This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk05: Operator, the music is playing in the background.
spk00: We'll start once the music goes off.
spk01: Operator,
spk05: the music is playing in the background. Operator, the music is playing in the background.
spk00: That's
spk05: for Carrie. Carrie, Operator, are we ready to go? All we heard was music the whole time. We didn't hear your introduction.
spk09: Please go ahead.
spk05: Thank you Carrie and good morning everyone. This is Andrew Schaeffer, Treasurer and Director of Capital Markets for MAA. Members of the management team participating on the call this morning with prepared comments are Eric Bolton, Brad Hill, Tim Argo and Clay Holton. Al Campbell, Rob Del Prairie and Joe Frakia are also participating and available for questions as well. Before we begin with prepared comments this morning, I want to point out that as part of this discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections. We encourage you to refer to the forward-looking statement section in yesterday's earnings release and our 34-act colleagues with the SEC, which describe risk factors that may impact future results. During this call, we will also discuss certain non-GAAP financial measures. A presentation of the most directly comparable GAAP financial measures, as well as reconciliations of the differences between non-GAAP and comparable GAAP measures, can be found in our earnings release and supplemental financial data. Our earnings release and supplement are currently available on the For Investors page of our website at .maac.com. A copy of our prepared comments and audio recording of this call will also be available on our website later today. After some brief prepared comments, the management team will be available to answer questions. I will now turn the call over to Eric.
spk03: Thanks, Andrew, and good morning. Core FFO results for the fourth quarter were ahead of our expectations. Higher non-same store NOI performance and lower interest expense drove the outperformance. As expected during the fourth quarter, a combination of higher new supply and a seasonal slowdown in leasing traffic increasingly weighed on new resident lease pricing during the quarter. Encouragingly, we did see some of this pressure moderate in January with blended pricing improving 130 basis points from the fourth quarter performance led by improvement in new lease pricing. Stable employment conditions, continued positive migration trends, a higher propensity of new households to rent apartments, and continued low resident turnover are all combining to support steady demand for apartment housing. We continue to believe that late this year, new lease pricing performance will improve and we will begin to capture recovery in that component of our revenue performance. In addition, with the pressure surrounding higher new supply deliveries likely to moderate later this year, we continue to believe the conditions are coming together for overall pricing recovery to begin late this year and into 2025. As you may have seen last week, MAA crossed a significant milestone marking the 30-year anniversary since our IPO. Over the past 30 years, MAA has delivered an annual compounded investment return to shareholders of .6% with about half of that return comprised of the cash dividends paid. Through numerous new supply cycles and various stresses associated with the broader economy, MAA has never suspended or reduced our quarterly dividend over the past 30 years, which of course is a key component of delivering superior long-term investment returns to shareholders. Today, I'm more positive about our outlook than I was this time last year. Today, as compared to a year ago, we have more clarity about the outlook for interest rates with downward movement likely later in the year. Worries associated with material economic slowdown or recession are dissipating. Inflation pressures on operating expenses are declining. The demand for apartment housing and absorption remain steady. And with clearly declining permits and new construction starts, we have increasing visibility that competing new supply is poised to moderate. With a 30-year track record of focus on high-growth markets successfully working through several economic cycles, an experienced team, a proven operating platform, a strong balance sheet, and long-term shareholder performance among the top tier of all REITs, we're confident about our ability to execute on the growing opportunities in the coming year and beyond. Before turning the call over to Brad, I do want to take a moment to say a big thank you to Al Campbell, who will be officially retiring effective March 31st. Al has been with our team for the past 26 years and has served as our chief financial officer for the past 14 years. Al has been instrumental in the growth of our company, transitioning us to the investment-grade debt capital markets, and has built a strong finance, accounting, tax, and internal audit platform for MAA. Al leads our company in finance operation in strong hands with Clay and his team. We're all grateful for Al's service and tremendous accomplishments. So thank you, Al, for all you've done for MAA. And with that, I'll now turn the call over to Brad.
spk02: Thank you, Eric, and good morning, everyone. As mentioned in our earnings release, we successfully closed on two compelling acquisitions during the fourth quarter at pricing 15% below current replacement costs. Both properties fit the profile of the type of properties we expect to continue to emerge throughout 2024. Properties in their initial lease up, with sellers focused on certainty of execution with a need to transact prior to a definitive deadline. Our relationships with the sellers and our ability to move quickly and execute on the transactions utilizing the available capacity on our line of credit without a financing contingency were key components of MAA being chosen as the buyer for these properties. MAA Central Avenue, a 323 unit mid-rise property in the Midtown area of Phoenix, and MAA Optimus Park, a 352 unit mid-rise property in the Optimus Park area of Charlotte, are expected to deliver initial stabilized NOI yields of .5% and .9% respectively. We expect both properties to achieve further yield and margin expansion as a result of adopting MAA's more sophisticated revenue management, marketing, and lead generation practices, as well as our technology platform. Additionally, we expect to achieve operational synergies by combining certain functions with other area MAA properties as part of our new property potting initiative. Due to continued interest rate volatility and tight credit conditions, transaction volume remains tepid, down 50% year over year and 16% from the third quarter space. We continue to believe that transaction volumes will pick up later in 2024, providing visibility into cap rates and market values. For deals we tracked in the fourth quarter, we saw cap rates move up by roughly 35 basis points from the third quarter. Our transaction team is very active in evaluating additional acquisition opportunities across our footprint, with our balance sheet in great position to be able to take advantage of more compelling opportunities as they continue to materialize later this year. Our forecast for the year includes $400 million of new acquisitions likely in lease up and therefore diluted until stabilization is reached. Despite pressure from elevated new supply, our two stabilized new developments as well as our development projects currently leasing continue to deliver good performance, producing higher NOIs and earnings than forecasted in our original pro formis, creating additional long-term value. New lease rates are facing more pressure at the moment, but these properties have captured asking rents on average approximately 20% above our original expectations. Our four developments that are currently leasing are estimated to produce an average stabilized NOI yield of 6.5%. We continue to advance pre-development work on several projects, but due to permitting and approval delays as well as an expectation that construction costs are likely to come down, we have pushed the three projects that we plan to start in 2023 into 2024. We now expect to start between three to four projects this year with two starts in the first half of the year and two starts late in the year. Encouragingly, we have seen some recent success in getting our construction costs down on new projects that we're currently repricing. As we have seen a meaningful decline in construction starts in our region, we're hopeful to see continued decline in construction costs as we progress through the year. Our team has done a tremendous job building out our future development pipeline, and today we own or control 13 well-located sites representing a growth opportunity of nearly 3,700 units. We have optionality on when we start these projects, allowing us to remain patient and disciplined. Any project we start this year will deliver first units in 2026, aligning with a likely stronger leasing environment supported by significantly lower supply. Our development team continues to evaluate land sites as well as additional pre-purchase development opportunities. In this constrained liquidity environment, it's possible we could add additional development opportunities to our future pipeline. The team has our portfolio in good position. Our broad diversification provides support during times of higher supply with a number of our mid-tier markets outperforming. As we ramp up activities in 2024, we're excited about the coming year. Beyond the new external growth opportunities just covered, and as Tim will outline further, we continue to see solid demand and steady absorption of the new supply delivering across our markets and remain convinced that pricing trends will begin to improve late this year and into 2025. In addition, we continue to make progress on several new initiatives aimed at further enhancing our leasing platform to further position us to outperform local market leasing metrics during the supply cycle. Before I turn the call over to Tim, to all of our associates at the properties and our corporate and regional offices, I want to say thank you for coming to work every day, focused on improving our business, serving our residents, and exceeding the expectations of those that depend on us. With that, I'll turn the call over to Tim.
