in the second quarter are going to be up in the high 3% range. And so that's in line with what we're sending out and what we would expect to sign.
Speaker Change: Despite all of the and maybe <unk> point about head spending maybe part of the hedge spending is I think I'm, just going to stay here, where I'm comfortable and where I've been treated well and renew my lease and kind of think about it Mike.
Speaker Change: Reconsider that somewhere down the road, but our renewal rates were really high in our.
Speaker Change: Our take rate is about a 50 50 basis point spread.
Speaker Change: Thank you.
Speaker Change: We're assuming the renewals.
Speaker Change: The second quarter are going to be up in the high 3% range and so that's in line with what we're sending out and what we would expect to sign.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Okay.
Adam Kramer: Apologies, and our next question today comes from Adam Kramer at Morgan Stanley. Please go ahead. Hey, great. Thank you for the time here. I think on the last call, you guys talked about full year blended lease growth between one and 2%, with the new lease that's slightly negative and renewals in the high 3% range. And I think you also kind of talked about the cadence of that over the course of the year.
Speaker Change: Apologies. Our next question today comes from Adam Kramer of Morgan Stanley. Please go ahead.
Speaker Change: Great Great. Thank you for the time here I think on the last call you guys talked about full year blended lease growth between 1% and 2% with new lease that's slightly negative and renewals in the high 3% range.
Speaker Change: And then I think you also kind of talked about the cadence of that over the course of the year wondering if there's any change to I guess number one for the full year numbers.
Rick Campo: I'm wondering if there's any change to, I guess, number one, to the full year numbers, both the new and renewal. And also wondering, number two, if there's any change to kind of the cadence of new lease growth and kind of the max new lease growth that you expect? At some point this year? So first of all, you're exactly right. That's exactly what I said last quarter. And at this point in time, there is no change to our full year assumptions, nor any changes to to the cadence of how we get there. And we still do believe that that sometime in the third quarter is when when you should see some positive positivity on the new lease side.
Speaker Change: Both the new and renewal and then also wondering number two if there's any change to kind of the cadence of new lease growth.
Speaker Change: Kind of the Max New lease growth that you expect at some point this year.
Speaker Change: So first of all you're exactly right that's exactly what I said last quarter and at this point in time, there is no change to our full year assumptions, nor any changes to the cadence of how we get there.
Speaker Change: And we still do believe that that sometime in the third quarter is when.
Speaker Change: When you should see some positive.
Speaker Change: Positivity on the new lease side.
Unknown Executive: Thank you. And as a reminder, if you'd like to ask a question or follow up, please press star one on your.
Speaker Change: Thank you.
Speaker Change: And as a reminder, if you'd like to ask a question or follow up Please press star one on your telephone.
Wesley Golladay: Today's next question comes from Wes Golladay with Baird. Please go ahead. Hey, good morning, everyone.
Speaker Change: Today's next question comes from Wes Golladay with Baird. Please go ahead, Hey, Hey.
Rick Campo: When you look at your acquisition pipeline, are you going to make a big push in Austin and Nashville this year? And are there any other markets you want to boost exposure to?
Wes Golladay: Good morning, everyone. When you look at your acquisition pipeline are you going to make a big push in Austin and Nashville. This year and are there any other markets you want to boost exposure too.
Rick Campo: definitely Austin and Nashville are on our radar screen big time and primarily because of the just the percentage of net operating income we have from those markets we have we've stated we don't want markets to be over 10% but we want them to get closer to that and Austin and Nashville are you know in that zone in terms of we need to increase our exposure there to get get closer to those numbers and there are other markets as well like Raleigh Yeah, certainly Tampa is a market that's high on our list, Dallas is a market that's high on our list, Dallas will be a little bit of trading assets in and out, but you know really every single one of the markets that we operate in with the exception of as we talked about last quarter being Houston and the DMV because they're two largest markets, we're looking for quality real estate in all of those other markets, real estate where we think we can create value for our shareholders.
Wes Golladay: Definitely Austin and Nashville are on our radar screen Big time, and primarily because of the just the percentage of of net operating income we have from those markets. We have we have stated we don't want markets be over 10%, but we want them to get closer to that in Austin and Nashville are are.
Wes Golladay: Zone in terms of we need to increase our exposure there to get closer to those numbers and there are other markets as well like Raleigh.
