D/B/A Centerspace

Hello and welcome to the Centre Space Q3 2022 earnings call. My name is Lauren and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I will now hand you over to your host, Jo McComish, Vice President Finance to begin. Jo, please go ahead.

CenterSpace's Form 10-Q for the quarter ended September 30, 2022 was filed with the SEC yesterday after the market closed. Additionally, our earnings release and supplemental disclosure package have been posted to our website at centerspacehomes.com and filed on Form 8-K. It's important to note that today's remarks will include statements about our business outlook and other forward-looking statements that are based on management's current views and assumptions. These statements are subject to risks and uncertainties discussed in our Form 10-K filed for the year ended December 31, 2021 under the section titled Risk Factors and in our other filings with the SEC. We cannot guarantee that any forward-looking statement will materialize, and you are cautioned not to place undue reliance on these forward-looking statements. Please refer to our earnings release for reconciliations of any non-GAAP information, which may be discussed on today's call. I'll now turn it over to Mark Decker for the company's prepared remarks.

Thanks, Joe, and good morning, everyone, and thanks for joining us. With me this morning is Anne Olson, our Chief Operating Officer, and Bharat Patel, our Chief Financial Officer. Strong fundamentals continue in the rental housing business, and 2022 will likely go down as one of the best years on record. Against that backdrop, CenterSpace has performed well, and I'm delighted to report that Core FFO per share is up 17% quarter over quarter and 11% year to date. I'm also happy to share that our guidance for the full year is for at least 10% core FFO growth and the top line story remains encouraging. The capital markets have been volatile with a 10 year up over 130 basis points since we last got together or almost 50% from mid twos to over 4%. The speed of this move paired with the continued inflation in materials and labor, as well as a return to pre COVID seasonality have caused us to trim our guidance from August. Finding ways to contain costs and improve processes while maintaining strong customer service is the top focus for us today. All that said, if we zoom out a little, CenterSpace has an outstanding business, and the housing we provide meets the basic need. Our business is remarkably consistent, as represented by 2022 being our fourth straight year of same-store NOI and per-share core FFO growth. But we do believe profitability and efficiency remain an opportunity to improve and drive value, and it's one of our key strategic pillars to do so. I know we can. Turning to investments, we've been more active over the last few months than we were for most of the year. We invested $95 million in a brand new community in Denver called Lira, adding 215 homes in the tech center submarket. And through the end of October, we purchased around $29 million of our common stock. Lira is a community we've tracked since pre-development, and we ended up with the opportunity to get a community that just opened in April and experienced a strong lease up at a price we believe is below replacement cost. Similarly, the shares we purchased in late September and October were made at historically wide NAV discounts and low multiples. The market is in turmoil, and we don't believe the fundamentals embedded in the business are reflected in the current price of our shares. We feel great about both investments, which were executed through the lens of how do we improve the portfolio, earnings quality, and per share results. Going forward, we expect to be in an opportunistic environment and will continue to be aggressive while carefully minding our liquidity position. None of these results would be possible without a strong team, and I want to thank everyone at CenterSpace for their hard work. And with that, Ann, would you please provide a quick operations update?

Thank you, Mark, and good morning. Revenues continue to drive growth, with third quarter revenues increasing 11.1% over the same period in 2021. During the third quarter, our same store new lease rates increased 7.5% on average over the prior leases, and same store renewals achieved average increases of 8.7%. On a blended basis, this is third quarter rental rate growth of 8.2%. While we are starting to see seasonality and leasing velocity, our Mountain West same-store portfolios remain strong, with double-digit new lease rates in Denver, Billings, and Rapid City during the quarter. Our non-same-store portfolio achieved increases of 7.7% on average over prior leases, with renewals up 9% while retaining over 60% of our residents. As we move into the fourth quarter and have lower expirations, occupancy is trending positively. Our expense guidance for the remainder of 2022 reflects the volatility we are experiencing in areas such as utilities and uninsured losses, as well as our experience year to date on labor and materials. Maintaining our communities remains a top priority for us, and inflationary pressures have driven costs of repair and maintenance significantly this year. We particularly see the impacts in plumbing, flooring, and painting. Internally, salary and benefits costs have increased year to date 6.7% over the prior year, which is in line with CPI increases for wages and salaries through June. Expense trends vary widely by market, but across the board we need to advance efficiencies and contain expense growth as we head into 2023. It remains a great year for us. Year to date, net operating income has increased 10.3% over 2021. As we manage to optimize revenue during the last 18 months of historic rent increases, we're up to the challenge of providing great homes during times of expense pressure. Now I'll turn it over to Barav to discuss our overall financial results.

