Camden Property Trust

Good morning and welcome to Camden Property Trust's second quarter 2024 earnings conference call. I'm Kim Callahan, Senior Vice President of Investor Relations. 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. Today's event is being webcast through the Investors section of our website at camdenliving.com, and a replay will be available this afternoon. We will have a slide presentation in conjunction with our prepared remarks, and those slides will also be available on our website later today or by email upon request. If you are joining us by phone and need assistance during the call, please signal a conference specialist by pressing the star key followed by zero. All participants will be in listen-only mode during the presentation with an opportunity to ask questions afterward. And please note, this event is being recorded. 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. Further information about these risks can be found in our filings with the SEC, and we encourage you to review them. 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. As a reminder, Camden's complete second quarter 2024 earnings release is available in the Investors section of our website at camdenliving.com, and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call. 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 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 time, I'll turn the call over to Rick Campo.

Thanks, Kim. The theme of our on-hold music today is waiting. During our meetings with multifamily stakeholders in recent months, the consensus views seem to be that everyone in multifamily is waiting for something. Operations teams are waiting for the pace of multifamily completions to reach a peak and begin to come down and for bad debts to return to pre-pandemic levels. CFOs are waiting for the long-anticipated first interest rate cut by the Fed and as well as a relief in property insurance and property tax expenses. Transaction teams are waiting for the standoff between buyers and sellers to end. Sellers are waiting for buyers to throw in the towel and start buying, while buyers are waiting for the towels to go on sale. While we are certain that the waiting will end eventually, the timing is the debate. In the meantime, as the late, great Tom Petty reminds us, the waiting is the hardest part. With the second quarter behind us, I'm going to reprise most of my comments from last quarter since the markets are playing out as we have expected. We spent most of our time talking about supply in our markets. Yes, we are at a 30-year high for apartment deliveries, and yes, this is limiting rent growth in most of our markets now. The good news is that our markets are adjusting quickly to the post-pandemic low-interest rate development frenzy. Starts are still projected to fall to just over 200,000 apartments in 2025. New deliveries should peak in 2024, falling 21% in 2025. and another 54% in 2026, which would be a 13-year supply low point. Apartment demand continues to be strong. During the first half of the year, net apartment demand was over 200,000 apartments, matching 2018 and 2019. Witten Advisors projects 2024 apartment demand to be in the 400,000 range. The main driver of apartment demand is household formation, driven by population and employment growth, apartment affordability, and positive demographic trends. The most recent 2022-2023 census data reported that the top 10 cities increased their population by 710,000. Nine Camden markets are in the top 10. The bottom 10 cities reported a loss of 200,000 people. These were major cities on the west and east coast where Camden has limited exposure. Employment growth has been robust in all of our markets except Los Angeles, which continues to struggle. Ten of our markets have had job growth greater than 10% compared to the pre-pandemic levels. Apartment affordability continues to improve as resident wage growth has been over 5% while rents have been relatively flat. Consumers are spending less of their take-home pay for apartments. New Camden residents pay 19% of their income towards rents. Mortgage rates and rising home prices have kept move-outs to buy homes near historic lows. 10.3% of Camden residents moved out to buy a home in the second quarter. The monthly cost of owning a home today is about 60% more than leasing an apartment. This is not going to change anytime soon. Demographic Trends continue to be a tailwind, supporting demand for high propensity to rent groups, including young adults aged 35 and under. Apartments should take a larger share of household formations given these demand drivers. 2024 demand should be sufficient despite supply concerns to set up accelerating rent growth in 2025 and 2026, assuming that the overall economy continues the current trajectory. To take advantage of what we believe will be a robust multifamily leasing environment beginning in 2025 and beyond, we are starting construction on Camden South Charlotte and Camden Blakeney 769 suburban apartment homes located in the Ballantyne Submarket of Charlotte, North Carolina. I want to give a big shout out to our Camden team members for their hard work and their commitment to providing living excellence to our residents, which they never wait to do. Keith Oden is up next. Thanks.

