Q3 2024 Elme Communities Earnings Call

Thomson Reuters StreetEvents11-06

Participants Amy Hopkins; Vice President - Investor Relations; Elme Communities Paul McDermott; Chairman of the Board of Trustee, President, Chief Executive Officer; Elme Communities Tiffany Butcher; ...

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Paul McDermott; Chairman of the Board of Trustee, President, Chief Executive Officer; Elme Communities. Tiffany Butcher; Chief Operating Officer, Executive Vice President; Elme Communities. Welcome to the Elme Communities' third-quarter 2024 earnings conference call. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Amy Hopkins, Vice President, Investor Relations. Amy, please go ahead.","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"ELME":"Elme Communities"},"translate_title":"2024年第三季度Elme Communities收益看涨期权","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ELME":1},"content_text":"Participants\nAmy Hopkins; Vice President - Investor Relations; Elme Communities\nPaul McDermott; Chairman of the Board of Trustee, President, Chief Executive Officer; Elme Communities\nTiffany Butcher; Chief Operating Officer, Executive Vice President; Elme Communities\nSteven Freishtat; Chief Financial Officer, Executive Vice President; Elme Communities\nGrant Montgomery; VP, Research; Elme Communities\nAnthony Paolone; Analyst; JPMorgan\nJamie Feldman; Analyst; Wells Fargo Securities, LLC\nAnn Chan; Analyst; Green Street\nMichael Gorman; Analyst; BTIG\nPresentation\nOperator\n Welcome to the Elme Communities' third-quarter 2024 earnings conference call. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Amy Hopkins, Vice President, Investor Relations. Amy, please go ahead.\nAmy Hopkins\n Good morning and thank you for joining our third quarter earnings call. Today's event is being webcast with a slide presentation that is available on the investors section of our website and will be available on our webcast. Replay statements made during this call may constitute forward-looking statements that involve known and unknown risks and uncertainties which may cause actual results to differ materially and we undertake no duty to update them as actual events unfold. We refer to certain of these risks in our SCC filing reconciliations of the GAAP and Nongaap financial measures discussed on this call are available in our most recent earnings press release and financial supplement which was distributed yesterday and can be found on the investors page of our website presenting on the call. Today will be Paul mcdermott, our CEO Tiffany butcher, our COO and Steve Freistadt, our CFO. And with that, I will turn the call over to Paul.\nPaul McDermott\n Thanks Amy. Good morning, everyone and thank you for joining our call on election day. This is an exciting day for our region and we look forward to watching the results unfold. I hope you all have either voted or plan to do so. I will begin today's call by discussing the main factors driving our performance in our markets, including supply and demand dynamics and their implications for Elm Tiffany will cover our operating trends and growth initiatives and Steve will discuss our financial results and outlook during the quarter, demand remained strong across the Washington Metro and Atlanta Metro regions. Absorption in our markets was the highest. It's been since the fourth quarter of 2021 driven by wage growth, stable employment in migration and resident retention, wage growth has been outpacing rent growth for nearly two years in our markets contributing to stable financial conditions for renters. Employment data shows that job growth on average is stronger for middle income wage earners relative to higher income segments in our markets, which is a favorable trend for Elm. Additionally, Elm's largest employment industries are either adding jobs or maintaining jobs resulting in a stable base of employment for our residents in migration, which is a more pronounced demand driver in the Atlanta region than the Washington region is driving record levels of absorption. Atlanta metro in migration is expected to have increased by over 20% by year end 2024 compared to 2023 and the region is expected to outpace the US through 2029 with 5% population growth in the 20 to 34 year old age bracket. According to Oxford economics, resident retention also plays a significant role in demand dynamics and our retention rate remains very strong. Even if home purchasers return to a more normalized pattern. Our value oriented resident base tends to be stickier with an average tenure of about 2.7 years overall. We believe that demand outlook for our value oriented price points is positive both in the near and long term. Now, turning to supply the impact of supply on our portfolio differs across our markets. As our Washington Metro communities are facing very low competition from new supply, especially in our Northern Virginia submarkets. While our Atlanta communities are feeling more of an impact in the Washington Metro annual net inventory growth was a healthy 1.8% during the third quarter. And annual net inventory growth for our Northern Virginia submarkets was just 1.1%. Looking ahead over the next year, north of Virginia's inventory growth is expected to remain at 1.4% which is well below the US average of 3.1%. In addition to low supply, overall, only a very small portion or 4% competes with our communities on price for our Atlanta