Thanks, Anne, and good morning, everyone. Last night we reported core FFO for the quarter ending September 30th, 2022 of $1.15 per diluted share, an increase of 17 cents or 17.5% from the same period last year. The growth in earnings was fueled by another strong quarter of same-store NOI growth, which increased by 11.4% versus the same period last year. G&A and property management expenses for the quarter were $4.5 million and $2.6 million respectively for a combined total of $7.1 million. That included $234,000 related to software implementation, which was excluded from core FFO as the implementation is expected to be completed by the end of the year. Excluding the implementation costs on a combined basis, G&A and property management expenses increased by $1 million, or 16%, which was mainly a result of scaling our support functions to service a larger portfolio, mainly due to our significant acquisition of the KMS portfolio. The KMS acquisition and other acquisitions since the third quarter of last year have increased our revenues by approximately 25% on an annualized basis. At the end of the third quarter, we acquired Lira Apartments for $95 million. We funded the acquisition by drawing down on our line of credit, increasing the balance on the line to $171.5 million at the end of the quarter. As of the end of the quarter, the weighted average maturity of our debt was 6.3 years and weighted average interest rate was 3.45%. As of October 31st, we had repurchased a total of 427,000 shares or approximately 2.3% of our diluted shares at an average price of $67.25 per share for net consideration of approximately 29 million. Turning to guidance, which is presented on page S17 of the supplemental. We are updating our guidance for both same-store NOI growth and core FFO per share, mainly driven by continued expense pressures across the portfolio. Despite increasing our same-store revenue growth guidance by 25 basis points at the midpoint, our same-store NOI guidance is now lower by 75 basis points, driving a 3-cent reduction in the midpoint of our core FFO guidance. We saw similar expense increases in our non-same-store portfolio, which was a larger contributor to the reduction of our core FFO guidance. A large portion of the increase, however, was driven by larger than projected unreimbursable losses of $450,000 in turn costs, which were significantly higher as some of these units turned for the first time under our ownership. The acquisition of LIRA contributed another $0.02 worth of reduction to the midpoint of our core FFO guidance. Offsetting these reductions were lower than projected G&A expenses driven by reduced incentive-based compensation and lower interest expense. In summation, the changes I discussed resulted in a reduction of 7 cents to the midpoint of our core FFO guidance to $4.46 per share. As I complete my first year at CenterSpace, I'm continually impressed with the commitment to constant improvement across the organization. I'm confident in our team's ability to navigate the challenges of the coming months and look forward to the years ahead. And with that, I will turn it over to the operator to open it up for questions.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure that your phone is unmuted locally. Our first question comes from Brad Heffern from RBC Capital Markets. Brad, please go ahead.

Thank you. Good morning, everybody. Um, on the Lyra acquisition, what is the expected stabilized cap rate there? Um, I think you mentioned it's, uh, you think it's a discount to replacement value. So any, any sort of complication you can get there and then when to expect it to stabilize.

Yeah. So we bought that at a going in plus or minus four and a quarter on our underwriting, which has some pretty conservative, uh, rent growth rates. Um, And it is stabilized. So it's over 90% occupied.

Okay. I guess why is there the two pennies of dilution there in the fourth quarter if it's stabilized already?

Brad, this is Brad. So with respect to the two pennies, that's driven by the rate of interest on the line of credit, which we drew down. to fund the acquisition. So that rate of interest is higher than the stabilized cap rate that Mark mentioned. That's what's driving the dilution.