Wes Golladay: That is that we're looking at as well yeah, certainly Tampa is a market that's high on our list Dallas is a market that's high on our list Dallas will be a little bit of trading assets in and out but you know really every single one of the markets that we operate in with with the exception of as we talked about last quarter being being Houston and the DMV because.
Wes Golladay: Our two largest markets, where we're looking for quality real estate and all of those other markets real estate, where we think we can create value for our shareholders.
Unknown Executive: Thanks, everyone.
Wes Golladay: Thanks, everyone.
Wes Golladay: Mhm.
Unknown Executive: Thank you.
Michael Goldsmith: And our next question today comes from Michael Goldsmith at UBS. Please go ahead. Hi, thanks.
Speaker Change: Thank you and our next question today comes from Michael Goldsmith UBS. Please go ahead.
Unknown Executive: This is Amy. I'm from Michael.
Speaker Change: Hi, Thanks, This is Amy on for Michael.
Unknown Executive: First, compliments on the music choice.
Speaker Change: Compliments on the music choice and then I was wondering if you are seeing.
Rick Campo: And then I was wondering, as you're seeing a much better outlook for your markets as we head towards 2027, could you look to rebuild the land bank to be able to start more projects? Absolutely. You're asking about rebuilding our development pipeline so that we can bring more projects on? Yeah, because you you recently sold down the land bank a bit. Yes. And wondering if you'd like to rebuild? Absolutely. We are in the marketplace trying to rebuild the land bank. We are definitely a developer and have created significant value over the years through development and we will continue to do that.
Speaker Change: In a much better outlook for your markets as we head towards 2027 could you look to rebuild the land bank to be able to start more projects.
Speaker Change: Absolutely, we definitely youre asking about rebuilding our development pipeline. So that we can bring more projects on.
Speaker Change: Yeah, because you recently saw.
Speaker Change: <unk> down the land bank.
Speaker Change: I'm just wondering if you've got to rebuild.
Speaker Change: Absolutely we are in the marketplace trying to rebuild the land land bank, we are definitely up a developer and have created significant value over the years through development and we will continue to do that even though I will say it is much more difficult today to underwrite projects, given given cost and that that rent growth.
Rick Campo: Even though I will say it is much more difficult today to underwrite projects given cost and that rent growth has been flat for the last couple of years. So you definitely have to be very optimistic about the future but also disciplined about what returns you are willing to take as well.
Speaker Change:
Speaker Change: It has been flat for the last couple of years. So you definitely have to have.
Speaker Change: You have to be very.
Speaker Change: Optimistic about the future but also.
Speaker Change: Disciplined about about what returns you are willing to take as well.
Linda Tsai: Great, thank you. And our next question today comes from Linda Tsai with Jeffreys. Please go ahead.
Speaker Change: Great. Thank you.
Speaker Change: Uh huh.
Speaker Change: And our next question today comes from Linda Tsai with Jefferies. Please go ahead hi.
Rick Campo: Hi, on the SFR product, Woodmill Creek and Long Meadow Farms in suburban Houston, how is lease up trending relative to expectations? And can you share what you're learning in terms of how residents are responding to the product and maybe how you're driving traffic to these assets? Yeah, absolutely. And I talked about this a little bit on the last call, this particular product type, we were warned when we got started, that it's a very slow lease up. It's just the it's just the demographic that generally moves into, into this product takes longer to make decisions. And and they were right.
Linda Tsai: Hi on the <unk> product with Mill Creek, and long Meadow farms in suburban Houston housing lease up trending relative to expectations can you share what you're learning in terms of how residents are responding to the products and maybe how you are driving traffic to these assets.
Linda Tsai: Yeah, absolutely and I talked about this a little bit on the last call. This particular product type we were.
Linda Tsai: Reward when we got started that it's a very slow lease up. It's just it's just the demographic that generally moves into into this product takes longer to make decisions.
Rick Campo: So it has been it's been a very slow lease up. The good news is, is that we're almost across the finish line. And we'll get that we'll have both of them stabilized later on this year. Now, the other good news about it is, and I talked about this last time as well, is that if it takes somebody this long, to make a decision to move into a community, we think they're going to be sticky, we think it's going to take them quite some time to make a decision to to to leave the community. So all in all, we feel very good about the product.