submarkets. Net inventory ratios remained elevated at 4% during the third quarter. Additionally, we are seeing normal delays in deliveries. With some delivery estimates that were previously anticipated to occur in the fourth quarter. Now expected in early 2025 while half of our Atlanta submarkets had no deliveries over the past year. And only 10% of new supply in the third quarter was competitive with our communities. Supply is having a more widespread impact as rent compression and concessions have caused temporary disruptions to typical demand pools. On average, we do not expect supply to increase above the current level in our submarkets. However, we expect the curve to be relatively flat between third quarter of 2024 and the first quarter of 2025. In 2025 2 3rd of our Atlanta submarkets are projected to have net inventory ratios that are less than 1.7%. And we expect the overall level of demand relative to supply to improve throughout the year. Units under construction and new starts continue to decline significantly across our Atlanta Metro submarkets. Pointing to a very low supply in 2026 and 2027. Given the improving supply dynamics and favorable demand trends, our medium and long term outlook for Atlanta is strong. Furthermore, over the near term, we expect to deliver marked improvement in no I growth in Atlanta, which Tiffany will discuss in more detail. And with that, I'll now turn it over to Tiffany.\nTiffany Butcher\n Thanks Paul overall. Our portfolio's fundamentals as we approach the winter months are in line with our expectations during the quarter, we generated stronger than expected performance from our Washington Metro communities. However, we experienced slower than expected improvement in Atlanta as a result, we're trending towards the midpoint of the same store. Noy growth assumption included in our guidance, Washington Metro occupancy has been a bright spot this year and we captured sequential occupancy growth for our team to our portfolio driven by very strong performance from our northern Virginia communities. Retention rates remain above historical levels with strong renewal rates. We expect to end the year in a good place with stable trends across our portfolio and a strong revenue growth outlook into 2025. Touching on a few operating trends during the quarter, effective blended lease rate growth was 2.1% for our same store portfolio during the third quarter comprised of renewal lease rate growth of 4.5% and new lease rate growth of negative 1.5%. New lease rate growth was negative 3.1% for our same store portfolio in October and renewal lease rate growth was 4.4%. We're signing renewals at an average rate of 4 to 5% for November and December lease expirations in line with our expectation for seasonal moderation at least rates through year end, same store retention has remained very strong at 66% during the quarter. Up from 61% in the third quarter of last year underscoring the longer term nature of our resident base and our heightened focus on customer service excellence. Additionally, the percentage of move outs driven by home purchases remained very low at just over 7% for our total move outs for the quarter. Moving on to occupancy. Same store average occupancy increased 60 basis points sequentially to 95.2% driven by strong demand in the Washington Metro. Offset in part by the impact of new supply and the timing of evictions in our Atlanta portfolio. Same store occupancy trended down toward the end of the quarter following the anticipated August peak and an increase in the pace of repossessions which will have a positive impact on bad debt in October occupancy trended in line with our expectations and we ended the month at a strong 95.1% turning to bad debt while we're encouraged by the trend across our Washington Metro communities, which is nearing normalized levels in Atlanta. We expected to see more improvement in the second half of this year. Reducing bad debt is a top priority and we have recently made additional process changes in Atlanta. In addition to the credit protection and income verification processes, we implemented earlier this year. On a positive note, we've seen the pace of evictions improve over the last 45 days as the resources needed to utilize house bill 1,203 with off duty officers appear to finally be in place additionally, new delinquencies improved in October resulting in lower month over month bad debt. We anticipate modest improvement in the fourth quarter and we now expect bad debt for 2024 to remain relatively flat year over year. As a result, we anticipate a greater benefit from lower year over year bad debt in 2025. Turning to renovations during the third quarter, we completed renovations on 188 units generating an average ro i of approximately 17%. We expect to meet our target of 475 full renovations and 100 home upgrades for the year with nearly 3,000 homes in our renovation pipeline, we have more than enough runway to continue driving renovation led value creation well into the foreseeable future. Moving on to operational initiatives, we remain on track to achieve our targeted. No I and FFO upside this year driven by smart home technology, these strategies and payroll savings following the launch of Elm resident services which centralizes resident account management and renewals. Beyond our upside target. Through 2025 we are rolling out managed wifi across our portfolio in phases starting with approximately 2,500 homes. In phase one, we began the installation process in October and expect to substantially complete it by year end. Given that resident adoption is a gradual process, we anticipate approximately 300 to 600,000 of recurring. No I in 2025 and 1 to 1.5 million once phase one is fully adopted over the next 2 to 3 years. And with that, I'll turn it over to Steve to cover our 2024 outlook and balance sheet.