Okay. And so do you have an expectation that, you know, there's going to be, you know, really strong rent growth at that particular property, you know, as kind of the lease up leases roll off, right? I guess, how does that transition from being dilutive to accretive?

Yeah, we do believe it will have strong growth. Again, we didn't underwrite particularly strong growth, but that is what we're seeing in Denver broadly. And we do believe this asset's well positioned in the sub-market. So, you know, when we look at it on a more than 90-day basis and we think about driving margin, portfolio quality, long-term earnings growth, we're quite confident this asset will run faster than many of our other and we may sell some of those assets to fund this over time. But we also think we bought it at less than it would cost to build it. So I am mindful. I think your question is spot on. Earnings is a consideration, but long-term earnings growth is also a consideration.

Okay, got it. And then you mentioned the reliefs, the non-controllable, unreimbursable expenses. I guess, can you walk through exactly what that is? And is there any quantification you can give as to how much that's affecting overall expense growth?

Yeah, this is Barav. So the non-reimbursable losses, the reference to that was particularly in regard to the non-same store portfolio where we've seen more incidents in the third quarter as well as at the beginning of the fourth quarter. Overall, I think just the impact of those incidents would be about 400,000 or a couple of pennies. That would impact the core FFO guidance as you kind of think about it on a whole year basis. Okay. Thank you.

Thanks, Brad. Thanks, Brad.

Thank you. Our next question comes from John Kim from BMO Capital Markets. John, please go ahead.

Hi, everyone. Robin England here with BMR Capital Markets. I just wanted to grasp your building blocks to 23. What's the current loss to lease and earn in? And could you perhaps walk me through how you calculate earn in?

Yeah, go ahead. Could you say the last part of the question again? So what's earn in and what was the last part of the question?

Yeah, I know a lot of peers do it differently. I just wanted to ask if you can walk me through how you calculate it, how you get to earn in.

Yeah, I mean, I can take that part first. I mean, overall, we look at the loss to lease and we're modeling all our leases as they kind of come up for expiration. So depending on whether it's being renewed or we're kind of rolling into a new lease, you know, we would just assign the market rent at that point, depending on whether we believe that's being renewed or it's a new lease. We roughly use about a 50% renewal rate. And that's how we kind of run that through the model. And with respect to the loss to lease, I mean, as of September, it was at about 6.5% to 7%. We've captured a lot of that loss to lease as we kind of went through the summer months. But, you know, the market rent kind of keeps changing. So as we kind of try to project out 2023, we run a curve based on seasonality, and that would be expected to increase as we kind of enter the summer months.

And this is Anne. Given that we do have a pretty significant non-same-store portfolio, if we look at the whole portfolio, the last lease is closer to 8%. That 6.5% to 7% is on same-store only.

Okay. Looking at repairs and maintenance, over some of the major drivers with increased costs, did perhaps turnover have an impact?

Anne, you want to take that?

Yeah, sure. Thanks. Yeah, turnover was one of the main drivers of our overall expense increase. R&M, separate than turnover, is also a big driver. What we're seeing there is really increased costs related to skilled trades and specialized services like pool servicing, HVAC, plumbing, Um, we have, we operate in very tight labor markets and, and this is a lot of demand. We have over 40% of our leases turning. And so when we look to our vendors, it's a lot of work for them. And, uh, and they're having trouble finding staff and costs are increasing really pretty significantly on the repairs and maintenance side. Another driver that we're seeing is security costs. Um, particularly in our urban assets, we've increased security. as a way to enhance the resident experience and really make sure that we can keep our lease rates rising and retain our residents. So we are seeing some increased costs on the security side in repairs and maintenance.

Okay. I'm just giving it a higher turn over there. Was there anything that stood out as far as move-out reasons?

Yeah, the largest reason that we see for move-outs is relocation. You know, that's really outpaced buying a home, particularly in the third quarter. We did have a pretty significant amount of move-outs. A little bit over 5% of our move-outs were eviction-related. If you recall, particularly in Minnesota, we have now, you know, this year was the year the eviction moratorium came off, and also all rental assistance has now dwindled and tapered off. And so, you know, we have seen a pretty significant amount of eviction related move outs. Those typically do drive turnover costs as well, because those units are usually not in very good condition. We have a lot of damage write offs related to those. And also we saw a pretty big spike in legal fees connected to those evictions in the third quarter in particular.