Linda Tsai: And they were right and so it has been it has been a very slow lease up are the good news is is that we're almost across the finish line and we'll get that will have both of them stabilize later on this year.
Linda Tsai: Now the other good news about it is and I talked about this last time as well is that if it takes somebody this long to make a decision to move into a community. We think theyre going to be sticky, we think it's going to take them quite some time to make a decision to leave the community. So all in all we feel very good about the product what we really need to see is.
Rick Campo: What we really need to see is, is how is it to operate once it becomes stabilized, if we can operate it efficiently, like we think we can with nesting it with our existing traditional multifamily communities, then you're likely to see us do more of this. But at this point in time, you know, probably probably the biggest lesson we learned is, yes, it does take a while to lease up, but feel very good about where we are with them.
Linda Tsai: How is it to operate once it becomes stabilized if we can operate it.
Linda Tsai: Actually like we think we can with nestea in it with our existing traditional multifamily communities, then you're likely to see us do more of this but.
Linda Tsai: At this point in time.
Linda Tsai: Probably probably the biggest lesson. We learned is yes. It does take a while to lease up but feel very good about where we are with them.
Speaker Change: Thank you and our next question today comes from Mccotter piece.
Connor Peace: And our next question today comes from Connor Peace at Deutsche Bank. Please go ahead. Thank you for taking my question. Bad debt continued to improve this quarter at 60 basis points. So would you say you've reached a normalized level at this point? Or are you seeing further improvement or maybe upside pressures? I would tell you that we are pretty close to reaching a normalized level. Keep in mind that normalized for us is 50 basis points, and so we're 60 basis points in the first quarter. So we're still 10 basis points high, but we've seen really significant improvements in the markets that were more problematic for us, primarily in California and in southeast Florida.
Speaker Change: Please go ahead.
Speaker Change: Hi, Thank you for taking my question.
Speaker Change: Bad debt continued to improve this quarter at 60 basis points. So.
Speaker Change: Would you say you've reached a normalized level at this point or are you seeing further improvement or there may be upside pressures.
Speaker Change: I would tell you that we are pretty close to reaching a normalized level keep in mind that normalize for US is 50 basis points and so we're 60 basis points.
Speaker Change: In the first quarter. So we're still 10 basis points high, but we've seen really significant improvements and in the markets that were more problematic for us.
Speaker Change: Primarily in California, and in Southeast, Florida.
Alexander Jessett: So I think we've got, you know, hopefully we've got another 10 plus basis points to go, but feel very, very good about where we are. We're certainly ahead of plan for the year, and a lot of this is tied to some of the technology initiatives that we've rolled out to make sure that we sort of close the front door on folks coming in on a fraudulent basis, and that technology is absolutely working. We can see it in our results, and we feel good about the progress.
Speaker Change: So I think we've got you know hopefully we got another 10 10 plus basis points to go but feel very very good about where we are we're certainly ahead of plan for the year end and a lot of this is tied to some of the technology initiatives that we've rolled out to make sure that we sort of close the front door on folks coming in and.
Speaker Change: The fraudulent basis and that technology is absolutely working we can see it in our results.
Speaker Change: And we feel good about the progress yes.
Rick Campo: Yeah, Connor, I just a point on that. I recall during the midst of the COVID mess when our bad debt expense went to the level that we thought we would never see, and we got a question on the conference call that someone asked, do you think that bad debt expense will ever get back to what it was pre-COVID? And my answer was, ever is a long time, and, you know, we probably will. We just couldn't see it at the time, but as Alex said, we're basically 10 points away from our 30-year average bad debt expense.
Speaker Change: Yes counter I, just put a point on that I recall during the during the midst of the Covid mess, what our bad debt expense went to levels that we thought we would never see.
Speaker Change: And we got a question on the conference call that someone asked do you think that bad debt expense will ever get back to what it was pre COVID-19 and my answer was ever is a long time.
Speaker Change: And we probably will we just couldn't see it at the time, but as Alex said, we're basically 10 points away from our 30 year average our bad debt expense. So we're definitely.
Rick Campo: So we're definitely trending in the right direction, and I think ever will come eventually.
Speaker Change: Trending in the right direction, and I think ever will come eventually.
Speaker Change: Thank you.
Speaker Change: Thank you and our next question today comes from Alex Kim Zelman <unk> Associates. Please go ahead.