\nSteven Freishtat\n Thanks Tiffany. Starting with guidance. We are tightening our 2024 core FFO per share guidance range to 92 to 94¢ per share. Maintaining our midpoint of 93¢ per share. We are tightening our same store multifamily noi growth assumption to range from 1 to 1.5%. We now expect a non same store multifamily. No I to range from 5.35 to $5.75 million which reflects a lower midpoint due to rental pressure from new supply and a higher than expected tax assessment which is under appeal. We are tightening the range and raising the midpoint of our other same store. No I assumption which consists of Watergate 600 to range 12.5 to $12.75 million interest expense is now expected to range from 37.5 to $38 million which reflects a slightly lower midpoint due to the anticipated impact of interest rate cuts on our line of credit. Turning to our balance sheet annualized net debt to adjusted EBITA was 5.6 times at quarter end in line with our targeted range. And we continue to expect our leverage ratio to finish the year in the mid five times range. Our liquidity position remains strong with more than $330 million or 65% of capacity available on our revolving credit facility at quarter end with no secured debt and only 1 $125 million maturity prior to 2028 our balance sheet remains in excellent shape. Turning to ESG, I am pleased to share that. We published our ESG report last week, showcasing our dedication to being an ESG leader within the class B multifamily space. The report outlines our ongoing progress toward our efficiency goals and our increasing commitment to the health and wellness of our residents. In summary, our third quarter results were in line with our expectations and we continued to trend toward the midpoint of our core FFO guidance. While we would like to have seen more compression and bad debt at this point in the year, achieving our guidance is not dependent on significant improvement in our Atlanta performance in the fourth quarter. Thanks to continued strength from our Washington Metro portfolio. Looking forward, the stage is set for a Washington Metro portfolio to deliver another solid year of growth in 2025. And we expect to deliver meaningful improvement in our Atlanta performance next year with increasingly favorable supply demand dynamics thereafter. And with that, I will open it up to Q&A.\nQuestion and Answer Session\nOperator\n (Operator Instructions) Anthony Paolone, JPMorgan.\nAnthony Paolone\n Hey guys, you have not home on for Tony today, maybe just quickly on bad debts. You guys mentioned that delinquency improvements in Atlanta were going slower than anticipated, I guess. Could you guys speak to, you know where things currently stand in Atlanta and the rest of the portfolio? And I guess how much of a tailwind you guys are expecting going into 2025 from from improvements there.\nTiffany Butcher\n Absolutely. This is Tiffany Butcher. Yeah, starting off at the portfolio level of bad debt was approximately 2% of revenue in the month of October and that was really driven by a normalized bad debt in our Washington DC portfolio of just below 1%. In Atlanta, we did experience higher than anticipated bad debt in the third quarter driven in part by the longer eviction timelines that have been a challenge in the Atlanta market throughout the year and due in part to the impact of new delinquency. The good news is that we have seen a shift in both of those factors over the last 45 days as we're seeing a faster processing of evictions as the structure needed to implement Georgia House Bill 1,203 is now in place which, which is allowing off duty officers to execute evictions so that that pipeline is moving much faster. And we've also seen residents start to proactively move out in advance of their eviction timelines which is also helping to speed up getting back those units from highly delinquent residents and being able to release them to rent paying tenants. Additionally, we've also continued to adapt our internal processes and procedures and we proactively work with residents to help them get current on rent payment, which has contributed to the decrease in new delinquencies and overall reduction of bad debt that we experienced in the month of October. However, I will say that given the typical seasonality in bad debt, we don't expect to see a meaningful improvement in bad debt in the fourth quarter and we expect to end 2024 in line with the prior year. We do expect the momentum that we saw in October of accelerating eviction timelines coupled with our internal process and procedure changes to really set us up for continued improvement in bad debt as we head into 2025.\nAnthony Paolone\n Got it. Okay. And maybe also on Atlanta is the low occupancy you guys experienced during the quarter is that more of a function of those evictions and bad debts or is it, you know, more so due to, you know, elevated supply deliveries and I guess, are, you know, any concessions also being offered in your Atlanta portfolio?