Okay. Thank you for the call. Thanks.

Thank you. Our next question comes from Rob Stevenson from Janney, Montgomery. Rob, please go ahead.

Good morning, guys. Anne, can you talk about your ability to contain utility costs as the weather gets colder? How successful have you guys been in, you know, submetering rubs, et cetera, and have you guys hedged on gas prices and stuff like that?

Yeah, I can, and then maybe Bharat can talk a little bit about how we're looking at utility costs and potential to hedge. We have RUBS across our portfolio. However, that is water, sewer, gas, and common area electric. We had not included in RUBS heat costs, gas costs, historically. However, that is being rolled out across the portfolio now. So, you know, there's always a trade off there. We operate in a lot of markets where it's not common to have rubs at all, much less not include heat in the rent. So, you know, we are rolling that out right now on new leases starting in November. We'll see the renewal leases come on. So as we work through 2023, we think that there's going to be, you know, a much less impact on increased utility costs and also an enhancement to our other revenue as we offset those but for this year you know that takes time as we go through the lease roll and and given that uh we ramped that up this year and are starting it now we really won't see those full impacts until 2024 but um our planning on doing everything we can to bring those down um into into 2023. rob do you want to comment on the hedge

Yeah, I mean, I think, you know, as we kind of think about controlling utilities costs, I mean, the most effective strategy is what Anne laid out in terms of being able to pass some of these along. In certain markets, you know, we are not able to hedge it just based on the regulations in place in those markets. But mostly, you know, as we kind of think about, you know, utilities, you know, offsetting it with, you know, passing it down would be the most effective strategy plus hedging in this environment with volatility being where it is, you know, even if we were able to hedge the cost of doing so would be extremely high in this environment. So it's something that you know, we can evaluate, but it's unlikely that it's something that we will be able to implement in the near future.

Okay. And then are you guys seeing any, you know, absent the eviction stuff, which probably have been on your radar screen for a while, but are you seeing any uptick in normal delinquencies and bad debt throughout the portfolio or in certain markets?

Generally, no. I mean, Anne, do you want to give some detail on that?

Yeah, I would say generally no. In fact, I think we're fairly pleased with the way that our delinquency has come down. post COVID and really feel like we're returning to kind of pre pre COVID levels. Um, our incomes, you know, continue to be very high on our new applications, uh, across the portfolio. And so those rent income numbers are good. We, we feel really good about the credit quality of our, of our tenants.

Okay. And then last one for me, any changes on returns or a volume of redevelopment that you're planning on doing here? Given some of the cost pressures that you've talked about on the repairs and maintenance side, I assume that's flowing through redevelopment as well. Are you getting the returns that you need to get there or want to get there? Or is it a situation where you put a pause on that? How are you guys thinking about the redevelopment process?

And you want to take that one?

Yes, I can. I think our thought on redevelopment is we want to remain nimble. So we are constantly looking at cost rise as, you know, unforeseen circumstances happen during those projects, what the rental rates are, how it's impacting vacancy, how, you know, how long it's taking to renew those units. And our goal is to be able to kind of turn it on and off as the market will bear it. So I do think that going into next year, we're going to really have heightened scrutiny on whether or not we can continue to get the premiums. We feel very good about the projects we've undertaken year-to-date and what has been completed this year. In fact, during 2022, we did kind of accelerate a couple of our projects with non-renewals and really took back a lot of units, which had about a 60 basis point impact on our overall occupancy in the third quarter. Right now, we feel really good about it, but with the cost of capital, where it is, and also the potential for some moderation of overall market rent growth, I think we're going to have to be very careful headed into next year. We have very good plans and great underwriting that we feel good about, but that underwriting can change quickly, and we want to be able to change with it.

Okay. Thanks, guys.

