Camden Property Trust (CPT) — Q1 2024 Earnings Call Transcript

Good morning, and welcome to Camden Property Trust's First Quarter 2024 Earnings Conference Call. I'm Kim Callahan, Senior Vice President of Investor Relations. Joining me today are Ric Campo, Camden's Chairman and Chief Executive Officer; Keith Oden, Executive Vice Chairman; and Alex Jessett, President and Chief Financial Officer. Today's event is being webcast through the Investors Section of our website at camdenliving.com, and a replay will be available this afternoon. We will have a slide presentation in conjunction with our prepared remarks, and those slides will be available on our website later today or by e-mail upon request. If you are joining us by phone and need assistance during the call, please signal a conference specialist by pressing the star key, followed by zero. All participants will be in listen-only mode during the presentation with an opportunity to ask questions afterwards. And please note, this event is being recorded. Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC, and we encourage you to review them. Any forward-looking statements made on today's call represent management's current opinions, and the company assumes no obligation to update or supplement these statements because of subsequent events. As a reminder, Camden's complete first quarter 2024 earnings release is available in the Investors Section of our website at camdenliving.com, and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call. We would like to respect everyone's time and complete our call within one hour, so please limit your questions to one, then rejoin the queue if you have additional items to discuss. If we are unable to speak with everyone in the queue today, we'd be happy to respond to additional questions by phone or e-mail after the call concludes. At this time, I'll turn the call over to Ric Campo.

Thanks, Kim. The theme for our hold music today was celebrations. We recently learned that we were included once again on Fortune Magazine's annual list of the 100 Best Companies to Work For. This marks 17 consecutive years that Camden has been included on this prestigious list. We celebrate being on the list because it shows that Camden employees value and appreciate being part of a great workplace. Two-thirds of a company's score for inclusion on the Fortune list is based on anonymous third-party administered employee surveys. If a company's employees don't love what they do in their workplace, there's no chance that a company would ever make the list. The survey consists of 60 questions, and the most important is the final one, which asks employees if they agree with this statement. Taking everything into account, would you say this is a great place to work? Ninety-five percent of the Camden teammates agree with this statement. This is truly remarkable and certainly a cause for celebration. We believe that smiling, motivated and committed Camden teammates serving our residents with purpose and commitment to living excellence leads to smiling customers, which always leads to smiling shareholders. I want to thank Team Camden for their continued support of improving the lives of our teammates, our customers, and our shareholders. With the first quarter behind us, I will jump right into the issue that we spend most of our time talking about, apartment supply in our markets. Yes, we are at 30-year highs for apartment deliveries, and yes, that is limiting rent growth in most markets for now. The good news is that the market is adjusting quickly to the post-COVID low-interest rate development frenzy. March apartment starts were the weakest since April of 2020 and are down 53% from peak volume and falling. Starts will likely fall to just over 200,000 apartments in 2025, primarily driven by low-income properties using tax credits and other government support. New delivery should peak in 2024, falling by 31% in 2025 and 50% in 2026, which would be a 13-year supply low point. Apartment demand continues to be strong. During the first quarter, apartment absorption was over 100,000 apartments, the best first-quarter demand in 20 years. The main drivers of apartment demand are population and employment growth, apartment affordability, and positive demographic trends. The most recent 2022-2023 census reported that the top 10 cities increased our populations by 710,000. Nine Camden markets are in the top 10. The bottom 10 cities reported a loss of 200,000 people. These were major cities on the West and East Coast where Camden has limited exposure. Employment growth has been robust in all of our markets, except Los Angeles, which continues to struggle. Apartment affordability continues to improve as residents' wage growth has been above 5% for the last 17 months while rents have been relatively flat. Consumers are spending less of their take-home pay on apartments. New Camden residents pay 18.8% of their income towards rents. Mortgage rates and rising home prices have kept move-outs to buy homes at historic lows. Only 9.4% of our move-outs in the first quarter were attributed to a resident's buying a home, the lowest in our history. The monthly cost of owning a home today is 61% more than leasing an apartment, and this is not going to change anytime soon. Demographic trends continue to be a tailwind supporting demand from high propensity-to-rent groups, including young adults aged 35 and under. Apartments should take a larger share of household formations given these demand drivers. 2024 demand should be sufficient despite supply concerns to set up accelerating rent growth for 2025 and 2026, assuming the overall economy continues on the current trajectory. Keith Oden is up next. Thanks.