spk20: Thank you, Brad, and good morning, everyone. Same store NOI growth for the quarter was right in line with our expectations with slightly lower operating expenses, all setting slightly lower blended lease over lease pricing growth. Expanding on Eric's earlier comment on new lease pricing, developers looking to gain occupancy ahead of the holiday season and the end of the year did put further pressure on new lease pricing, particularly in November and December. However, because traffic tends to decline in the fourth quarter, again, particularly in November and December, we intentionally reprice only 16% of our leases in the fourth quarter and only about 9% in November and December. This resulted in blended lease over lease pricing of minus .6% of the quarter, comprised of new lease rates declining 7% and renewal rates increasing 4.8%. Average physical occupancy was .5% and collections remained strong, with delinquency representing less than .5% of bill grants. These key components drove the resulting revenue growth of 2.1%. From a market perspective in the fourth quarter, many of our mid-tier metros performed well. Being invested in a broad number of markets, sub-markets, asset types, and price points is a key part of our strategy to capture growth throughout the cycle. Savannah, Richmond, Charleston, and Greenville are examples of markets that led the portfolio in lease over lease pricing performance. The Washington, D.C. metro area, Houston, and to a lesser extent Dallas, Fort Worth were larger metros that held up well. Austin and Jacksonville are two markets that continue to be more negatively impacted by the level of supply being delivered into those markets. Touching on some other highlights during the quarter, we continued our various product upgrade and redevelopment initiatives in the fourth quarter. For the quarter, we completed nearly 1,400 interior unit upgrades, bringing our full year total to just under 6,900 units. We completed over 21,000 smart home upgrades in 2023, and now have over 93,000 units with this technology, and we expect to complete the remaining few properties in 2024. For our repositioning program, we have five active projects that are in the repricing phase with expected yields in the 8% range. We have targeted an additional six projects to begin in 2024, with a plan to complete construction and begin repricing in 2025. Now, looking forward to 2024, we're encouraged by the relative pricing trends we are seeing thus far. As noted by Eric, blended pricing in January was 130 basis points better than the fourth quarter. This is comprised of new lease pricing of negative .2% and 80 basis point improvement from the fourth quarter, and notably 150 basis point improvement from December, and renewal pricing of .1% and improvement of 30 basis points from the fourth quarter. While maintaining stable occupancy of 95.4%.
spk19: Similarly, renewal increases
spk20: achieved thus far in February and March average around 5%. As noted, new supply being delivered continues to be a headway in many of our markets. While we do expect this new supply will continue to pressure pricing for much of 2024, we believe we have likely already seen the maximum impact to new lease pricing and that the outlook is better for late 2024 and into 2025. It varies by market, but on average new construction starts and our portfolio footprints peaked in the second quarter of 2022. Based on typical delivery timelines, this suggests peak deliveries likely in the middle of this year with some positive impact of pricing power soon thereafter. While increasing supply is impactful, the strength of demand is more indicative of pricing power in a particular market. Job growth is expected to moderate some in 2024 as compared to 2023, but growth is still expected to be strongest in the Sun Belt markets. Job growth combined with continued in-migration accelerates the key demand factor of household formation. Separately, the cost gap between owning and renting gapped out considerably in the back half of 2023, even before considering the impact of higher mortgage rates. Move-outs to buy a home dropped 20% in the fourth quarter on a -over-year basis, and we expect a continued low number of move-outs due to homebuying to contribute to low turnover overall in 2024. That's all I have in the way of the parent comments. Now I'll turn the call over to Clay.
spk07: Thank you, Tim, and good morning, everyone. Reporting Core FFO for the quarter of $2.32 per share was $0.03 per share above the midpoint of our quarterly guidance and contributed to Core FFO for the full year of $9.17 per share, representing an approximate 8% increase over the prior year. The outperformance for the quarter was primarily driven by favorable interest and the performance of our recent acquisitions and lease ups during the quarter. Overall, same store operating performance for the quarter was essentially in line with expectations. Same store revenues were slightly below our expectations for the quarter, as effective rent growth was impacted by lower lease pricing that Tim mentioned. Same store operating expenses were slightly favorable to our fourth quarter guidance, primarily from lower than expected personnel costs and property taxes. During the quarter, we invested a total of $20.7 million of capital through our redevelopment, repositioning, and smart rent installation programs, producing solid returns and adding to the quality of our portfolio. We also funded $48 million of development costs during the quarter toward the completion of the current $647 million pipeline, leaving nearly $256 million remaining to be funded on this pipeline over the next two years. As Brad mentioned, we also expect to start three to four projects over the course of 2024, which would keep our development pipeline at a level consistent with where we ended 2023, in which our balance sheet remains well positioned to support. We ended the year with nearly $792 million in combined cash and borrowing capacity under our revolving credit facility, providing significant opportunities to fund potential investment opportunities. Our leverage remains low with debt to EBITDA at 3.6 times, and at year end, our outstanding debt was approximately 90% fixed, with an average of 6.8 years at an effective rate of 3.6%. Shortly after year end, we issued $350 million of 10-year public funds at an effective rate of 5.1%, using the proceeds to pay down our outstanding commercial paper. Finally, we did provide initial earnings guidance for 2024 with our lease, which is detailed in the supplemental information package. Core FFO for the year is projected to be $8.68 to $9.08 at the midpoint. The projected 2024 same-store revenue growth midpoint of .9% results from rental pricing earn-in of 0.5%, combined with blended rental pricing expectation of 1% for the year. We expect blended rental pricing is to be comprised of lower new lease pricing impacted by elevated supply levels and renewal pricing in line with historical levels. Effective rent growth for the year is projected to be approximately .9% at the midpoint of our range. We expect occupancy to average between .4% and 96% for the year, and other revenue items, primarily reimbursement and fee income, to grow in line with effective rent. Same-store operating expenses are projected to grow at a midpoint of .85% for the year, with real estate taxes and insurance producing most of the growth pressure. Combined, these two items are expected to grow almost 6% for 2024, with the remaining controllable operating items expected to grow just over 4%. These expense projections, combined with the revenue growth of 0.9%, results in projected decline in same-store NOI of .3% at the midpoint. We have a recently completed development community and lease-up, along with an additional three development communities actively leasing. As these four communities are not fully leased up and stabilized and given the interest carry associated with these projects, we anticipate our development pipeline being diluted to core FFO by about $0.05 in 2024 and turning a creative to core FFO upon later stabilization. We are expecting continued external growth in 2024, both through acquisitions and development opportunities. We anticipate a range of $350 million to $450 million in acquisitions, all likely to be in lease-up and not yet stabilized, and a range of $250 million to $350 million in development investments for the year. This growth will be partially funded by asset sales, which we expect dispositions of approximately $100 million, with the remainder to be funded by debt financing and internal cash flow. This external growth is expected to be slightly diluted to core FFO in 2024, and then again turning a creative to core FFO after stabilizing. We project total overhead expenses, a combination of property management expenses and G&A expenses to be $132.5 million at the midpoint, a .9% increase over 2023 results. We expect to refinance $400 million in bonds maturing in June 2024. These bonds currently have a rate of 4%, and we forecast a refinance north of 5%. This expected refinance, coupled with the recently completed refinancing activities mentioned previously, will result in $0.04 of dilution to core FFO as compared to prior year. That is all that we have in the way of prepared comments. So, Carrie, we will now turn the call back to you for questions.