I appreciate the thought.

I just add on top. Rob, I'd just add on top of that, you know, if you think about work from home and folks can't buy a house that maybe they were planning and rent's going up everywhere, so perception of value, you know, the value add tends to still work. But it is something we're looking at carefully across the board, as Anne outlined. Okay. Thanks, guys. Thanks, Rob.

Thank you. Our next question comes from Connor Mitchell from Piper Sandler. Connor, please go ahead.

Good morning. Thanks for taking my question. I have two questions. The first one relates to the repairs and maintenance. You guys mentioned that it's a pretty tight labor market. So are there any additional steps you could take, maybe bring in outside teams other than or outside of your markets to maybe help with the labor pressure and help fight the cost a little bit or any other steps you could take to lower the repair abatement cost?

Yeah, I'll start and maybe you can tack on. But I'd say generally, you know, in particular in the Mountain West, you just have more, you know, I'd call them islands for labor. So if you think about, you know, let's say Dallas versus Denver, I mean, one, Dallas has 10 million people in it and two, you know, if you draw a circle of a four-hour drive around Dallas, you're into several other large metros. If you do that same thing in Denver, you know, you can't find another similar-sized city, and that would get worse if you went to, say, Rapid City or Billings, which are our other two Mountain West markets. So I think the difficulty in labor there is, I mean, those are super tight markets on an absolute and relative basis, and it's exacerbated by some of those kinds of factors. So I just asked you to consider that. But with that, Anne, why don't you elaborate, please?

Yeah, we actually have used labor from other markets to travel into markets where we're having difficulty. Particularly on the value-add side, we might use a contractor and team from one of our larger markets and send them to a smaller market simply given the cost pressure, that that's less expensive to do than higher in market. So that is something that we look at. It is a way that we have been able to either get large projects accomplished, which otherwise may not have gone forward, and or reduce costs across that. But our vendors and contractors are having the same issue with labor that I think everyone is, which is very hard to find skilled workers. And a lot of the R&M costs are related to things like You know, we talked about plumbing, school maintenance, HVAC. So, you know, specialized services, there's a really high demand on those, and we've seen costs in those areas, you know, really skyrocket.

Okay. Appreciate the caller. And then my second question is on the current use of capital. And I think you guys mentioned that some acquisitions now may be tough to pencil with the rising rates. So, Should we expect any further acquisitions or maybe turn to additional stuff, buybacks or other use of the capital?

Yeah, so I guess a couple of thoughts on that, Connor. First, we're clearly headed, I mean, price discovery is a very real and evolving thing, and that's driven by really a pretty significant lack of volume. And if you think about how assets are sold in the apartment space, I mean, a lot of them are kind of flow-oriented. So funds have timelines, what have you. Most of that flow-oriented business is gone, and it's really about situational deals where there's some sort of circumstance or situation that would cause someone to sell right now because while there's a lot of capital on the sideline, it's all kind of waiting and seeing. So I think What that means is there will be some interesting situations where someone's inclined to do this, inclined to go to market, and those might be good opportunities to take advantage, but there's not going to be, I don't think, a lot of volume, at least not in the next little while. What is coming out for sale, I mean, we're seeing what we think are pretty good prices. Now, if you went into like Rumpelstiltskin mode and just fell asleep in 2017, and I told you those prices, they would feel great. They would probably feel high. But relative to where we've been the last few years, they're off quite a bit, 75 to 100 basis points probably. So I don't think it's the case that multifamily is going to start trading at seven caps because long-term capital is currently trading or fetching sixes. because there's just too much capital out there, and this is a relatively good asset when you're considering alternatives, and if you are a believer in inflation, which I am, and I think our numbers would evidence that it's real. So answer your question. We're gonna be as opportunistic as we possibly can be, and we're going to really mind our balance sheet, which was in great shape coming into this, and we hope to exit in great shape as well. Okay, that's helpful.

It's all for me. Thank you. Thanks.

Thank you. Our next question comes from Wes Golladay from Baird. Wes, please go ahead.