Thanks, Rick. Operating conditions across our portfolio are generally playing out as we expected. Our second quarter 2024 same property performance exceeded our forecast, primarily due to continued lower insurance costs and property taxes, which we discussed a bit on last quarter's call. Our top markets for same property revenue growth were San Diego Inland Empire, Washington DC Metro, LA Orange County, Southeast Florida, Houston, and Denver all posting revenue growth above our portfolio average of 1.4% and ranging from 1.7% to 6.1% for the quarter. Austin and Nashville remain our most challenged markets with revenue declines of approximately 2% and 4% respectively for the quarter. Rental rates for the second quarter showed signed leases down 1.8% and renewals up 3.7% for a blended rate of a positive 0.8% with an average occupancy of 95.3%. Preliminary results for July indicate slightly better levels of rate growth with occupancy averaging 95.6%. Renewal offers for August and September were sent out with an average increase of 4.6%. And finally, turnover rates across our portfolio remain very low, driven by fewer residents moving out to buy homes. Net turnover for the second quarter of 24 was 42% compared to 45% in the second quarter of 2023. I'll now turn the call over to Alex Jesset, Camden's President and Chief Financial Officer.

Thanks, Keith. Before I move on to our financial results and guidance, a brief update on our recent real estate activity. During the second quarter of 2024, we completed construction on Camden Wood Mill Creek, a 189-unit, $71 million single-family rental community located in the Woodlands, Texas. And we began construction on Camden South Charlotte, a 420-unit, $163 million four-story garden-style new development located and Camden Blakeney, a 349-unit, $154 million three-story garden-style new development, both located in the Ballantyne Submarket of Charlotte. Turning to our financial results, for the second quarter we reported core FFO of $1.71 per share, 4 cents ahead of the midpoint of our prior quarterly guidance. This outperformance was driven in large part by 2 cents per share and lower than anticipated operating expenses, resulting from lower core insurance expense and lower property taxes. Approximately half of this expense outperformance was timing related as property tax refunds we expected in the third quarter were actually received in the second quarter. Additionally, during the second quarter we had two cents per share in higher fee and asset management and interest and other income driven by the combination of cost savings and additional fee income from our third party construction business and higher interest income from our cash balances. Property revenues for the quarter, including bad debt expense, were in line with our expectations. Last night we maintained the midpoint of our full year revenue guidance at 1.5%. We also lowered our full year expense guidance from 3.25% to 2.85%, driven primarily by the assumption of continued lower than anticipated insurance and property taxes. Insurance represents 7.5% of our operating expenses and was previously anticipated to be flat year over year. We now anticipate it to be down approximately 3% or $0.01 per share favorable to our prior guidance, with the entire amount of the savings occurring in the second quarter. Although we hope the second quarter trend of lower core insurance claims continues, we are not assuming it will in our forecasts. Property taxes, which represent approximately 36% of our total operating expenses, were previously projected to increase 1.5% year-over-year. Based on lower Texas property assessments and higher refunds, we are now anticipating that property taxes will be up approximately 1%, a favorability of approximately 1 cent per share. After taking into effect the decreases in expenses, we have increased the midpoint of our 2024 same-store NOI growth guidance from 50 basis points to 75 basis points. We are also increasing the midpoint of our full-year core FFO from $6.74 to $6.79, a 5 cent per share increase. $0.02 is from the increase to our same-store NOI, of which $0.01 was non-timing related in the second quarter from lower core insurance costs, and $0.01 is spread throughout the latter part of the year from anticipated lower taxes. $0.02 is from the higher fee and asset management and interest and other income in the second quarter, which is not anticipated to be repeated, and $0.01 is from lower anticipated property taxes on our development and non-same-store communities. At the midpoint of our guidance range, we are still assuming $250 million of acquisitions, offset by an additional $250 million of dispositions, with no net accretion or dilution from these matching transactions. Our development starts for the year total $317 million, in line with the top end of our initial full year guidance, and we are not anticipating any further 2024 starts. We have approximately $55 million of remaining 2024 development spend. We also provided earnings guidance for the third quarter of 2024. We expect core FFO per share for the third quarter to be within the range of $1.66 to $1.70, representing a $0.03 per share of sequential decline at the midpoint, primarily resulting from an approximate $0.03 sequential increase in same-store operating expenses resulting from the second quarter lower insurance expenses and the seasonality of utility and repair and maintenance expenses, partially offset by a sequential reduction in property taxes due to additional property tax refunds in the third quarter, and a $0.02 decrease in fee and asset management and interest and other income due to the non-recurring components of the second quarter outperformance. This $0.05 per share cumulative decrease in sequential core FFO per share is partially offset by a one-cent per share increase in same-store revenue as we continue through our peak leasing season, and a one-cent decline in net overhead expenses primarily associated with the timing of certain public company and compensation costs. As of today, approximately 85% of our debt is fixed rate. We have no amounts outstanding on our $1.2 billion credit facility, only $300 million in maturities over the next 24 months, and less than $300 million left to fund under our existing development pipeline. Our balance sheet remains incredibly strong with net debt to EBITDA at 3.9 times.