\nTiffany Butcher\n Sure. You know, I would say that in terms of the occupancy that we have seen in Atlanta, it is a combination of both of supply demand dynamics in our markets. And grant can speak a little bit more in a second to some of the you know, changes that we're seeing as we head through the peak supply in Atlanta. But it's also obviously contributed to, to the eviction timelines that we had. And as we said, that does put a near term pressure on occupancy, but it's good for the long term is we're able to release those units to rent, paint on it. So I would say in terms of the occupancy being in the low 90s is a combination of both of those two factors. And then you asked about concessions. Overall, I would say the portfolio level concessions in the third quarter remained flat to the second quarter. We are offering concessions on about 14% of signed leases with an average amount of kind of less than a week if you blend that across the entire portfolio. If you look though specifically kind of market by market, Washington DC continues to be a very strong market with great supply demand dynamics. So we have less need for concessions. It is much more submarket by submarket where there might be a small need in in the Washington Metro area. If you look at our third quarter, new leases, we offer concessions on approximately 27% of new leases in the DC area, but an average of only 4.6 days. So DC remains, you know, a non concessionary market in Atlanta. The new leases, we saw about 58% of new leases receiving some sort of concession in the third quarter averaging approximately 12 days. So there is definitely a little bit more of a concessionary impact in the Atlanta market really driven by where we are in the supply demand dynamics. I don't know, grant if you want to add just a little bit of color on the overall supply demand dynamics in Atlanta.\nGrant Montgomery\n Sure, Tiffany Tony, this is Grant. You know, as as Paul said in the prepared remarks, we do see you know, gradual improvement in the net inventory ratios in the greater Atlanta area. It will be a slow improvement. We do think, you know, numerically if you look at the data from the third party, folks that the net inventory ratio is peaking in Atlanta this quarter, but it will be a very slow and gradual move through fourth quarter and first quarter and really starts to accelerate next year when you have sort of, you know, peak leasing, season in the spring and summer. And that's when it really starts to move and it continually moves down and sort of accelerates route 2025. And we, we think that that really sets up for, you know, this, the future.\nAnthony Paolone\n Got it. Thanks guys.\nOperator\n Jamie Feldman, Wells Fargo.\nJamie Feldman\n Great. Thanks for taking the question. I guess just to start just wondering if you think there might be any kind of slow down in the DMV that puts the year at risk or maybe a better way to ask it. Can you talk about your, what's implied in your guidance for blends and occupancy in the fourth quarter?\nTiffany Butcher\n Sure. Jamie, this is Tiffany. I can speak to kind of what we're expecting in the fourth quarter and what's implied in our guidance. First of all, you know, occupancies have continued to remain incredibly strong in the Washington Metro area. You know, we've been averaging over 96%. We are expecting occupancy to trend down slightly in line with typical seasonal trends. So we expect our occupancy to end in the kind of high 95% range. As we head into year end, we also expect our retention to continue to remain strong as it has all year in terms of blends in the DMV. We're expecting between zero and negative 3% for new lease rate growth. We're expecting our renewals to be in the 4.5 to 5.5% range, which puts your overall effective blends at 2 to 3% in the DMV.\nJamie Feldman\n Okay. And then maybe the same question in Atlanta.\nTiffany Butcher\n Yeah, sure. So if you think about Atlanta, we have trended in the occupancy range in the low 90% we do expect to remain in that range. As I mentioned before, you know, we are seeing a faster pace of addiction. So depending on the timing of when some of those evictions hit, we could end up seeing, you know, a slight timing impact of when those evictions happen, that could put some near term pressure on occupancy, but obviously, that will be a strong positive for the portfolio overall that will help to bring down bad debt. And then if you think about blends starting again with our new lease rate blends, we're expecting to be in the high negative to low negative double digits for new lease rates lens' really reflective of the competitive dynamics in the market right now, but we still expect to have very strong renewals at 2 to 3.5%. So overall blends in Atlanta for the fourth quarter, we're expecting to be negative three to negative 5%.\nJamie Feldman\n Okay? Just to confirm. So the new you're saying what like minus 10 ish.\nTiffany Butcher\n Yeah, probably, I would say I would say probably, you know, negative nine to negative 13%.\nJamie Feldman\n Okay?\nTiffany Butcher\n For the fourth quarter for the full year, it would probably be like negative eight to negative 12%.\nJamie Feldman\n Okay? And then if you were to combine them both, like what do you think the total portfolio looks like.