spk12: Thank you. We will now open the call up for questions. If you would like to ask a question, please press the star, then 1, on your touchtone phone. If you would like to withdraw your question, you may press star 2. We will pause for a moment to allow questions to keep going. And we will take our first question from the line of Josh Dunnerline with Bank of America. Please go ahead.
spk16: Yeah, hey, guys. Appreciate all the color you provided on guidance. My first question would just be on the same sort of revenue growth outlook. Can you provide us maybe more details on what would get you to the high and low end of guidance? I guess I'm really curious about what you would assume for the blended rate growth at the high and low end.
spk20: Hey, this is Tim. So I think, you know, as far as the high end and the low end, I think, you know, we feel pretty comfortable with the renewal rates. And they've been steady for the last few months. And what we're seeing, as I noted, the next few months is being in that 5% range. I think that the new lease rates are what could, you know, certainly determine whether we get more to the high end and low end, which is going to be a function of the demand side. We expect to see steady job growth, steady demand and migration, all those factors. So that's a little bit better. You know, I think it obviously pushes new lease rates higher. And then the opposite is true. But if you think about our full year guide, it's built on new lease rates for the year. And this will be seasonal, you know, starting a little bit lower, Q1, accelerating to Q2 and Q3, and then declining a little bit to Q4. But somewhere in the negative 3, 3 and 1 quarter range on new lease for the year. And expectations of the 4 and a half to 5% range on renewals, which blends out to the 1% blended, is what we're assuming for the full year.
spk17: Okay, I appreciate that. And then for the drag that you're assuming on the $400 million of acquisitions, is there a way to quantify that?
spk07: Yeah, I think you can think, Josh, I think you can think through, you know, what we're projecting new rates to come in this next year and kind of the timing of those acquisitions, you know, from the standpoint of just the timing of it. We're assuming that those start in the second quarter and then play out over the remainder of the year. And we think about it maybe in the range of, I'll call it four acquisitions at roughly $100 million each. And I think they'll look similar to what these other two acquisitions that we just completed in 2023, as far as how they will lease up and how they'll, you know, the drag that we'll see on earnings over 2024.
spk02: Josh, this is Brad. Just to add to that, our assumption on the acquisitions is that, you know, obviously, as Clay mentioned, they're very similar to the ones we purchased last year. They're in lease up. We're assuming about a .5% NOI yield contribution at the time of closing, given that those are in lease up and given the comments that Clay made about where our current commercial paper is and where our cost of debt is. You know, you can kind of do the math on what dilution there is.
spk12: And we'll take our next question from the line of Austin Worsmite with KeyBank. Please go ahead.
spk08: Great. Thanks. Good morning, everyone. You remain confident that new lease pricing is going to improve through this year, but it really sounds like peak delivery don't hit until around mid-year. And we've really yet to see, I guess, leasing volume pick up. So with kind of that expectation of, you know, the improvement in new lease rates through the year, do you think that lease rates get better in the back half of this year versus last year on sort of a lease-weighted basis? I know things deteriorated late in the year, but more interested in sort of that period of, you know, July through October.
spk03: Well, I'll answer your question, and Tim, you can jump in here. But broadly speaking, yeah, we do think that as you get into the summer leasing season, we've always traditionally seen leasing traffic pick up. And as commented in our prepared comments, I mean, we just see no evidence of demand really deteriorating. And we do think that normal seasonal patterns will continue to play out. So as we think about, you know, supply delivery, and we see it is pretty elevated at this point. And I mean, does it go up another 10 percent? I don't think so. I think that, you know, kind of we're in the sort of the peak of the storm from a supply perspective, I feel like, right now, in a weak demand quarter. And we think that supply now stays high, you know, certainly in Q1 and Q2 and probably even early Q3. And, you know, it's hard to peg it by month. But we do think that there is a lot of reasons to believe that supply starts to peter out or starts to moderate a little bit as you get into particularly into Q4. So we do think that the pressure surrounding supply that will persist will be met with even stronger, you know, leasing traffic and demand patterns as we get into the summer as a function of normal seasonal patterns. And therefore, it does lead us to believe that new lease pricing performs better in Q2 and Q3. And as Tim alluded to, we expect, again, it's a function of normal seasonal patterns that begins to moderate a little bit in Q4. And the other thing that I would just point out, of course, is that we began to see early effects of supply pressure really in 2023 and particularly in the latter part of 2023. So in some ways, you know, you could also suggest that, you know, the prior year comparisons in terms of new lease or lease performance starts to get a little bit easier, if you will, in the back half of 2024. So, you know, collectively, that's what it leads us to the consensus of where we think things are headed. I mean, Tim, what would you add to that? Yeah,
spk20: I'll add on to what Eric was saying. If you go back to last year, I mean, our new lease pricing went slightly negative starting in July and kind of progressively got more so throughout the year. So there is a cup component that plays into this as well. So I do think to answer one of your questions, Austin, that new lease pricing does look better in the end of 2024 as compared to the end of 2023 with those comps with supply getting a little bit better. Now, I think, you know, the improvement won't be as clear to see because it is a lower demand time of the year when you get into November and December, but I think the trends will be positive and really start to play out 2025.
spk08: What do you guys think new lease rate growth could turn positive? And then just a second question is, you know, I'm just curious how what underlying assumptions in same store revenue guidance changed the most relative to what you published in November of last year?
spk20: I think likely new lease pricing probably doesn't get positive until 2025. I think it will get close to flat probably in the middle of this year in the highest demand part of the year. But, you know, even in a quote normal year or a good year, we typically see new lease pricing is negative in the back part of the year. So I think likely it's early 2025 as we see the supply pressure start to moderate more. So I think that's probably the most likely scenario for new lease pricing. As far as what changed, I mean, it was really the earn-in, which is based on what we saw in November and December. As I mentioned in my comments, new lease pricing really, really moderated quite a bit, particularly in November and December, which, you know, the way we calculate our earn-in is just basically saying, all right, all the plans are good. All the leases that were in place at the end of December 31, if they all priced at zero for the rest of the year, what would our rent growth be? And that's so the earn-in is more in the .5 range, a little bit lower than that range we talked about in May, really driven by the new lease pricing in November and December and the pressure we saw from the developers and looking for options and that sort of thing.