Alexander Goldfarb: And our next question today comes from Alex Kim at Zellman & Associates. Please go ahead. Hey, guys, congrats on a strong quarter. Just wanted to pull the thread a little on the transaction market. We've you quoted that Camden Leander was able to be acquired 15% below replacement costs previously, and that ability to buy a replacement cost has been a boon thus far. And, you know, just curious, you know, is that still the case in your markets? How long do you expect that to last, especially as Ford Outlook just grows more positive? I think it's going to last for a while in Austin and Nashville, because the markets are, are, you know, are going to take longer to recover.
Speaker Change: Hey, guys. Congrats on a strong quarter just wanted to pull the thread a little on the transaction market.
Speaker Change: Believe you quoted that.
Speaker Change: Camden Leander was able to be acquired 15% below replacement cost.
Speaker Change: So and that ability to buy a replacement cost has been a boon thus far in <unk>.
Just curious.
Speaker Change: Is that still the case in your markets. How long do you expect that to last especially as forward outlook just grows more positive consistently.
Speaker Change: I think it's going to last.
Speaker Change: For a while in Austin and Nashville.
Speaker Change: The markets are our.
Speaker Change: Are going to take longer to recover and so there are folks who are just not going to buy there until they see more light light at the end of the tunnel there and I think that the economic uncertainty has made people nervous, especially when you saw the technology you know.
Rick Campo: And so there are folks who are just not going to buy there until they see more light at the end of the tunnel there. And I think the economic uncertainty has made people nervous, especially when you saw the technology, you know, are probably going to be a little less able to buy below replacement costs. But, but it's still a, you know, I still think there's a fair amount of uncertainty in the marketplace that's keeping a fair amount of institutional investors on the sidelines. I mean, when you have the volatility you do in the, in the, in the tenure, I mean, that's, you know, I know it's, it's just, it just makes people's, you know, kind of wait, right?
Speaker Change:
Speaker Change: Technology shares you know collapsing.
Speaker Change: As a result of tariffs and stuff like that so in Austin, and Nashville are very high tech or medical kind of a market. So I think youre going to still be able to buy properties below below replacement costs in those markets I think in other markets that are that are that have that.
Speaker Change:
Speaker Change: That are have the view that the.
Speaker Change: The market is going to do that.
Speaker Change: The rental rates are going to turn positive sooner rather than those other two markets are probably going to be a little less able.
Speaker Change: Able to buy below replacement cost, but but it's still a.
Speaker Change: So I think there's a fair amount of uncertainty in the marketplace. That's keeping a fair amount of of of institutional investors on the sidelines I mean, when you have the volatility you do in the in the in the tenure.
Speaker Change: That's.
Speaker Change: I know, it's it's just it just Pete makes people's kind of weight right and that waiting is is I think going to continue to keep prices in a reasonable level, where we can buy below replacement cost.
Rick Campo: And that waiting is, is I think going to continue to keep prices in a reasonable level where we can buy below replacement costs. I think the ultimately the, the, the other sort of driver is how many properties are coming into the markets. And, you know, the banks that, that need to be paid off by merchant builders, banks are, have been very accommodative over the last couple of years and they see the light at the end of the tunnel as well. And, and they're going to start putting more pressure on, on people to sell or refinance in some fashion.
Speaker Change: I think the ultimately the.
Other sort of driver is how many properties are coming into the markets and the bank said that need to be paid off.
Speaker Change: Merchant builders banks are have been very accommodative over the last couple of years and they see the light at the end of the tunnel as well and Theyre going to start putting more pressure on on people to sell or refinance in some fashion and there are a lot of merchant builders out there that they would have to write checks to refinance and they <unk>.
Rick Campo: And there are a lot of merchant builders out there that, that have to write checks to refinance, and they probably aren't going to want to do that. They're likely to, to sell. And so you should have more merchant builder product in the marketers as a result of that over the next, you know, 12 months.
Speaker Change: <unk> aren't going to want to do that they're likely to to sell and so you should have more merchant builder product in the marketers as a result of that over the next 12 months. So with all that said I think it's gonna be a a reasonable place to recent.
Rick Campo: So with all that said, I think it's going to be a, a reasonable place to, a reasonable environment to acquire properties. And in some markets, you'll get big discounts like Austin and Nashville and other markets. This can be closer to replacement costs, or maybe a little slightly less, but, but not the 10 or 15% number that we've seen in Austin and Nashville.