\nTiffany Butcher\n For the fourth quarter? For the fourth quarter? I would say the new lease rates are going to be a negative 2.5 to negative 3.5%. Renewal is 3.5 to 4.5%. So blends say half a percent to 1.5%. And then if you want to kind of translate that to what that means for the full year, new would be approximately, you know, negative 2.5 to say positive 50 BPS renewals would be a four and a quarter to five and a quarter. So blends would be 1.75 to 2.75%.\nJamie Feldman\n Okay. That's helpful. And then I think you had like a 10.5% sequential operate OpEx increase in Atlanta if I read that right, is there something behind that or can you talk through what that's going to look like going forward?\nSteven Freishtat\n Yeah, Jamie, this is, this is Steve and I can talk about the, so Q3 for OpEx in Atlanta. Really it was, it was three things. They'll talk about, the first is taxes, which, which we've talked about before. We had two reassessments in, in Georgia. They got, you know, closer to the, the purchase price in a three year cycle. So that was the biggest driver for, for the tax increase. But in addition to that, kind of, if you look at the year over year increase, in, in taxes, we saw some favorable tax appeals last year in the third quarter. We're still still waiting. We didn't receive any here in 2024 in Q3, but we're still waiting on a couple of appeals that we're expecting to hit in the fourth quarter. So there's some timing difference there that should net out by year end. The second one is, is insurance. We, we of course, had a very large insurance renewal, September of last year. That kind of finished playing out in the quarter. We did our insurance renewal, September 1st for, for the next 12 months. It had a much lower increase going forward. We only had it's a 4% increase. So going forward, that should obviously be more muted on the the insurance increase. And lastly, you know, we saw a number of evictions in the quarter and saw an increase in certain opexs, notably legal fees and trash costs related to those evictions.\nJamie Feldman\n Okay. That's helpful. And I guess just big picture on expenses as you think about 25 do you think your expense growth overall for the portfolio will be higher or lower than it was in 23? I'm sorry, 24.\nSteven Freishtat\n Yeah, and, and, and Jamie, we'll, we'll, we'll give our full guidance in, in February but thinking about kind of the, the trajectory of expenses. And really, it's, it's a couple of the things that I just hit on in, in, in the Q3 for Atlanta. If we think about taxes, we had those, those two large increases from the reassessments. We don't see a three year cycle, a community like that hitting us in, in, in 25. So we think that the tax increases, you know, we'll, we'll come down a bit on insurance. I just talked about the 4% increase much lower than the increase we had before. So we see a non controllable growth. You know, certainly coming down. And we see that coming down more so than, than, than, than controllable growth changes.\nJamie Feldman\n Okay. And then last for me, just no, with no acquisitions here today. Just kind of want to get your latest thoughts on, you know, expansion into additional markets and some of your strategic initiatives, whether it's selling Watergate or entering new markets. Do you think you're on hold for a while? You're waiting for market conditions to open up? Just kind of, what are your latest thoughts on portfolio repositioning and investments.\nPaul McDermott\n Jamie, it's fall. Let's start out with Watergate. You know, we had a good quarter there and just as a backdrop, you know, Watergate has 5.5 years of walt on it and it's currently sitting at the end of Q3 86% occupancy. We had four leases executed during the third quarter for 13,000 square feet. Three of those were renewals and one of those was an expansion. And those, you know, average rents between 55 and $67 a foot. None of those had T I allowances associated with them. The expansion was a six year deal and that had a 12 months of free rent associated with it. But we're very happy with the, with the way that the way that those executions took place and we expect to close the year on the Watergate at 85% occupancy. As we've said in the past, Jamie, we'll obviously look at, you know, opportunistically monetizing the asset. It is not a long term hold for us. And we quite frankly, you know, believe that the DC market is coming back, it is progressively gotten better. We have seen, you know, more transactions taking place in 2024. So, again, we will provide more insights on that in February when we get 2025 guidance. But right now, you know, we're just pleased with the leasing execution that our team is doing in terms of expansion markets right now, Jamie, you know, we continue to favor the sunbelt markets. I think that, you know, when we evaluate opportunities, I think some of the hallmarks of markets that we like to get into are, you know, the markets have outsized job creation, they have wage growth and in migration in the future. And those are really what we, you know, we try to allocate capital towards, we're going to be probably more specific about expansion markets in our February guidance. But as I said, we do favor the sunbelt and, we just, we candidly, you know, stepping back, we'd like to see more transaction activity than we've seen so that we have more data points. We have seen a bit of a pickup in the fourth quarter, in terms of available transactions even in our current markets, you know, with, with obviously DC, because of the fundamentals and how well DC is doing DC, you know, leading the country right now, but our goal would be to to continue with our, our geographic expansion and we'll be able to, again talk more about that at the end of the year and, and also as we have more data points to collect on those markets by year end.