At this time, we'll open the call up to questions.

Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster. And our first question today comes from Brad Heffern from RBC Capital Markets. Please go ahead with your question.

Yeah, thanks. Hi, everybody. It seems like July was a really strong month for you in a way that it wasn't for your peers. Can you talk about what you would attribute that to? Did you get more aggressive just based on the demand that you were seeing? Was there some sort of comp impact or anything else that you'd like to call out?

Yeah, July was a good month, and the only thing that we have done – just from sort of at the 10,000 foot level, is that we have increased our marketing support to make sure that our traffic counts remained kind of where we need them to be. So we had a little bit of additional spend in marketing, but Overall, if you think about where our strength in our portfolio has been really impactful for us, it's been Washington, D.C., Metro, and Houston. There are two largest markets, and although in the last year or so they've lagged the portfolio, right now they're leading the portfolio. So the strength in those two markets, some of which we anticipated a good year, we certainly didn't anticipate as good a year as what we're having in DC Metro this year. And it's enough to move the needle on our portfolio.

I think the other part of the equation is that July, if you think about last year, July and August, we saw seasonality earlier in the year last year. And the seasonality, I think, was caused by sort of consumers running out of their pandemic, you know, money. And they moved out, you know, quicker. And so we had more apartments to fill in, you know, July and August. And if you think about sort of that setup for the third and fourth quarter of the prior year, it was probably one of the weakest that we've had in a long time. And it was primarily driven by that. This year, you know, the COVID money has been gone for a while probably. And people are not just moving out because they don't have their COVID money anymore. And with strong job growth, even though the weak print today was expected, but continues to be really robust in our markets. And we continue to take market share from the single-family home market because of the costs associated with interest rates and home prices going up. So it just sets up for a pretty good high-demand market. And I think our teams did a great job. building occupancy through the peak leasing season. It just gave us a little bit more pricing power. Okay.

I'll stick to the one question request. Thanks.

Our next question comes from Austin Worshmit from KeyBank Capital Markets. Please go ahead with your question.

Hi. Thanks. So, Rick, you touched on employment growth as a driver of household formation in your prepared remarks, and we've seen some slowdown in the employment reports of late. I'm just curious what your thoughts are on that slowdown versus the strong gains we saw last year, early this year. and how that's coincided with near-record absorption. And just curious if we do see a continued slowdown in the employment market, how that kind of impacts, you know, the acceleration in pricing power and, you know, getting back to maybe a more historic market rent growth environment. Thanks. Sure.

I think the slowdown is clearly a good thing and a good thing because you think about the dynamics that, you know, affect our business, high interest rates and, you know, are one part of the equation. So I think the Fed's, you know, sort of sticking the landing, so to speak, with a, you know, you know, comment, they seem to be, you know, going for the gold. And, you know, I'm good with a slower economy or slower job growth market. You saw the unemployment rate went up to 4.3 with the print this morning. And, you know, the good news about, from our perspective, is that our markets are where the jobs are. And even when they're slowing, there's still enough job growth and there's to continue to take market share from the household formation, from single family. And so with that said, the key is having reasonable job growth and not crashing the economy. Obviously, if the Fed doesn't stick the landing and we end up with a recession in 2025, then all bets are off on what happens then. We think what's going to happen is the Fed's going to stick to landing. You're going to have moderate employment growth, and that employment growth is going to be in the markets where Employment growth happens the best, which is in our market. So I feel pretty good about where we are, and I like the idea that the slower employment growth gives the Fed some headroom to be able to start cutting rates, which would be really good for our long-term business.

Understood. Let's hope they take home gold. Thanks for the time.

For sure.

Our next question comes from Jamie Feldman from Wells Fargo. Please go ahead with your question.

Great. Thanks for taking the question. So, you know, your comment about not starting any more new developments for the rest of the year, can you just talk more about that? I mean, it seems like there's going to be a really good window in 26, 27 to be delivering. So, you know, how are you thinking about, you know, A, you know, talk more about that comment, and then maybe as we think ahead to 25, You know, you think it'd be a bigger development year. Thank you.