Speaker Change: A reasonable environment.
Speaker Change: <unk> properties and in some markets, you'll get big discounts like Austin, and Nashville, and other markets is going to be closer to replacement costs or maybe a little slightly less but not the 10 or 15% number that we've seen in Austin and Nashville.
Unknown Executive: Got it.
Got it appreciate the level of detail there.
Unknown Executive: Appreciate the level of detail.
Unknown Executive: And our next question is a follow up from Alexander Goldfarb with Piper Sandler. Please go ahead. Hey, thank you for the follow up to a combo market question on Houston and LA. Rick, you know, obviously oil back in the limelight.
Alexander Goldfarb: Thank you and our next question is a follow up from Alexander Goldfarb with Piper Sandler. Please go ahead.
Alexander Goldfarb: Thank you for the follow up to a combo market question on Houston and L. A.
Speaker Change: Rick you know, obviously oil back in the limelight.
Rick Campo: And so just curious, with the drop in oil prices, you know, any ramifications down the Houston market and out in LA, you know, with what's going on in Hollywood, the delayed reboot, you know, how you're thinking about your Hollywood and Glendale assets? Sure, let's start with oil. Oil prices obviously are lower, and they were lower for two reasons. One, people worried about the economy, but more importantly, the OPEC pumping more oil. And so what we hear from oil executives, and I was talking to some CEOs of oil companies here in the last week or so, and their view is that oil prices cannot stay at these levels very long for a couple of reasons.
Speaker Change: And so just curious with the drop in oil prices.
Speaker Change: Any ramifications down the Houston market and out in L. A with what's going on in Hollywood the delayed reboot, how youre thinking about your Hollywood in Glendale assets.
Speaker Change: Sure, let's start with oil oil prices, obviously are lower than they were lower for two reasons. One people are worried about the economy, but more importantly.
Speaker Change: The OPEC.
Speaker Change: Pumping more oil and so what we hear from our oil executives that I was talking to some some ceos of oil companies here in the last week or so and their view is is that oil prices cannot stay at these levels very long for a couple of reasons. One is is that is that the.
Rick Campo: One is that the OPEC needs, even though they have a lower breakeven price for oil than the U.S. does, they need $70 plus oil to make their economies work. And so bringing oil prices down maybe for political reasons is what they're you have a more accommodative economy, most people think the oil price is going to be 70 plus fairly quickly. On the other hand, when you think about Houston specifically, the price of oil has really not, unless it's like a massive decline because of COVID or something like that, has really not changed the dynamic of the energy business, because the energy business today has consolidated so much and has become more efficient and that the price of oil doesn't really drive their business as much, especially the big oil.
Speaker Change: OPEC needs, even though they have a lower breakeven price for oil in the U S does they need $70 plus oil too to make their economies work and and so.
Speaker Change: With oil prices down maybe for political reasons.
Speaker Change: Has is what they're doing now, but ultimately and probably fairly short lived if the economy doesn't it.
Speaker Change: It doesn't.
Speaker Change: It doesn't crash and you you have a more more accommodative economy yeah.
Speaker Change: Most people think that oil prices are going to be.
Speaker Change: 70, plus a fairly quickly on the other hand, the when you think about Houston, specifically the price of oil is really not.
Speaker Change: Unless it's like a massive decline because of COVID-19 or something like that that's really not changed the dynamic of the energy business because the energy business. Today has consolidated so much and has and has become more efficient and that they that it doesn't that the price of oil it doesn't really drive their.
Business as much, especially the big oil.
Rick Campo: Chevron and Exxon both announced earnings today. Chevron's wasn't as good as Exxon's, but both said that they're going forward with their projects, they're not changing their capital allocation strategies, they're not doing much other than just dealing with the current environment. Both companies have moved their headquarters, Exxon from Dallas to Houston and Chevron last year moved their headquarters from the Bay Area to Houston. So Houston continues to get consolidation effect and the employment from moving those headquarters.
Speaker Change: Everyone and Exxon, both announced earning today chevron's wasn't as good as excellence, but but both it said that you know there theyre going going forward with their projects, they're not changing their capital allocation strategies, they're not doing much other than than just dealing with the current environment of both companies.