\nJamie Feldman\n Okay. Very. Helpful. Thank you.\nOperator\n Your next question for today is from Ann Chan with Elm.\nAnn Chan\n Hey, this is Anne with Green Street. Do you expect total capital expenditures to increase hold study or decline in the next few years? Okay.\nSteven Freishtat\n Yeah, and so from a CapEx perspective, I think our CapEx is this year and, and product driven really by a lot of the initiatives that we're doing. And I would, I would mention a couple of things. One is the the renovations that we've done, I think we're going to do about 475 this year, next year, we might do slightly more than that, but that, that spend, I would expect to either, you know, maintain or go slightly up. Another thing that, that you know, might be an increase is the managed wifi which, you know, we're rolling out to a number of communities, you know, here in the fourth quarter, you know, we're looking at additional communities in, in 2025. And those returns are in the 30 to 40% range was typically talked about, you know, some of the additional, no, I, they're going to get next year. So as we look to, you know, do some of our initiative of Roy initiatives, I think that is going to drive the cap back, you know, over the next, over the coming years.\nAnn Chan\n Great, thanks. And then just one more for me, going back to the bad gaps in Atlanta. Where do you think levels are going to ultimately stabilize? At?\nTiffany Butcher\n Great question? And you know, I would say if you, we're going to get really detailed guidance on bad debt in February and kind of where we see the trends through, you know, 2025. You know, it, I think if you are looking for kind of where normalized levels of bad debt could be. You look to kind of pre COVID, it was probably more in the 2 to 2.5% range. But I think that it'll take time the market to get back to those kind of normalized bad debt levels going forward. But we do think that there is going to be significant improvement in our bad debt from where we are today through next year and we'll give detailed guidance on that in February.\nAnn Chan\n Great. Thank you so. Much.\nOperator\n Your next question is from Cole Barel with Wolf Research.\n Hey guys, thank you very much for the time. One question I just wanted to ask on with everything happening in the election today. I was just curious if you've seen any changes like historically in demand trends, you know, in the months after an election, just specifically with the DC metro market or is it kind of business as usual?\nPaul McDermott\n Cole, this is Paul, A lot of that obviously depends on the, you know, outcome of the election. The one word we have always used around here is alignment. When you have alignment that tends to drive more legislation, more jobs and more localized demand for office space. So if we do see, and that is, you know, House Senate and the White House, if we do see that we would expect to see a pickup in demand for not only office space but probably a lot of the product types because they all draft off of one another. But again, I think that's the alignment is critical for any type of any type of movement. If there is an alignment, we traditionally, you may see a pop initially, you know, just on, on staffing changes and some type of overflow where you have duplicative efforts. But that really, we don't really see that being a long term value proposition for DC office.\n Okay. Got it. Thank you. And then just kind of one specifically I had on Atlanta, I saw that your occupancy was up sequentially quarter over quarter, 100 and 30 BPS. So it seems like it's trending in the right direction. Do you expect that kind of to continue going forward? And also, are you prioritizing just occupancy over rate currently? And like, how are you guys thinking about that specifically?\nTiffany Butcher\n Great question Cole I would say starting with the last part of your question, we are definitely prioritizing occupancy over rate growth. At this point, we feel like that is the the best way to drive noy in the current market environment. So we are definitely prioritizing renewals and retention and driving occupancy growth through the year. You know, as I mentioned earlier, we are in the low 90s, I would expect that we will stay in the low 90s through year end. As I mentioned, there could be, you know, some near term impacts associated with just the timing of evictions, but that would obviously overall be a good story because we to be getting those units back and able to release them to rent paying tenants. So as we think about kind of where we expect to end the year, it would most likely be in the low 90s. We do see occupancy trending up as we head into 2025 particularly as we get into our, you know, spring and summer leasing season. And so, you know what, we are absolutely prioritizing occupancy at this point in time and really focused on driving our occupancy growth and bad debt improvement throughout the portfolio.\n Okay, awesome. Thank you very much.\nOperator\n Michael Gorman, BTIG.