Sure. So our development starts, you know, we were prepared. These are really shovel readies and we had delayed them. And so we went ahead and started the two in Charlotte that we announced. And we have, you know, a decent pipeline that we can start. It's just hard to get positioned and to start those other properties that we have between now and the end of the year. They'll likely be, you know, 2025 starts. And I also think we'll be able to expand the pipeline by helping other developers out who can't get financing, who have shovel ready land deals that they're willing to part with. And if you look at our history in cycles like this, we've always been able to ramp up our development pipeline. You know, even though the 2026, 2027 looks pretty amazing from an apartment, you know, perspective, you still, you know, private developers still can't get capital. I mean, we were chatting with the largest provider of land, of debt and equity capital to the multifamily industry and their business for new development equity and debt is down 85% this year and it's not moving up. At the same time, the same group said that their interest in acquisitions or in the sellers out there who are merchant builders who have who really need to recapitalize their, their BOVs and and listings are up 60% year over year. And it looks like it will be a pretty robust transaction market coming up in, in the, in the fall and early next year. So when the, when the sort of clouds clear a little bit more, we will be more active in development for sure.

Okay, thank you.

Our next question comes from John Kim from BMO Capital Markets. Please go ahead with your question.

Thanks, and good morning. I wanted to ask about your views on blended lease growth in the second half of the year. Keith, I know you mentioned that you're sending out renewables at 4.6%. If you could just remind us where you think you typically would find those at, and also for the new leases, where you think new lease rates go.

Yes, our renewals are generally within 50 basis points of the average of what we send out. So, you know, the 4.6 probably turns into something a little just above 4. Alex, on the new lease numbers. Yeah, absolutely.

Yeah, John. So for the third quarter, we're assuming blended about 1.6 percent and the fourth quarter blended about 1.3 percent. And by the way, that's exactly what we thought last quarter as well.

Great. Thank you.

Our next question comes from Connor Mitchell from Piper Sandler. Please go ahead with your question.

Hey, good morning. Thanks for taking my question. So you guys saw a pretty nice improvement in bad debt in the second quarter year over year. Just wondering if you could provide some insight to how this might be trending in July and what you guys are thinking about for the rest of the year. And then maybe what markets are causing the and if you're seeing anything on the other side with any slipping and bad debt in certain markets.

Yeah, absolutely. So bad debt is really getting under control now. What we had in the second quarter was about 80 basis points. We just closed out July, so it's a little bit early for us to have our July numbers, but we think that they're going to be in line with our expectations for the rest of the year, which is right at 75 basis points. And where we're seeing the biggest improvements is where we needed to see them. So, for instance, California is in the second quarter was 2.1% bad debt. In the first quarter, it was 2.6% bad debt. So that market was obviously one that we were focused on quite a bit, as was Atlanta, which in the first quarter was 1.8% and is now 1.4%. So the markets that were being a little bit problematic for us are starting to get under control. And we do think that we're getting pretty close to getting back to a normal level, which for us is about 50 basis points.

Next question comes from Josh Dennerlein from BLA. Please go ahead with your question.

Hi, this is Steven Song. I'm for Josh. Thanks for the time. So my question is on the turnover. So if I look at the number correctly, it looks like there's a little bit pickup from July, from 2Q to July. So I wonder if you have any color on that, on the turnover?

So we'll always see an increase in turnover in the third quarter, so that's very typical. I think the thing that I'd be focusing on more is that our July 2023 turnover number was 53%, and our July 2024 turnover number is 47%. That's a 600 basis point improvement year over year. So although we typically do see higher turnover in the third quarter, it's trending a lot better than typical right now.

Okay. Thank you. Mm-hmm.

Our next question comes from Rob Stevenson from JANI. Please go ahead with your question.

Good morning, guys. What's the current expected stabilized yield on the development pipeline, and what have you been seeing in terms of material and labor costs as you start those two Charlotte projects?

Sure. So the Charlotte projects are in the, you know, six going in yields with IRs in the eights. And the the development pipelines, our general development pipeline, if you look at the last couple of years have been, you know, suburban deals in the 6%, maybe, and actually in Phoenix are like in the 7% range. And then the more urban deals are in the mid fives to high fives. And, and in terms of cost, Costs are coming down in some areas, but very, very slowly. Lumber costs have come down, for example. But, you know, the good news is we're not having 1% a month inflation like we were a year and a half ago. But I don't think that we've seen much, you know, cost compression. It will be really interesting to see as the year falls, you know, substantially in the year after that.