Speaker Change: Have moved their headquarters Exxon from Dallas to Houston, and Chevron last year moved their headquarters from sorry from the Bay area to Houston. So we continue Houston continues to get consolidation effect and the employment from me.
Rick Campo: And so I don't think that oil prices are going to be a big issue to Houston at all.
Speaker Change: Moving those you know those headquarters and so I don't think that that oil prices are going to be a big issue to Houston.
Rick Campo: In terms of LA... Yeah, Alex, the two properties you mentioned, Camden Hollywood and Glendale, they both averaged 96% occupied in the first quarter. They continue to have a really good... Even recently in April, they're doing really well. we're down to probably a handful of holdover bad actors from the COVID experience. So we've almost in a lot of cases, we've turned over a pretty significant percentage of the tenancy in both of those communities. 96% occupied is feels like a really good place to be versus our overall portfolio average of 95.4% occupied right now. So I think we're fine there.
Speaker Change: And at all in terms of L. A.
Alex: Yes, Alex.
Alex: To the properties you mentioned a cabinet Hollywood in Glendale, They averaged both averaged 96% occupied in the first quarter. They continue to have a really good.
Alex: Even recently in April they're doing really well they also are.
Alex: We're down to probably a handful of hold over bad actors from the Covid experience. So we've almost in a lot of cases, we've turned over a pretty significant percentage of the tenancy in both of those communities.
Alex: 96% occupied as it feels like a really good place to be versus our overall portfolio average of 95, 4% occupied right now so I think we're fine there.
Alex: Youre always going to have.
Rick Campo: You know, you're from a regulatory standpoint, but actually, there's been some pretty interesting news, from a positive sense on the regulatory zeal for jumping into, you know, regulatory regimes around rent control, etc. In the last six months in LA, I hope it's a trend that continues.
Alex: The.
Alex: What's the next bullet in California from a regulatory standpoint, but actually theres been some pretty interesting news.
Alex: From a positive stance on the regulatory zeal for jumping into.
Alex: Regulatory regimes around rent control et cetera in the last six months in L. A I hope it I hope, it's a trend that continues.
Rick Campo: I just add one last thing on Houston that I wanted to mention. That is, you probably saw the announcement that Apple is expanding a plant here in Houston. Apple and Foxconn just bought 175 acres adjacent to the existing manufacturing facility they have. So a lot of the discussion about on-shoring or re-shoring, or whatever you want to call it, is starting to take place. And places like Texas are drawing those companies here for all the reasons that when you think about Houston, Houston gained 1.1 million people in the last 10 years. And it's a combination of domestic migration and international migration.
Alex: Just add one last thing on Houston that I wanted to mention that as well.
Alex: We saw the announcement that Apple is expanding a plant here in Houston, Apple and Fox Com, just bought a 175 acres adjacent to the existing manufacturing facility. They have so a lot of the discussion about onshoring of re shoring or whatever you want to call. It is starting to starting to take place.
Alex: And in places like Texas are drawing those companies here for all the reasons that.
Alex: When you think about Houston It gained Houston gained 1.1 million people in the last 10 years and.
Alex: And it's a combination of domestic migration and and and.
Alex: International migration.
Rick Campo: We're projected to have 100,000 more people this year. And people go, well, that's changing. And I think that the answer is it's not really changing because the reason people come to this market is because we are low cost, highly productive, and low risk. And when you think about those, and we have energy, by the way. And when you think about data centers, and data center production is exploding here locally. And so the reason data centers are coming to Texas is because we have the thing they need, which is power. We allow new power plants to be built.
Alex: We're projected to have 100000 more people. This year, so people, who are well, that's changing and and I think that the answer is it's not really changing because the reason people come to this market is because we are low cost high highly productive and low risk.
Alex: And when you when you think about those and we have energy by the way and when you think about data centers.
Alex: And datacenter production is exploding here locally and.
Alex: And so the reason datacenters are coming to Texas is because we have the thing they need which is power we allow new power plants to be built I'm trying to think when the last power New power plant was built in California.
Rick Campo: I'm trying to think when the last new power plant was built in California. So the re-shoring, the data center activity, it's all continuing to produce lots of jobs and lots of growth for Houston. So I think that, and for Texas overall, so that really applies to all the Texas markets. It's just a good story that continues to keep going.
