Q3 2024 Earnings Summary
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Strong absorption and demand trends | Move-outs to buy a home down 20% year-over-year; job/population growth and migration sustained demand. | Units absorbed exceeded deliveries for the first time since Q1 2022; absorption driven by job growth and low turnover. | Consistently highlighted as a core demand driver. |
Moderating supply and positive pricing outlook for 2025 | Anticipate late 2024 easing of supply pressures, with pricing recovery in 2025. | Supply peak passed, expecting -20% in new deliveries by 2025; confident in stronger lease rates in 2025. | Positive 2025 outlook consistently cited. |
Elevated supply creating near-term headwinds in key Sunbelt markets (especially Austin) | Austin remains the weakest; oversupply to persist until 2025. | Austin singled out as toughest market for new lease rates due to high supply; Atlanta and Jacksonville also under pressure. | Consistently recognized as a near-term challenge in Sunbelt markets. |
New lease pricing challenges and negative spreads | Down 7% in Q4; renewal rates helped offset new lease weakness; negative new lease pricing likely continues into 2024. | New lease pricing at -5.4% in Q3; slight improvement vs Q2 but still negative; 2025 expected to be stronger. | Persistent negative spreads, though improvement expected going forward. |
Forecast of slightly negative earn-in heading into 2025 | No direct mention of slightly negative earn-in for 2025; focus was on 2024 details. | Projecting negative carryover from 2024 lease-over-lease, with about -20 to -30 bps impact on 2025 earn-in. | Introduced as a new concern for 2025. |
Strategic growth via development pipeline and acquisitions | 3–4 new development starts planned; $350M–$450M in acquisitions targeting lease-up deals; aiming for mid-6% yields. | Development pipeline at $978M (2,762 units) and record levels; acquisitions at 10–15% below replacement cost. | Consistent focus on disciplined development and acquisitions. |
Opportunity to increase leverage up to 4.5%–5% to fund investments | Comfortable going up to 4.5%–5% for the right deals, representing $1.5B in buying power. | Not specifically mentioned beyond net debt-to-EBITDA of 3.9x. | New detail in Q4 2023 about raising leverage. |
Potential dilutive impact of planned acquisitions on Core FFO in 2024 | Lease-up acquisitions expected to be dilutive until stabilization, with 4.5% initial NOI yield. | No mention of dilution from acquisitions [No data]. | New in Q4 2023. |
Ongoing investments in technology (CRM, website, property-wide WiFi) | CRM rollout continued; website revamp planned; broader WiFi deployment to boost traffic and resident experience. | Testing property-wide WiFi in four properties, with future expansion planned; no CRM or website updates cited. | Expanded focus in Q4 to include CRM and website improvements. |
Strong balance sheet enabling up to $1.5B in capital deployment | Balance sheet capacity allows up to $1.5B if leverage is higher. | No mention of the $1.5B figure [No data]. | New Q4 detail. |
Household formation and low turnover | Low turnover reinforced by affordability gap vs. buying; move-outs to buy down 20%. | Household formation and fewer move-outs to buy a home remain key demand drivers. | Consistently emphasized as supporting strong demand. |
Shifting sentiment on supply pressures and new lease rates from Q3 to Q4 | Supply remained elevated in Q4, pushing new lease rates down; improvement likely late 2024. | Supply peaked in Q3 with stabilizing new lease rates; expecting better 2025. | Challenges acknowledged but expecting a gradual recovery. |
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2025 Rent Growth Outlook
Q: How will supply impact market rent growth in 2025?
A: Supply peaked in mid-2022 and is moderating by about 20% in 2025 compared to 2024. We expect normal seasonality and stronger new lease pricing next year, particularly as demand picks up in the spring. -
Market Performance: Austin and Atlanta
Q: How are high-supply markets like Austin affecting lease rates?
A: Austin and Atlanta face elevated supply pressures, impacting new lease rates. Excluding Austin, our Q3 new lease pricing would have been up 10 basis points from Q2. We anticipate improvement in these markets as supply moderates next year. -
Leverage and Capital Allocation
Q: Will you use leverage to grow and reach target metrics?
A: We're leaning into debt financing due to our current cost of equity. As conditions change, we may shift towards equity, but for now, we're utilizing our balance sheet capacity to pursue growth opportunities. -
Acquisition Strategy
Q: What are you looking for in acquisition opportunities?
A: We're focusing on brand-new properties just finishing construction, often entering initial lease-up. Our ability to close all cash provides a competitive edge, enabling us to achieve compelling returns with stabilized NOI yields around 5.9%. -
Development Pipeline Expansion
Q: How large could your development pipeline grow near term?
A: We're aiming to build our pipeline to $1 billion to $1.2 billion, starting 3 to 4 projects a year over a three-year period. With strong operating fundamentals expected in 2026 and 2027, it's an ideal time to ramp up. -
Absorption Trends and Demand
Q: Do you expect elevated absorption levels to continue?
A: Yes, in Q3 we absorbed more units than were delivered for the first time since Q1 2022. Demand remains strong due to job growth, household formation, and low turnover, and we expect this to hold up in 2025. -
Occupancy and Rent Strategy
Q: How are occupancy trends affecting your revenue strategy?
A: Occupancy increased to 95.4% in Q3 due to strong absorption. We balance pricing and occupancy at the market level, aiming for stable occupancy while pushing pricing where possible. -
Concessions Impact on Lease Rates
Q: How are concessions affecting new lease rates?
A: Concessions in Q3 were consistent with Q2, typically half a month to a month in stabilized submarkets. In high-supply areas like Austin and Atlanta, concessions can be up to three months. -
Bad Debt Levels Normalizing
Q: Are you back to pre-COVID bad debt levels?
A: Yes, we're currently at about 40 basis points net delinquency, similar to pre-COVID levels of 30 to 40 basis points. -
Other Income Opportunities
Q: Will other income sources like Wi-Fi impact revenue growth?
A: Yes, we're rolling out property-wide Wi-Fi at four properties, expected to add $1 million when fully deployed. We plan to expand to 20 to 25 properties in 2025, providing additional revenue. -
Hurricane and Storm Costs
Q: Will you include larger storm-related expenses in your guidance?
A: We'll include some assumed storm costs in our 2025 guidance but not at the levels experienced this year. Historically, such costs have totaled around $9 to $10 million. -
Return to Office Impact
Q: Have return-to-office mandates affected urban leasing patterns?
A: We haven't seen any material changes in traffic or leasing patterns in urban locations due to return-to-office policies. -
Immigration as a Demand Factor
Q: Is immigration a key variable in demand trends?
A: Immigration trends have less impact on our markets and resident profile. Our residents have average incomes over $80,000, and we're not significantly influenced by changes in immigration. -
Leasing Spreads and Earn-In
Q: With new lease spreads down, can we expect positive spreads by spring?
A: We anticipate better new lease performance in 2025 than in 2024. Our earn-in is slightly negative, around 20 to 30 basis points, but we expect improvements as supply moderates. -
Acquisitions: Lease-Up Properties
Q: Will you continue acquiring properties in lease-up?
A: Yes, we'll continue focusing on acquiring brand-new properties in their initial lease-up. Our ability to execute all-cash transactions allows us to achieve higher returns during this phase. -
Occupancy vs. Rent Growth
Q: When does incremental occupancy become less valuable than rent growth?
A: We aim for a balance, maintaining occupancy around 95.4% while pushing pricing where market conditions allow. We focus on exposure levels and adjust strategies at the property level.
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