And generally when you see a construction, if you go back to the financial crisis, people were, you know, prices dropped dramatically because people margin. I don't know that that's going to happen. Those are driven by the global market, not just multifamily. And so with, structure concrete and steel some of those other products likely aren't going to come down labor labor prices you know it's not going to crater the way you know if the Fed does What about in terms of being able to buy? You know, land is an interesting thing because it doesn't move as far as existing markets.

developers who own land who have been positioning end up taking, you know, they write off their sort of soft costs and then they sell the land for, you know, what it was worth, you know, beginning perhaps. And that's generally where the opportunity is. But I think sellers are definitely understanding that the market's different today because of the cost of capital rise and construction costs not coming down. So land prices tend to be stickier than you would think. But I do think there will be opportunities in making deals, both on the land side and buying from developers that can't get their deals financed.

Okay. Thanks, guys. Have a great weekend. Sure.

Our next question comes from Steve Aqua from Evercore ISI. Please go ahead with your question.

Thanks. Good morning. Rick, I guess I just wanted to get a little bit more color around the two development starts. You know, what kind of yields are you penciling? I assume, you know, on untrended rent and then you do look out on a stabilized basis. You know, where do you see those heading?

Sure, we do both. We look at untrended yields, and then we also look at trended yields, and we are generally pretty conservative in our trendeds. And when we look at the untrended yields, they're in the sort of mid to high fives, and then you look at trendeds, they're in the sixes. I think that those are going in yields or stabilized yields, and we look mainly at IRRs.

because the long term you're in this business for the long term you want you want accretion as you go placement that has a positive low rate and the other one is a higher rate from an IRR perspective so that's the way we look at it but yields just because of what what reasonable economy and no news supply coming to the market you should get that long-term rent growth you know for our businesses the cycles today were you know what is our And to get to those uptick market years. Thanks. Sure. I think in the back half of the year, I think we're up between rate and oxygen. And it's something that our professionals and our revenue management adjustments to make sure that we're making rents and to have any pricing power at all. All this to maintain occupancy at or above 95%. Seasonality. Quality will probably be a little bit below 95.5, but I'm for guidance. Please go ahead with your question. Just want to know across the portfolio today of the market, it's in particular.

It's right around a 1%, and obviously that is spread across the markets as you would imagine they would be based upon the revenue growth that we've had year to date. And so think about it, D.C. or San Diego has got a much larger loss to lease, and obviously we've got gain to leases in markets like Nashville and Austin. Great. Thank you.

Mm-hmm.

Our next question comes from Michael Goldsmith from UVF. Please go ahead with your question.

Hi, this is Amy Probant. Some of the higher supply markets seem like they might be reaching a bottom, and maybe Phoenix is in this category. So are you seeing any signs of this happening, or are we potentially reaching the bottom in some of these markets? Thanks.

Yeah, so the markets that jump off the page to me still are I still think we're in the middle of the – I don't know whether it's the fourth inning or fifth inning of the baseball game, but I don't think we're anywhere near the end in either of those markets. It's probably going to drift over into mid-2025 just based on if you look at the forward – the completions that are still – that we've still got to grind through. The good news is, is that despite these historic levels of new supply –

There's also been a pretty, you know, cities like Austin where you, net absorption, the numbers don't seem to make a whole lot of sense. When you, into markets like Nashville and Austin, that, And because, I mean, would bode much worse for rental. And at the bottom, you know, I don't know, we're probably kicking around the peak supply challenge. into 2025. The good news is people are still moving here and we're still releasing lots of apartments. And our next question comes from Please go ahead with your question. Okay, sorry. So you brought back your stock is now 19, 120-ish. I wonder under what scenario from an equity standpoint, not that you're balance sheet, but about raising equity at some point, particularly if something of significance comes along and and protect your balance sheet at the same time. Just carry on. Our focus on, you know, where we can make the best returns and how do we find the best returns. You know, of course, the stocks that are below that. So, yeah. could, could acquire, and, and, and, and our, you know, debt. I'm sure that'd be interesting. I think that the transaction market over the next 18 months. And if it works out, you know, sure, you can use all sorts of capital. Any thoughts on that?

Well, at 120, I think that's an implied cap rate at Camden of about 565, you know, six or five, seven. And let's see the Katerra transaction. The CFO for KKR came out and said it was a low four. So, you know, it's where cap rates today and. You know, most of the transactions that are going off today are in the low fives. So, you know, I think that, you know, that the public markets are slow to bring cap rates down to where the real market is today. And ultimately, maybe the public markets are right and there's going to be a flood of properties that have to come to the market between now and, you know, the end of 2020. and so you could argue that cap rates could stay higher or go higher because of that. But on the other hand, there's a massive wall of capital out there as evidenced by Blackstone taking out AIMCO and KKR acquiring a couple billion dollars of the Katerra portfolio. So we'll see, right? The street tends to, or at least Wall Street tends to, the pendulum moves one way versus the other, and is it going to get back to the middle? If it got back to the middle of where cap rates are trading today, 120 would be low.