So those.
Alex: The reassuring the data center.
Alex: Activity is all continuing to produce lots of jobs and lots of growth for Houston, So I think that and for Texas overall, so that really applies to all the Texas markets, but it's just a good story that continues to keep going.
Speaker Change: Thank you and our next question today comes from Brad Heffern with RBC capital markets. Please go ahead.
Brad Heffern: And our next question today comes from Brad Heffer with RBC Capital Markets. Please go ahead. Yeah, thanks for the follow up. Another one on DC. So last quarter, you formalized the plan to work down the exposure to both Houston and DC. Obviously, you made the positive comments on the fundamentals in DC.
Brad Heffern: Yes, thanks for the follow up.
Brad Heffern: The one on D. C. So last quarter you formalize the plan to work down the exposure to both Houston and DC.
Brad Heffern: Obviously, you made the positive comments on the fundamentals in D. C. But are you planning to market assets in D. C. In the near term or does the uncertainty there pushed out your transactions and presumably other transactions as well.
Rick Campo: But are you planning to market assets in DC in the near term? Or does the uncertainty there, you know, push out your transactions and presumably other transactions as well? I think it definitely makes sense to slow down on dispositions in D.C. in this current environment. Until you get more certainty about what's going on, I think investors are all kind of wait and see attitude, and that makes a lot of sense for us as well. And the Texas markets are buoyant and lots of excitement about expanding Texas exposure for investors. So yeah, we're not going to sell because we said we will into a market that we maybe think is a little less constructive for sales.
Brad Heffern: Oh, yes, definitely makes sense to us to slow down on dispositions in D. C. In this current environment.
Brad Heffern: Until you get more certainty about what's going on.
Brad Heffern: Investors are all kind of kind of.
Brad Heffern: Wait and see attitude and that makes a lot of sense for us as well.
Brad Heffern: The Texas markets are buoyant and lots of lots of.
Brad Heffern: Excitement about expanding Texas.
Brad Heffern: Texas exposure for investors and so yeah, we'll definitely we're not going to sell because we said we will enter a market that we maybe think its a little less constructive for for sales.
Unknown Executive: Okay, thank you.
Brad Heffern: Okay. Thank you.
Haendel St. Juste: Thank you, and our next follow-up comes from Haendel St.
Speaker Change: Thank you and our next follow up comes from Handel St. Juste of Mizuho. Please go ahead.
Alexander Jessett: Justin, Missouri. Please go ahead. Hey there, Alex, I wanted to go back to the question I asked earlier on kind of the first half versus second half, in terms of FFO, but maybe from a blends perspective, you gave some updates on expectations for, for second quarter, and it still seems like the first half look for blends is, you know, looking to be somewhat sladdish. And so to get to your full year guide, it implies a pretty meaningful ramp in the back half of the year to I think over over 2%. So maybe help us understand kind of what's driving that, your confidence threshold, and maybe any additional perspectives.
Alexander Goldfarb: Hey, there Alex.
Speaker Change: Alex I wanted to go back to.
Speaker Change: A question asked earlier on kind of the first half versus second half in terms of the <unk>, but maybe from a.
Speaker Change: Perspective, you gave some updates on expectations for second quarter and it still seems like the first half looks like lenses, we're looking to be somewhat flattish.
Speaker Change: And so to get to your full year guide it implies a pretty meaningful ramp in the back half to go to I think over over 2%. So maybe help us.
Speaker Change: Understand kind of what's driving that your confidence threshold and maybe any additional perspective. Thanks.
Alexander Jessett: Thanks. Yeah, absolutely. So once again, the blended trade out that I've got for the full year is is one to 2%. So clearly, there's a range and there's different ways we can get to the range. But one of the things that I do want to remind folks about is, is that the in February or March of last year, if you'll recall, we ran a special program to move all of our stale units, we had lower pricing when we went through that particular program, I will tell you that on average, most of those leases were signed were 16 month leases.
Speaker Change: Yeah, absolutely. So once again the blended trade out that Ive got for the full year is 1% to 2%. So clearly there's a range and there is different ways, we can get to the range, but one of the things that I do want to remind folks about is it at the in February or March of last year, if you'll recall we ran a.
Speaker Change: Program to move all of our steel units.