spk19: Thanks, everybody.
spk12: And we'll take our next question from the line of John Kim with BMO Capital. Please go ahead.
spk11: Thank you. Good morning. I want to follow up on that comment you just made on the earn-in that basically half of what you expected in November. I realize the splendid rates probably came in lower than expected. But you also mentioned, Tim, in your prepared remarks that the leasing volume was very light the fourth quarter. There's only 16% of leases overall. I'm just trying to understand that impact of the fourth quarter leases and why earn-in had come down so much in just the month.
spk20: Yeah, I mean, it's based exactly on that. I mean, I think the other component that played into it is we saw turnover for the year down, but November and December we had a little bit higher weighting on new lease pricing as compared to renewal. So more new leases in November and December than renewals, which obviously with the new lease pricing was a bigger impact on the blended. Now we've seen that shift more so to what we think will happen throughout the course of 2024, which is where we're waiting. We think turnover will remain down and be weighted a little more towards renewal. So while we have seen new lease pricing improve in January, the blended improved even more as we've seen more what we think will be the lower turnover component. So it's really just that. Like I said, you know, we're comparing it the lowest part of lowest demand part of the year. We do expect blended to be positive in 2024. I think that's, you know, calculating loss of lease earn-in, whatever you want to call it, the end of December, certainly the most pessimistic time to look at it. But it was that pricing that drove it.
spk11: But when you calculate earn-in, do you just take the blended lease change for your entire portfolio and just not weighted by number of transactions, so just take half of it basically?
spk20: No, we just say when we talk about earn-in, we're just saying, OK, if our total rents were $2 billion at the end of December and or if we take just December, whatever that number was for rent and apply that all the way through 2024, what is the full year gross over 2023? And so that where that ends up can affect that number.
spk11: My second question is on acquisition yield, which you're allowed to where it's five five and five nine. How do you see that move towards the end of this year when you see more acquisition activity occur and your recent bond rates done at five point one percent? How does that change your view on initial yields that are acceptable to you?
spk02: John, this is Brad. I'll start off with that. Well, you know, certainly we were fortunate with the two acquisitions that we executed in the fourth quarter. And we felt like we got really good pricing on those for the reasons I mentioned really in my comments. But, you know, we haven't seen a lot of activity in that area. And so, you know, even in the first quarter here in January, we've seen a little bit of an uptick in terms of the deals coming out. We were at NMHC last week and certainly think that that volume picks up a little bit as we go through the year. You know, but but we haven't seen a lot of opportunities come in that way. Now, we do think as we continue to get further into the year that pressure given where interest costs are for the developers, given the supply pressures that they're likely to feel that the urgency from some of these developers to execute on transactions will continue to increase. And we're certainly hopeful that that yields additional opportunities. The other thing that we are watching, frankly, is some of the larger equity sponsors and what their exposure is to other sectors, whether that's retail or office. And some of them have big exposures to multifamily development and some of them have liquidity needs, which necessitates that they execute transactions in some of the multifamily space. So we're having some discussions with folks like that. We're certainly hopeful that that will yield some opportunities. But I do think that the pricing expectations on the seller side is still a bit lower than where we think pricing needs to be. You know, pricing expectations are still low fives. So we still need to see some movement up in cap rates from where those expectations are for the market to really pick up. So it's an area that we continue to work on. And we do think that there'll be more opportunities as we get through this year.
spk11: Great. Thank you.
spk12: And we'll take our next question from the line of Jamie Feldman with Wells Fargo. Please go ahead.
spk13: Great. Thank you. I appreciate all the color on rents and how you think it can inflect more positive. But I guess just as like a case study, if you think about your weakest market, your deepest supply challenge market, what do you think the pace of rents look like in that market? For the kind of the quarterly improvement or is it still weak into 25? I think just looking for like the worst case scenario here so we can build on the better.
spk20: Well, I mean, I will say when we talked about, you know, construction starts that peak somewhere around the middle of 2022, that is pretty consistent across our markets. There are a few that were a little bit later than that, a few that were a little bit earlier than that. So it is a relatively consistent supply wave in terms of the timing. Obviously some markets are getting a lot more supply than others, which drives under or over performance. I mean, Austin is the market we talked about forever that is our weakest one right now. I mean, it's just getting a ton of supply and it's very widespread throughout the market, whereas some other markets are a little more targeted. So that's one that has probably the worst new lease performance right now. I mean, I think a market like that will continue to struggle through most of 2024, probably 2025 before it starts to see a little bit of improvement. But I would say that again, sort of the cadence of supply is relatively consistent across most of our markets.
spk03: And just to add to what Tim is saying, while the cadence of supply is fairly consistent, where you do see a lot of differences on occasion is the by market, the percent of new supply coming to the market as a percent of the existing stock will vary a bit. And then also you see, of course, market differences in terms of demand and demand drivers. And so in a market like Austin, where it's probably one of our, if not the most oversupplied market that we have, or supply high relative to a percent of existing stock, the market also happens to be one of the strongest job growth markets that we have. And probably as a consequence of that, we're seeing absorption rates, if you will, probably running higher in Austin than we would in a market like Dallas or some of the others that are also getting a lot of supply, but maybe not quite the level. And Dallas obviously is getting a lot of job growth, but a market like Jacksonville where you're not getting quite the level of job growth that you get in a market like Austin. So I think you have to be careful with trying to extrapolate one market to the whole portfolio in terms of performance expectations because it will vary quite a bit. And that's obviously why we diversify the way we do. As Tim and Brad alluded to in their comments, this is why we also have a mid-tier market component to our portfolio where we're seeing some of these mid-tier markets holding up in a much more steady fashion than some of the others. So I think that the question about how quickly any given market snaps back through the supply pipeline, if you will, is going to largely be a function of the demand factors that we see in those markets. And a market like Austin we think has huge potential long-term for us and snaps back pretty strong probably late this year and more likely into early 25.
spk13: Okay. That's helpful. Yeah, I think the question is coming from I think most of you and most of your peers are thinking that by the end of the year, a lot of these markets are much better. So that's what I'm trying to figure out. So maybe if you guys pick the market, what do you think is going to be the market that has the most pain for the longest period of time? I think it's going to be combining both job growth projections and supply just so we can at least keep our eyes on that to see that this is the worst case. Yeah,
spk03: I would put Austin in that group, sure.
spk20: Yeah, I would agree with Austin. I mean, it's getting a lot of supply and frankly without the level of job growth, it would be worse off than it is. So we're getting a ton of jobs, but Austin is going to take some time to work through.
spk13: Okay. All right. Great. That's helpful. And then, you know, thinking about the acquisition opportunities, I mean, you currently have very low leverage versus your peers. How high would you be willing to take that leverage if you found the right opportunities? And then what do you view as your absolute buying power right now?
spk07: Yeah, I think just from a leverage standpoint, we would be comfortable moving it up to four and a half to close to five. And of course, that would take a lot of time at the rate that we're looking at these coming through to get to that point. But we would be comfortable taking our leverage up to that point.
spk13: Do you have a sense of total dollar amount? Yeah,
spk07: I think that gets to roughly a billion and a half.