Hey, good morning, everyone. Do you have any plans for dispositions to lock in this arbitrage? I know you said the market's not quite as robust as it is now, but the public equity versus private is probably still a pretty wide gap. And then the second part of the question is, with that mindset that inflation is high, likely to remain higher, are you going to look to permanently term out that line of credit?

The simple answer to the question is yes to both. But to elaborate a little bit, yeah, I mean, we're looking, you know, we look every quarter at our assets and we really try to discern what we think long-term capital expenditures are going to be and kind of look at an after-everything cash flow. And it is often the case that a newer asset like Lira might look quite attractive, and that was just completed in April, versus some of our older properties, which might have a much higher stated cap rate, but a much lower kind of after-everything cash flow. And it's also the case that some of those assets might trade at cap rates that are that are pretty high and can get neutral or positive leverage. So when we consider some of our older assets, you know, it might be the case that that works well for us. So yes, we're evaluating that. We'll continue to evaluate that. And I would also expect us to put on some longer term financing for Lira. And candidly, it won't be as exciting as I thought it would be because when we agreed to price on that asset, you know, we were looking at 10 to 12 year money in the high fours called four and three quarter range. And today that money, uh, from the agencies is probably mid five plus mid five to six. And it changes every day because treasury is moving around and the unsecured market, which would be our favorite market is, is kind of priced, um, you know, priced out of price in a way that would discourage you from going. So I think for us, unsecured capital today would be, you know, mid sixes. And that's if, you know, if you look at the rated investment grade rated multifamily bonds there in the mid sixes, the SFRs are low to mid sixes. If you look at kind of UDR to the SFRs and we would be off of those. So all of that would probably drive us to the secured market. And I would expect to see us fix some debt there.

Okay, yeah, I think this move caught a lot of us off guard. Let's go back to the non-controllable, unreversible expenses this quarter. You have typically every year, I guess, what's the delta that is truly abnormal when we look to model next year? We should probably look to take out some of that $400,000. And then on the other revenue, once again, it's a little bit outsized this quarter. Can you elaborate what's going on there and what should we not pull forward to the next year's model?

Sure, I'll take that. On the unreimbursable losses, again, as I said, those were on the non-same-store portfolio, the $400,000 number that I quoted. And that truly seems to be over than what we had expected. So truly unexpected, unreimbursable losses driven by incidents in that non-same-store portfolio. Coming back to your question on revenue, this quarter, in addition to the scheduled rent growth, we've seen growth across all the categories. Collections are much better and alluded to a much more normalized collections rate that we have hit upon in the third quarter and overall year to date. So that contributed a bit to the revenue increase year-over-year. Last year in the same quarter, we actually had lower collections. So that's driving the year-over-year increase. And concessions have been lower. That's also driven some of the year-over-year increase. And then other revenue is higher. Some of it's driven by RUB. Some of it's driven by some door fees and revenue sharing agreements that we've signed. And we've had higher application fees and administrative fees and all those things that are driving other revenue as well in the third quarter.

Got it. Thanks, everyone. Thanks, Wes.

Thank you. As a reminder, to ask a question, please press star followed by one on your telephone keypad. Our next question comes from Buckhorn from Raymond James. Buck, please go ahead.

Hey, thank you very much. I appreciate it. Good morning. I guess, Mark, I'm still struck on the acquisition timing a little bit. And I guess my question is really kind of why now on Lira and kind of also why now on stock repurchases when there's a lot of signs out there that rent growth is decelerating pretty rapidly at a market level, maybe more than just normal seasonality this year. uh got a lot of recessionary type indicators flashing warning lights out there as you said there's just a huge amount of kind of price discovery that's still evolving right now um what give gave you the confidence to kind of go ahead and go forward with lira and also to kind of lever up to do stock repurchases um Yeah, I'm just kind of wondering why now, and was there something specific to the deal?