\nMichael Gorman\n Yeah, thanks, good morning. Tiffany or Grant. I'm I'm curious as we think about 2025. Obviously you talked about heading into the fourth quarter, but then the improvement in the supply picture and the net inventory ratios. Should we expect new lease growth to inflect in 25 and turn positive? And, and kind of what are your thoughts there in terms of the trajectory? How quick is the recovery in in a market like Atlanta.\nTiffany Butcher\n Grant can maybe give you a little bit more detail on the inventory ratios and then I'll come back and, and give you the impact that I see that happening on movie rate growth. So grant do you want to just kind of walk through the supply peak?\nGrant Montgomery\n Sure, Michael, happy to give you some more context. You know, so the equation really works out as you know, supply and demand and on the demand side, we are still seeing extremely strong demand. So over the last year, you know, we had nearly 21,000 units absorbed in Atlanta. So that's the good news that we are working through that. We obviously do still have elevated supply as we move through the sort of slower part of the year in terms of lease up that elevated net inventory ratio like I I talked about earlier will remain relatively flat although peaking but really gradually coming down. So that if you look at where it is currently, it's about 4.4% region wide. If you look to the third parties and so what they're projecting it's back down by the end of 2025 to around 3% which is still elevated, but it's significantly, you know, better than it is today. And really the time that that really starts to accelerate and you start to see more change is during that spring and summer leasing season. When you will see, you know, typically that sort of seasonal pattern of additional absorption, maybe turn it over to Tiffany.\nTiffany Butcher\n Sure. And then just kind of with that backdrop, I would just say that with the continued market rent constraints in the Atlanta region propelled by the supply that grant was talking about, you know, it's going to take time for market rent to recover for new lease rate growth to turn positive. As I had mentioned earlier, we do expect the new lease rates in Atlanta will remain negative through 2024. And if we think about 2025 we think that there's going to be significant improvement in our No, I but that's going to be more driven by occupancy and bad debt improvement versus new lease rate growth.\nMichael Gorman\n Okay, great. That's that's helpful. Thank you. And then Paul just quick question, maybe on, on the capital allocation side, you talked about some of the expansion markets that you continue to have an eye on. I think one of the things that has been an interesting takeaway in recent months is that even with some of the fundamental challenges, the pricing in these markets is still pretty aggressive. Folks have been talking about assets trading in the low five. I'm curious what you're seeing when you look at those markets and in the transaction activity that is out there kind of where the pricing is. And, and how that fits into how you're thinking about entering into new markets. Thanks.\nPaul McDermott\n Sure, Mike. So let's start off and, you know, maybe we can just go, go down the list. I mean, I'll start with the sellers because we really haven't seen, you know, the amount of transactions that we were used to seeing obviously, although as I said earlier, there has been a slight pick up in the fourth quarter, I'd say two thirds of the sellers that we have observed have liquidity needs ie the Blackstones, the Star Woods and about a third of the balance have really been just sellers taking profits, ie developers with syndicated equity or, or merchant developers with institutional capital returning that I would say in terms of the pricing, you know, even starting back into late 23 when we did our last deal, the discount to replacement cost was a big component for us. And we've seen that GAAP that discount to replacement cost closing. We definitely seen pricing become more aggressive. I would say the buyers that, that we are observing are, you know, institutional capital, P/E shops, family offices. The only groups that have really been on the sidelines have been the Odyssey. And that the thesis there has really been new LP capital buying in at below replacement cost at discounts that quite frankly, we haven't really seen, in some time, under, they are underwriting flat to, negative, you know, increases in, in the first couple of years. And the recoveries are really in years like 3 to 5. And that's, that's pretty consistent with what we've heard from. Not only our own research, but our competitors just in terms of a runway in 2,627 and 28 particularly in the value add space, but just, just going down, Michael the cap rates right now. The core space, we're seeing 4.5 to 5% cap core plus is in that 475 to 5 and a quarter. And the value add has really been, you know, five a 5.5 cap and up and obviously that would vary from submarket to submarket.\nMichael Gorman\n Great. Thank you for all the detail.\nOperator\n And if there are no further questions, I'd like to hand the floor back over to management for closing comments.\nPaul McDermott\n Thank you, operator again. I would like to thank everyone for your time and interest today and I look forward to keeping you updated on our progress and speaking with many of you again in the near future. Thank you.\nOperator\n This concludes today's conference and you may disconnect your lines at this time. 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