spk13: Okay. All right. Thank you.
spk12: We'll take our next question from the line of Nick Gilico with Scotiabank. Please go ahead.
spk04: Hey, good morning. It's Daniel Tricarico with Nick. Brad, you talked about the improving absorption in the back half of the year. Can you comment on what you're seeing on the demand side, you know, job growth, migration that gives you this confidence, maybe the general economic outlook embedded in the guide, and maybe said another way, you know, what household formation or job growth scenario gets you to the low end of guidance?
spk02: Yeah, well, I'll start out and can certainly jump in here. But, you know, a couple of points I'll make here on the demand side is, you know, definitely the traditional demand drivers that we see, whether it's, you know, job growth, population growth, migration trends, all of those are still very, very positive and steady within our region of the country. And those will continue to be significant drivers over the long term for us. But, you know, we also see another dynamic that's kind of at play here. And a big part of that has to do with the single family market and really has to do with the affordability and the availability that we see there. As Tim mentioned in his opening comments, you know, we've seen a significant decline in the move outs to buy a home. That's down 20% year over year with us. And if you look at the cost of buying a home in our region of the country, it's up significantly over the last couple of years. The monthly cost of home ownership is about 50 to 60% higher than the rents are within our region of the country. So that's a significant hurdle for most people. We've also seen the construction starts in the single family sector continue to decline. So the inventory level of available single family continues to decline. And so we think that's pushing a segment of demand into multifamily. And it's also pushing folks to stay longer in multifamily. We've seen the average tenure of our residents up to almost two years now. So that's got a demand component to it as well. And then we've also seen some preference shift within the demographics that are, you know, our rental demographics, honestly. And that is a preference to, you know, to live alone. And so that also is extending the household formation numbers that we're seeing. And so all of that really combines to a point that Eric made in his comments, which is that, you know, apartment rental continues to make up a higher percentage of the occupied housing. And so as we look out and see demand in our region of the country, those traditional drivers continue to be important. But there's also this other component that is really adding to the demand component that we see in our region of the country. Tim, what would you add?
spk20: Yeah, I'll add a couple of points there. I mean, I think the job growth component and how much there is will be probably more likely the fact that it determines, to your original question, kind of high and low end. That's where I think we expect the immigration and all things Brad just noted to be there and that component of demand to be pretty consistent with what we've seen the last couple of years. We've dialed in about 400,000 new jobs into our expectations for our markets for 2024. That's down certainly from 2023, but still net positive and still expect job growth highest in the summed out markets. And encouragingly, if you look at the national job growth numbers for January added, I think about 350,000 new jobs in January. You compare that back to 2023, the average is about 250,000 a month. So while we do expect job growth to be down some to 2023, the early indications are that it's still holding up pretty well.
spk04: That's great, Tyler. Thanks, guys. Follow up on development, you have three or four development start this year. Development starts, you know, what markets are those in and what are underwritten stabilized yields on those? And I guess along the same line, you talked about Austin being the weakest. You stabilized Windmill Hill and Austin in the fourth quarter. Can you give us a sense of how that asset leads up versus your expectations and obviously a little bit more suburban, but how do you expect that asset to perform within the Austin market this year given it's expected to be one of the weaker markets?
spk02: Yeah, Nick, this is Brad. A couple of comments on the development side. Yeah, we do have three to four starts that we expect this year, two in the first half. One of those is in Charlotte. The other one is in the Phoenix Chandler submarket of Phoenix. We've got two other ones that we're working on. One's a phase two in Denver. The other one's a phase two in Atlanta. And in terms of the yields we're seeing there, you know, we are pushing those at the moment to, we're repricing all of those trying to get the construction costs down to really get to a yield, call it mid-sixes. That's really what our goal is. We have had some success on the project in Charlotte. We've been able to get between five and six percent reduction in the construction costs, which really helps support our ability to get that yield. So we feel really good about where we are with those developments. And then, you know, the two that are late in the year are phase two projects, so we're hopeful that the yields there continue to increase as we get further construction costs out of those as well. And I'm sorry, the second part of your question, Nick.
spk04: The, you know, Windmill Hill in Austin and Fort Keef. How does that, go ahead.
spk02: Yeah, that asset performed extremely well for us. The average rents that we achieved on that asset were almost 24 percent higher than what we expected. So from a yield perspective, significantly outperformed what we expected. And, you know, part of that was you mentioned it's a suburban asset in Austin. Great execution on the property. Had two adjacent lease ups going on at the same time as it, but we were very patient in how we leased that asset up. We didn't have to offer concessions to meet the market and really perform extremely well there. So I think, you know, given the execution on the construction side as well as the leasing side, you know, we did not have to compete quite as much head to head with some of the competition that was in that market. And we've got pretty good results there.
spk04: Thanks for the time.
spk12: And we'll take our next question from Eric Wolf with Citi. Please go ahead.
spk09: Thanks. So I understand your point on comps getting easier through the year, especially in the fourth quarter. But if the largest amount of supply is delivering in the middle of this year, it takes like a year to lease up. Why would rents start recovering sort of later this year before the developments are fully leased? Isn't there typically like a compounding effect of the supply?
spk20: Well, I think, you know, one is while we're talking about complete or starts peaked in the middle of 2022, it's been pretty steady. So I think we've seen a relatively steady level of supply being delivered over the last several quarters. And then we have the steady level of demand as well. I mean, we have seen absorption keep up pretty well, even though the supply kind of compounded, as you said. Certainly certain markets are a little bit different. But the other thing is, you know, middle of the year obviously is the strongest demand component. And so I think the timing of that with the timing of most of our traffic and most of the demand coming in is what we believe helps keep it from, you know, we talked about we think new lease pricing is kind of bottom helps keep it from getting worse and where it is now. It's just sort of that normal seasonality and all the different demand factors that we've talked about. And then, you know, you'll have a few months after the middle, after its peak, where there's still pressure. But we typically see it start to drop a few months after those final deliveries, which is what gives us some confidence in the back half of the year that we start to see some improvement.
spk03: And as Tim mentioned, I mean, we also I mean, we assume that new lease pricing moderates in the fourth quarter. And that's also what's important to remember. It's also why we stagger stagger our lease expirations the way we do such that we're repricing a smaller percent of leases of the portfolio in that holiday period of November and December. So I understand the point that you're making. But, you know, we feel like that we've accounted for that both in terms of our new lease over lease pricing, performance expectations, seasonal patterns, if you will, but also just the way we manage these expirations over the course of the year. So, you know, we think that we've got it all then appropriately. And we do think that as we get into it again, it varies by market so much. So it's hard to make any real conclusive broad observations as relates to the point that you're making. But we do think that there are certain markets for sure that we begin to see the supply pressures meaningfully moderate in terms of new coming in. Late in the year, and that begins to, you know, establish some early signs recovery in that new lease pricing performance as we head into 2025.
spk20: I think one more point I'll add just back to the kind of the middle of the year. I mean, we're still dialing in somewhere in the negative two and a half percent range during that strongest period of 2024 for new lease pricing. So we certainly don't see it getting positive yet. But, you know, think with the demand components that, you know, it'll be a little bit better than what we're seeing right now.