Good question. I guess, you know, the truth of it is we'll know the bottom in hindsight, and we certainly weren't trying to call the bottom, but it is our goal to be an active participant kind of throughout the cycle, and this was a sub-market we really like in Denver, and asset quality that we feel confident in. We know this group who built this well and looked at financing it on the front end. So we liked the asset and felt like we understood it very well and felt like we understood that there wouldn't be a lot of surprises. Who knows? The risk when you buy something is you learn after you close. But so far, so good on that score. And we were quite confident that they'd pricing had really moved from kind of earlier in the year. Now, it may continue to move. I don't actually know. I mean, there's a whole lot of equity out there kind of in wait-and-see mode, and my guess is they'll, you know, if you have lots of negative leverage, you'll use less leverage, and there's lots of buyers out there that can do that. So, you know, why now was we like the asset, we like the sub-market, we felt great about it. Candidly, we would have locked the pricing of our debt better, and it wouldn't have been – dilutive as it currently is. But we're not really playing a 90-day game. We're playing a multi-year game. And on that basis, this made a lot of sense. I'd say similar on the stock. I mean, we have a view of what our NAV is. We update that quarterly. We talk about it nearly daily. And we have confidence in the business and believe that over the long term, these assets are worth more than we're currently paying for them. Okay.

I appreciate that.

That's sort of why now.

I appreciate that very much. Just a couple of quick follow-ups. Kind of on, as the portfolio stands today and, you know, with some newer assets, how do you think about the recurring CapEx run rate of the portfolio now? It looks like, you know, same-store CapEx was still

elevated even with um r m and turn costs also going up you know is there a higher level of capex to expect out of the portfolio or or do the newer assets kind of bring down that run rate uh yes and no i mean you know as you know we added that older portfolio the kms portfolio which has been uh has worked very well relative to how we expected from a cash flow for perspective Those are very old assets that have real CapEx needs, and they'll be in the same store next year. So, you know, when you think about what we've talked about over time, in particular with respect to NOI margin, with shrinking that CapEx and lowering the age of portfolio, I mean, just mathematically, the reality is KMS is a bit of a step back there. Now, our other goals are distributable cash and, you know, efficiency of the enterprise from a GNA and property management perspective. So, you know, we're serving a lot of masters there. But I think, and Barav can probably comment in detail, but the CapEx affiliated with KMS coming into the same store pool will certainly overwhelm, I mean, the other assets we've bought, the MIN3 assets, NOCO, and obviously Lyra are all, you know, built in the last five years. So they should have relatively low CapEx in the near term. But But the KMS, you know, it's 2,700 units or homes.

Yeah, and plus we've budgeted some acquisition capital on the KMS portfolio. So as you look at, you know, same store CapEx year over year as we enter into next year with KMS in the portfolio, some of it will be covered as part of acquisition capital. So the run rate shouldn't go up materially as we kind of start spending some of this acquisition capital.

Yeah, and that number was $40 million, which we've gotten, you know, less of it out this year than we – than we planned because it's been hard to get work scheduled. Got it, got it. Very helpful, guys.

Okay, thank you very much. Thanks, Buck.

Thank you. We now have a follow-up question from Brad Heffern from RBC Capital Markets. Brad, please go ahead.

Hey, thanks for the follow-up. I was just curious, Anne, if you had any leasing stats and occupancy numbers that you could give for October?

Yeah, not quite yet. I mean, we did see, I will say what I'm seeing so far as we close out October and get the final documentation into the system is, you know, still really strong renewals. We have seen a, you know, seasonal drop off in traffic. We were down from August to September, you know, close to 20% in traffic. Again, in October, down about 15% in traffic. That is absolutely completely normal for us. And, you know, what we're seeing is just routine seasonality there. So what we're expecting, given some of the preliminary October numbers is, you know, that the new lease rates are going to come down. They always do in the fourth quarter and that the renewals will remain strong for the first couple of months.

Okay. Thank you. Thanks, Brad.

We currently have no further questions, so I'll now hand you back over to Mark Decker for closing remarks.

Super. Thanks. Well, we appreciate everyone's continued interest in the company, and I'll be at NARIT in San Francisco in a few weeks and hope to see some of you there. So thanks very much, everyone, and have a good week.

This concludes today's call. Thank you for joining. You may now disconnect your line.