Okay. Sounds good. Thank you. Okay. If you have a question or have a follow-up, please press star. Our next question comes from John. Mason from Baird. Please go ahead with your question. Can you provide some insight on how you expect D.C. I think D.C. and Houston are going to be I think clearly from where we are today Houston continues to announce that Chevron was finally saying they weren't going to do it for 15 years, and yet their chairman actually moved to Houston. houston by the end of this year scheme of houston's overall employment view but it sends a really important message as the energy capital of the world and your terms i'm really i'm very constructive on houston with what's going on here and clearly They've got great occupancy right now and really good momentum, and our teams are doing a great job of taking that. I would add to Houston that it's not just the capital of the world, but it's also the energy transition. I mean, there was roughly a $2 billion that was granted to Houston, major dollars in clean technology and into the transition, you know, and that works for people. you know, companies are the ones who understand how to, how to, you know, change. So I think long-term Houston position. Great. Thank you. Question comes from David Segal from Green Street. How comfortable do you feel about the development spread on the recent Charlotte starts, considering that those starts, if I heard correctly, were below six on an untrended basis?

Thank you.

Sure. So we look at it from a long-term cost of capital perspective, and we want 150 basis points spread from our long-term cost of capital for development. On acquisitions, we want 50 to 75, and we can get that with developments. The going-in yields, if you use going-in yields as your benchmark, then that always is dangerous, in my opinion, because You know, where you start is important, but where you finish is the key. And so long-term value creation through development, we've created billions of dollars of value at Camden through our development program over the years. And this part of the cycle is when there's going to be limited competition coming in at 26 and 27. You know, building today, those developments will be – create value long-term for Camden. When you look at, if we were, if we only had $1 to invest, you know, it'd be one thing, right? But we have one of the best balance sheets in the sector. We have an unfunded line of credit.

If we could, we could, any equity offerings and keeping our debt in the right million dollars in development. If great acquisitions come along, we'll allocate that amount of capital to those transactions. They're great suburban folks, but they're in our development business. over a long time. This year has obviously come in a lot better than you guys expected. Tax changes have helped. I'm just trying to think through, you know, maybe some of the one-time benefits that you're looking to 25. Property taxes, obviously, we return to a more normal level, which is about 3%. If you think about about insurance part of this year we thought insurance was going to be up 18 percent and now we think it's going to be down three percent insurance providers and every insurance and the simple way that they can get more of this business is to keep the rates low and so what i would anticipate rates are low for rise and then it's a rinse and repeat site the rest of the rest of our line item relation and we think that's going to be typical the same thing for utilities or repair and maintenance probably that is our smallest line item is marketing. And as we have more supply, we'll spend more on the marketing dollars. But all that being said, I think we're in pretty good shape. Next question. The next question comes from Michael Goldsmith from UBS. Hi. Another quick one factored into the guide. Think about that as we are modeling out the third quarter.

Yeah, so it's a non-core expense for us. And you'll notice that we increased our core FFO by $0.05 per share, but a non-core FFO by $0.03 per share. The delta is the $0.02 that we are anticipating for the impact of Beryl. And obviously, that's a net expense line after taking into effect insurance proceeds and additional dollars that may be capitalized.

Okay, thank you.

And our next question comes from John Kim from BMO Capital Markets. Please go ahead with your question.

Thanks. I wanted to follow up on the blended lease assumptions for the back half of the year. So in July, you signed blended at 90 basis points, yet you're expecting that to, I guess, accelerate or improve in the second half of the year. Is that based on easier year-over-year comps, or are there other factors?

No, absolutely. So a component of that is easier comps. But you have to think about are effective. So are effective for July is up 1.2 percent. And so what I'm saying is that are effective for the third quarter is up 1.6. So 1.2 to 1.6 is not is not that much of a jump. And then when you when you look at what was signed, ignore ignore the blind.

And because in July, we sort of had a little bit. If you look at that renewal number, which is up 4%, that's a really good renewal number for us. Renewal number staying in that high, that should be a. Can you confirm what you signed? Yeah. Okay. Yeah, no problem. Showing no additional questions. I'd like to turn the floor back. Call today. And this is probably one of the last to report and call. I'm sure it's going to support the U.S. and I want to give a who made history yesterday. So with that, we'll let you enjoy the rest of your day and the rest of the Olympics. Bye-bye. You may now disconnect your lines.