spk09: Thanks. And just maybe a quick clarification on the earnings. Does that include your sort of loss or gain to lease real time changes in market rents or is it based purely off of leases signed at one point in time? I'm just trying to understand if real time moves in market rents ends up impacting that that earnings, it's always going to end up being lower at the year end.
spk20: Yeah, well, for the earnings, like I said, it's basically just saying all the places that were in place at the end of 2023. So call it all the December leases. If those just held steady for all 24, that's the earnings. I mean, lost the lease. I would think about that if you look at all of the leases that that went effective in January compared to our input in place. It's about a negative one percent loss lease looking at it that way. But we are dialing in, as we said, positive one percent blended for for the course of 2024.
spk10: Thank you.
spk12: And we'll take our next question from the line of Rich Anderson with Wedbush. Please go ahead.
spk06: Thanks. Good morning, everyone. So what do you make of this January effect that's happening? Like you guys have seen this sort of recovery in January. Some of your peers, maybe your peers have seen the same thing. It's still freaking cold outside. Why why do you think January is recovering the way it is for you and others at this point?
spk03: Two reasons. One, you don't have the holidays in January. I think nobody likes to move during Christmas and or Thanksgiving. I think I think the holiday effect is real and I think it weighs on people's interest in moving. Secondly, I think that there are and we have seen some evidence to suggest that, you know, some developers were facing kind of a calendar year end pressure point. And I think that we as we started to see in the early part of the fourth quarter as we were approaching year end, developer lease up practices were getting increasingly aggressive as we were headed towards the holidays. And I think a calendar year end. And so I just think that developer practices got a little bit more aggressive in the holidays and approaching the year end. And I think that to some degree there was some moderation on that and certainly absent the holidays, even though it is cold and and so forth. I think people's capacity to deal with the hassle of moving just improves a little bit better once you get past the holidays and therefore, you know, traffic picked up.
spk06: I think this holiday factor moderates in February, you know, when it's still sort of seasonally slow period of time, sort of the January hiccups and then you kind of get back to normal course, sequential business. Is that fair?
spk00: Yeah,
spk06: I think that's reasonable. OK, and then second question is, you know, someone asked about how much you'd lever up and appreciate that color. And I know you're sort of waiting for transaction market to be sort of more attractive to you to execute with still low cap rates. But you have this sort of development opportunity sitting. I don't remember what the number was, but you got a lot that you can you can do right now. Why wouldn't you if you're going to deliver into twenty twenty six, which is likely to be a very good year to deliver, why not really accelerate development right now and have that be, you know, a part of the bigger part of the external growth story? You seem to be slowing it down more than speeding it up at this point. So just curious on that. Thanks.
spk02: Yeah. Hey, Rich. This is Brad. Well, you're right. We do have a pretty big pipeline of projects that are ready that we could execute on. And really, it's just a matter of working the costs on those projects right now. I mean, you know, as I mentioned, we are seeing early signs of costs coming down on the project in Charlotte. Call it five to six percent. We do think we'll continue to see costs come down as we get later into this year. So while we do expect to start three or four projects this year, we have another four to five that are approved where plans are nearly ready. And if and if costs came in, we could certainly pull the trigger on those. So we have the optionality to be able to do that. But we think it's prudent to be sure that the costs are in line. You know, we do also agree with you that these line up very, very well from a delivery perspective into the twenty twenty six. The other area where we are seeing opportunity that I think could yield itself more immediately is in our pre-purchase area. So we are talking with developers on a number of opportunities where the projects are approved, entitled, plans are complete. In some instances, GMPs are already in place. But given some of the other liquidity constraints out there that I was talking about earlier, in pressures in other sectors, the equity or even the debt has pulled out of the project. So we are evaluating projects in that way. And so if we can find well located opportunities with good partners that meet our return requirements, we'll definitely lean into that area a little bit more.
spk06: OK, great. Thanks very much.
spk12: And we'll take our next question from the line of Alexander Goldfarb with Piper Sandler. Please go ahead.
spk18: Hey, good morning. Morning down there. So two questions and apologies about the clock in the background. The first one is, can you just talk a little bit about renewals? I think you said you expect them to be sort of five percent, but new rents down three. So an eight percent spread. Can you just walk us through why that that seems a rather wide spread? But in your comments, you said that sort of consistent with historic. So maybe you just talk about that and why existing residents would accept an eight percent spread versus new residents.
spk20: Yeah, this is Tim. Alex. I mean, the gap is a little bit wider than historical. If we look at January, for example, it's about eleven hundred base point gap for the month. But if you look at last year, this time it's about nine hundred. And even if you look at over the last several year, really, as long as we've been tracking it, Q1 runs about eight hundred base point gap. And even as you get into the spring and summer, there's typically typically always a gap where we see renewal pricing outperforming new these pricing. But I mean, I think there's there's a few reasons for that, frankly. One, there is a there is a real cost, but both a hassle cost and a financial cost to moving. There is the customer service component. You know, we have someone that's lived with us and knows kind of what to expect and knows what kind of service they're going to get. If you look at our our Google star ratings, we average four point four Google star rating in 2023, which is highest in the sector. 80 percent of our ratings were five star. And that that is a component that plays out and manifests itself in this in this way with our renewal pricing. And then we just we we do dedicate a lot of time and resources to this renewal process, both both in our corporate office and on the on site team. There's a lot of thought. There's a lot of factors considered. There's a level of buy in that we get from our teams that get them comfortable with with the rates we're sending out at. And again, that manifests itself well. So it'll narrow. And as we see as we see new least pricing, we expect to to accelerate as we get into the spring and summer. That gap will narrow. But, you know, as I made in the prepared comments, you look at February, March and even April, we're averaging right around that five percent. So I think that can hang in there, particularly as new lease rates start to accelerate around that same time frame.
spk18: OK, then the second question is on the supply front, it only seems like a handful of your markets have supply issues. But, you know, pressure on new rent seems to be broad crushed. And yet, you know, Sunbeam still is good economy, good jobs, good in in migration. So how do you like we understand weakness in new rents and in markets that have a lot of supply? But how do we interpret rent softness sort of portfolio wide, especially in the market that aren't beset by supply? And, you know, clearly your price point seems to be affordable for the community. So just want to understand the non supply markets, why why there's been pressure there as well?
spk20: Well, we are seeing pretty good strength. And as I've commented, some of the mid tier markets that you think about Greenville and Savannah and Richmond and Charleston, those markets, we are seeing pretty good relative performance. Now, I mean, the supply is it obviously varies by market. And we're seeing a lot more in some of the larger markets. And I think frankly, we're seeing it in some of our higher concentration markets. If you think about Austin and Charlotte and Dallas, some of our higher concentration markets is where is where there's more supply, which is not surprising. There's a good markets to be in. Those are good long term demand markets. That's not really a surprise. I think there's some of that market concentration factor that's weighing into that where that is obviously have an outside impact on what you see at the portfolio level overall. But if you look at, you know, 2023, for example, across all of our markets, deliveries were about four between four and four and a half percent of inventory across the portfolio. So while it varies pretty wildly by market, you know, we did see pretty good, you know, historical average is probably three to three and a half. So even for some of the ones that weren't getting kind of supply, they were still higher than average.