Speaker Change:
Speaker Change: Had lower pricing when we went through that particular program I will tell you that on average most of those leases were signed were 16 month leases and so 16 month leases.
Alexander Jessett: And so 16 month leases clearly becomes helpful for us when you start to look out 16 months from March of last year. And so that certainly does help a lot in our comparison basis. But yeah, we feel we still feel very comfortable with the range of one to 2%. And we feel comfortable that there's a there's a path that we can that we can absolutely get there.
Speaker Change: Clearly becomes helpful for us when you start to look out.
Speaker Change: 16 months from March of last year, and so that certainly does help a lot in our comparison basis, but yeah. We feel we still feel very comfortable with the range of 1% to 2% and we feel comfortable that there's a there's a path that we can that we can absolutely get there.
Unknown Executive: Thank you.
Speaker Change: Thank you and our final question today comes from Jamie Feldman at Wells Fargo. Please go ahead.
James Feldman: And our final question today comes from Jamie Feldman at Wells Fargo.
Please go ahead. Great, thanks for the follow up.
Jamie Feldman: Great. Thanks for the follow up just quickly on your insurance renewal coming up in May.
Just quickly on your insurance renewal coming up in May. I'm just curious, you know, what do you what have you included in guidance for that? And how are things trending in those conversations?
Jamie Feldman: Just curious what do you what have you included in guidance for that and how are things trending in those conversations.
So we actually renewed yesterday. I will tell you, as I've said many times, there's a very cyclical market when it comes to insurance, and a lot of insurance providers made a lot of money over the past several years. And insurance, as we know, is oftentimes a commodity, and the best way in which insurance providers can get more business is to drop rates. And that is exactly what we saw. So our total premiums were down a little bit over 10%, so feel very good about that. Now, keep in mind that premiums are only one component of our total insurance costs.
Jamie Feldman: So we actually renewed yesterday.
Jamie Feldman: I will tell you as I've said many times the there's a very cyclical market when it comes to insurance.
Jamie Feldman: And a lot of insurance providers made a lot of money over the past several years and insurance as we know is oftentimes a commodity and the best way in which insurance providers can get more business is to drop rates and that is exactly what we saw also are our total premiums were down a little bit over 10.
Jamie Feldman: So feel very good about that now keep in mind that that premiums are only one component of our total insurance cost. The second component is obviously losses.
The second component is obviously losses. If you look at 2024, we had a very low year in terms of losses. We are not currently anticipating that 2025 is going to be as low as 2024 just because we're looking at historical trends. So when you put the very successful insurance renewal in line, or you combine that with the idea that losses will likely be up from 2024, we are assuming that insurance for us for 2025 is going to be a flat number. That being said, we obviously did not change our full year expense growth assumptions. We are anticipating that perhaps some of the savings that we're seeing on the insurance side may get eaten up with slightly higher R&M tied to some of the tariff activity, and we're also seeing a little bit of slightly higher utilities as well.
Jamie Feldman: If you look at 2024, we had a very low year in terms of losses. We are not currently anticipating that 25 is going to be as low as 24, just because we're looking at historical trends. So when you. When you put the very successful insurance renewal in light or you combine that with the idea that losses will.
Jamie Feldman: <unk> likely be up from 24, we are assuming that insurance for us for 25 is going to be a flat number.
Jamie Feldman: That being said, we obviously did not change our full year <unk>.
Jamie Feldman: Spence growth assumptions, we are anticipating that perhaps some of the savings that we're seeing on the insurance side may get eaten up with slightly higher R&M tied to some of the tariff activity and we're also seeing a little bit of slightly higher utilities as well, but very very good insurance renewal.
But very, very good insurance renewal. Thank you.
And this concludes our question and answer session. Okay, great.
Jamie Feldman: Thank you and this concludes our question and answer session.
Jamie Feldman: Youre welcome.
Jamie Feldman: Thanks.
Well, thank you for being on the call today. We look forward to following up with you in the future and seeing you at future meetings. Thank you.
Jamie Feldman: Okay, great well, thank you for being on the call today, and we look forward to following up with you in the future and seeing you at future meetings. Thank you.
This concludes today's conference call. We thank you all for attending today's presentation.
Jamie Feldman: Thank you Sir.
Jamie Feldman: Today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
You may now disconnect your lines and have a wonderful day.
Jamie Feldman: [music].