spk18: OK, that's helpful. Thank you.
spk12: And once again, ladies and gentlemen, if you would like to ask a question, please press star one. We'll take our next question from the line of Michael Goldsmith with UBS. Please go ahead.
spk15: Thanks a lot for my question. My first question is on the expense, on expenses. Can you kind of walk through where, which line items you're seeing particular pressure and how you envision expense trending through the year?
spk07: Yeah, just a couple of things around expenses. What I'd point to is one, our uncontrollable expenses are really what's driving some of that expense growth whenever you kind of break that down. Real estate taxes are projected to grow at roughly 4.8 percent for the year. I think you saw that in our guidance. And then you have insurance that's growing at roughly 16 percent, 15, 16 percent for the year. So that continues to be a bit of a headwind for us as we go into 2024 for all the same reasons that we've seen in previous years, just as the market is trying to catch up there. And when you get into some of our controllable expenses, really the biggest driver there is probably repair and maintenance, while the other items around expenses are pretty much right there at that overall growth rate of 4.1 percent, or actually slightly lower than that.
spk20: And I'll add just a couple of points there on the controllable. I mean, we do expect that if you look back to 2023 that all of those controllable line items will moderate in 2024 as compared to 2023 pretty significantly. And you can see that in the guide that we have. I mean, marketing is the one that's a little bit variable, may not. We had pretty reasonable marketing costs in 2023. And certainly in the environment we're in, that's something we want to make sure we're careful about and make sure we're properly spending there. So that may be the one where you don't see a significant decrease, but I think the others will see some pretty good moderation.
spk15: Thanks for that. And my follow up is on concessions. How have concessions and competing lease properties trended, and are you offering any concessions that you're stabilized property?
spk20: I mean, concessions for us at Stabilize is pretty minimal. I think across portfolio we're about half a percent or so of rents and concessions. And, you know, with the way we price, there's a lot of net pricing. We don't do a ton of concessions. We do see it more in some of the lease ups that we're competing against. I would say in general concessions in the market and what we're competing against went up a little bit in Q4, probably where we saw the biggest change. Some of our Carolina markets, Charlotte, Raleigh were ones where we saw concessions pick up a little bit. But still in terms of lease up and areas of lot of development, the concession practice is still pretty strong, kind of that one month to two month range.
spk17: Thank you very much.
spk12: And we'll take our next question from Handel, Safe Just with Mizzou Security. Please go ahead.
spk10: Hey there. Appreciate the time here. Going back to your comments on your 5% renewal rate, I guess I'm curious if that 5% renewal pricing does hold, but market rate growth is just 1%. Aren't you creating a gain to lease? And how do you feel about that going into next year in line of either outlook for rental rates to recover?
spk20: You cut out of there a little bit, Handel, you said a gain to lease. Is that what you were saying?
spk10: Sorry about that. Yes, I was saying that if the 5% renewal rate forecast that your second year does hold and market rate growth is just 1%, aren't you creating a gain to lease? And then how would that impact your outlook for next year when you're expecting market rates to recover? Or you're running to rate your portfolio to recover?
spk20: Yeah, I mean,
spk10: like I said,
spk20: the gap is a little wider right now, but I expect it to come in. We haven't seen any signs, like I said, going all the way out to April. We're still kind of in that 5% range. And obviously, it depends on the mix, you know, and who's renewing, who's new lease. You know, we typically, our average stays somewhere in the 20-month range. It's money leases, and then they do one renewal, then typically moving out. So all of it is, you're not renewing on top of renewing on top of renewing where that gap continues to get larger and larger. But as I said, we've always seen a gap there and a little bit wider right now, but I expect it to narrow as we get into the spring. But, you know, no concerns with where we sit here right
spk03: now. And I'll just add, and I'll let, I mean, over time, you know, to the extent that obviously we, you know, the new lease pricing pressure we're seeing right now is obviously largely a function of supply coming into the market. If that begins to moderate late this year into 2025, you know, in the event that we do see renewal pricing need to moderate a little bit more next year, call it instead of five, we're in the 3% or 4% range. We also, though, expect new lease pricing to start to show some improvement next year, such that we probably continue to get, you know, the blended performance that we need and that we're after. So it's a give and take back and forth. We've always historically seen new lease pricing in that kind of, you know, 4% to 5% range. I don't recall it ever really materially getting a lot lower than that. Maybe there was a year back years ago where it got to 3%, but generally when that's happening, and certainly we think that would be the scenario this time, by that point, you know, renewal or new lease pricing has started to show some improvements, such that the overall blended performance continues to hang in there pretty well.
spk10: Yeah, I appreciate that, Eric. I guess I'm just thinking ahead and thinking of potentially that renewal rates would need to drop next year, depending on how much, you know, CBD, unless market rate growth does improve and increase maybe into the, you know, mid to single, upper single digit rate growth. Yes. Okay, one more. I appreciate the color you guys gave on the building blocks of Sam's Elevany, but could you give us some color on what you're assuming for bad debt, ancillary, and for turnover?
spk07: Handel, on bad debt, you know, the way that we're thinking about that is it will remain pretty consistent with where it's run here recently. I mean, we probably run around that half percentage point range. Turnover staying low, at least for our guidance, staying low around that 45% range. And then what was the last one that you asked about? The income. The ancillary. Yeah, the ancillary income. It would grow in line, we're assuming it will grow pretty much in line with our overall effective rent growth, so right around that 1% level.
spk10: Got it, got it, okay. And then one last one, I think it was the last quarter, a lot of chatter around A versus B, rental pricing, and the impact that the new supply was having on that dynamic. I'm curious if there's any updated perspective, anything that you've seen in this past quarter or any updated views on how the performance of A versus Bs in your portfolio is or has changed over the last quarter or so.
spk20: Yeah, I mean, we've probably seen a gap a little bit. I mean, our Bs, you know, whether you would call it Bs or even if you want to think about suburban versus urban, suburban is outperforming urban, kind of the CBD in the inner loop. If you think about suburban, we're probably about 80 basis points better in Q4 in January on a blended lease or release basis from what we're seeing in the secondary. A versus B in the way we think about our portfolio, it's about 55% A, 45% B, a little bit tighter there, probably about a 30 base point gap with the Bs doing a little bit better. I can see pretty consistent for both, but I would say the biggest notable thing there is certainly suburban assets are outperforming and, you know, there's a little bit less supply in those areas as well. Thanks.
spk12: And we'll take our next question from the line of Brad Heffern with RBC Capital Markets. Please go ahead.
spk19: Hey, everybody, thanks. First, I just wanted to say congratulations to Al. Hope you enjoy your retirement. On your lease up, can you talk about how those are going in terms of pace? Obviously, you're outperforming on the rent side, but I'm just curious if they're taking longer than normal just given the supply backdrop.
spk02: Yeah, hey, this is Brad. You know, those are pretty much in line with our expectations. Certainly there's been a slowdown in the velocity in line with our overall portfolio kind of over the holidays and the winter months, but there's nothing material in terms of difference there versus what we expected. You know, our daybreak asset is leasing up a little bit slower and has been, but in general, all of our assets, and that's the one in Salt Lake City, but in general, all of our assets are leasing up pretty much in line with our expectations in terms of velocity given the slowdown here over the winter season.
spk19: Okay, got it. And maybe I missed it, but can you give your expectation for market rent growth that's underlying the guide? Obviously, you gave the blend assumption, but just looking specifically for the market piece.
spk20: Our blended, as we talked about, is about 1%, and really, we expect market rent, if you will, to be pretty consistent with where it is right now.
spk19: Sorry, consistent as in flat or consistent as in similar to the 1% number?
spk20: Yeah, flat. Okay, got it. 1% is what we're expecting in terms of our blended growth.
spk19: Okay, thank you.
spk12: And we'll ask, our next question comes from the line of Adam Kramer with Morgan Stanley. Please go ahead.
spk14: Hey, guys, thanks for the question. I think we talked a little bit about capital allocation and potential opportunities with acquisitions or developments. It's a similar question, and again, recognizing where the balance sheet leverage is, but just wondering about the opportunity or maybe the appetite for shared buybacks here, if that's something you'd consider and maybe kind of what it would take for that to be under greater consideration.
spk03: Well, I mean, as you point out, we do think that attractive acquisition opportunities are going to start merging later this year into 2025 as the merchant builders continue to struggle with their lease up, more likely than not below what they underwrote. And so we believe for the moment that at current pricing, that the longer-term yield performance that we can pick up on acquiring these lease up properties provides a more attractive long-term investment return, especially on the after-CAPEX basis, as compared to investing in our existing portfolio earning stream. We also see it providing a better ability to continue investing in our new tech initiatives that we think offer the opportunity for meaningful margin expansion over the entire portfolio over the next few years, creating significant amounts of value. And then, as you know, I mean, as a REIT, we've long oriented our thinking around the idea that the best way for us to reward shareholders over a long period of time is through the dividend and through earnings growth. And we think that continuing to find ways to put capital to work that supports those first two agenda items I just mentioned and supporting our ability to continue to push dividend growth through all phases of the cycle over time is the best way to reward REIT capital. But having said all that, I mean, we obviously continue to monitor the public pricing of our existing portfolio and the company. And obviously, it should continue to maintain a strong balance sheet. I mean, if we continue to see dislocation or even more dislocation in terms of public versus private pricing of the real estate, I mean, we do have a buyback program in place, authorization in place. We've done it before. And we wouldn't hesitate to do it again if conditions warranted it. But for right now, given the outlook and the opportunity we think we have in front of us, we think better to sort of hold on to our powder. And we think the long-term value proposition is likely better with the focus that we have.
spk14: Great. Thanks. And you mentioned some of the tech investments and kind of the opportunities that they are. Maybe just, you know, I don't know, the one or two there that you're not excited about, you know, you're kind of able to share with the public?
spk02: Yeah. I mean, this is Brad. You've definitely heard of these in the past. But I'd say number one is our continued investment in our CRM platform. And we rolled this out a couple of quarters back. But we continue to update and refine that platform, which really allows, you know, better management of our prospects and our leasing process. And this is also really an enabler to a number of other things that we're working on, our centralization, our specialization, our potting. All of those things have kind of our CRM platform at the center of those. We continue to focus on our potting of properties. We've got we're up to 27 potted properties today, you know, and we'll continue to look to expand that when opportunities present themselves. We're also investing right now in updating our website. We're hopeful that we'll be able to roll this out later this month. And really, our goal there is to be able to drive more leasing traffic through our website, which is the most cost effective way for us to do that. We get a large portion of our traffic now through our website, and we're looking to continue to improve that. We're also really working to optimize our mobile our website for mobile use, which will support our online leasing and our self touring. The last one that I'll mention is we're rolling out right now property wide Wi-Fi on select properties this year. We're also adding this on some of our new developments. And this is really an opportunity for our residents to have really seamless Wi-Fi across our property, whether it's in the unit, common areas, amenities, and really provides a better opportunity and service for our residents. And that has a really big revenue component to it as well that we're testing at the moment.
spk14: Great. Thanks for the time.
spk12: And we'll take our last question from the line of Jamie Feldman with Wells Fargo. Please go ahead.
spk13: Thanks for taking the follow up. I'm sorry to extend an already long call. But you had mentioned an expectation you think rental decline. You've increased amount of exposure to floating rate debt. Can you talk about, you know, your what's in your guidance in terms of rates this year? And then as of the year end, you had 500 million on the commercial paper facility. Do you expect to keep that in place all year? Do you think you pay that down or is that already paid down?
spk07: Yeah, we generally paid that down in the first week of January with the with the bond issuance with that we completed and that effective rate on that issuance was just north of five percent. You know, our place the place we look to next for the next dollar is our commercial paper program. And right now it's at roughly five and a half percent. And so we will keep and keep an eye on that. And it's rates are expected to decrease over the back half over the year. You know, we expect that number to maybe come down a bit.
spk13: What's your assumption in your guidance for where rates go?
spk07: Yeah, we've got a dropping down 25 basis points through halfway through the year and then and then another 50 another 25 basis points on the very back end of the
spk13: year. OK, so you're down 75 basis points by year end. Just 50. Just 50. OK. 25 and then 25 at the end of the year. OK. And then you had mentioned a five cent drag from developments that are not stabilized yet. Is there any variability to that? Is any of that being capitalized? Yeah, there is. It shouldn't be so much of a hit to earning.
spk07: Yeah, there is. There is some capitalization there. And you look at our capital interest capitalized year over year, a slight increase, but pretty steady. But what really comes into play there is just the timing of the developments. In 2023, we delivered at least up to developments in 2024. We're going to be delivering at least you got four developments. And so you got a bit of a play there that's that's creating some headwind. And then in general, just the overall the rate at which we're capping that interest comes into play. You're you're you're looking at an effective rate, you know, roughly three and a half that we're capping and then we're borrowing at a higher rate today than what than what we've capped at previously.
spk13: OK, so I guess even if you have an aggressive lease up or lease up better than expectations, do you think that five cents is still locked in or there's a way that could go away?
spk07: I mean, it would have to be pretty meaningful change and how that would lease off to to to really move the needle on that process.
spk13: OK, and then finally, just a clarification. I think you had mentioned point eight five is your blend assumption. And then you answered the last question with one percent. I know we're splitting hairs here, but it's point eight five still the right number or is it one percent?
spk07: Yes, so our blended number is one percent. That's the blended price we've got built into our revenue guidance. But our overall effective rent growth is the point eight five percent. So that point five percent includes the earn end that we've got for from twenty twenty three plus the one percent of the blended that we're looking at.
spk13: OK, all right. Thanks for taking the question.
spk12: We have no further questions at this time. I will return the call to .A.A. for closing remarks.
spk03: All right. Thanks, everybody, for joining us this morning. And I'm sure speak to many of you over the spring. Thank you.
spk12: This concludes today's program. Thank you for your participation. And you may now disconnect.
Disclaimer