Thanks, Ric. Our first quarter 2024 same-property performance was better than expected, primarily due to lower levels of bad debt and favorable trends for insurance and property taxes, which Alex will discuss in detail. Overall, operating conditions across our portfolio are playing out as we expected. In our market outlook on last quarter's call, we projected our top five markets for revenue growth this year would be San Diego, Inland Empire, Southeast Florida, Washington, D.C. Metro, LA Orange County, and Houston. Not surprisingly, those were, in fact, the top five performers for the quarter, with same-property revenue growth ranging from 3.4% to 6.2% in those markets. As anticipated, we are seeing the most challenging conditions in Nashville and Austin, with those markets showing slightly negative revenue growth for the quarter. As we previously disclosed, we initiated a marketing strategy during February to boost occupancy going into our peak leasing season, allowing us to then increase pricing power. Rental rates for the first quarter had signed new leases down 4.1% and renewals up 3.4% for a blended rate of negative 0.9%, with average occupancy of 95%. Our preliminary April results show an improvement of 230 basis points for signed new leases to negative 1.8% with renewal rates at 3.4%, resulting in a positive blended rate. We believe our strategy was successful, with April occupancy averaging 95.2% and recently trending around 95.4%. Renewal offers for June and July were sent out with an average increase of 4.2%. And finally, turnover rates across our portfolio remain very low, driven by fewer residents moving out to buy homes. Net turnover for the first quarter of '24 was 34% compared to 36% in the first quarter of '23. I'll now turn the call over to Alex Jessett, Camden's President and Chief Financial Officer.

Thanks, Keith. Before I move on to our financial results and guidance, a brief update on our recent real estate and capital markets activity. During the first quarter of 2024, we stabilized Camden NoDA, a 387-unit, $108 million community in Charlotte, which is now 99% occupied and generating an approximate 6.5% yield. We began leasing at Camden Long Meadow Farms, a 188-unit, $80 million single-family rental community located in Richmond, Texas, and we continued leasing at Camden Durham, a 420-unit, $145 million new development in Durham, North Carolina, and Camden Woodmill Creek, a 189-unit, $75 million single-family rental community located in The Woodlands, Texas. Additionally, on February 7, we sold Camden Vantage, a 592-unit, 14-year-old community in Atlanta for $115 million. At the beginning of the quarter, we issued $400 million of 10-year senior unsecured notes with a fixed coupon of 4.9% and a yield of 4.94% and subsequently prepaid our $300 million floating rate term loan. On January 16, we repaid maturity at $250 million, 4.4% senior unsecured note. In conjunction with the term loan prepayment, we recognized a non-core charge of approximately $900,000 associated with unamortized loan costs. During March and April, we repurchased approximately $50 million of our common shares at an average price of $96.88, and we have $450 million remaining under our existing share repurchase authorization. As of today, approximately 85% of our debt is fixed rate. We have no amounts outstanding on our $1.2 billion credit facility, less than $300 million of maturities over the next 24 months, and less than $100 million left to fund under our existing development pipeline. Our balance sheet remains incredibly strong with net debt-to-EBITDA at 3.9x. Turning to our financial results. For the first quarter, we reported core FFO of $1.70 per share, $0.03 ahead of the midpoint of our prior quarterly guidance. Our first quarter outperformance was driven in large part by $0.015 per share and lower-than-anticipated levels of bad debt. All of the municipalities in which we operate have now lifted their restrictions on our ability to enforce rental contracts, and in particular, Fulton County in Georgia has enacted legislation encouraging renters to abide by their contracts. As a result, we experienced 80 basis points of bad debt in the quarter as compared to our budget of 120 basis points. Some delinquent renters did repay past due amounts, but more often, we simply received the benefit of having our real estate back, the opportunity to commence a lease with a resident who abides by the rental contract and lower bad debt from having a new resident who actually pays. The accelerated move-outs of delinquent residents did put pressure on our physical occupancy, so we made a pricing strategy shift during the quarter, reducing rental rates at communities less than 95% occupied in order to maximize pricing power as we entered our peak leasing season. As a result of this shift, we experienced higher occupancy during the quarter, but that was entirely offset by lower rental rates. Our outperformance for the first quarter was also driven by $0.015 and lower operating expenses resulting from lower core insurance claims and lower property taxes. Although we are pleased with our first quarter revenue outperformance, at this point, we are maintaining the midpoint of our full-year guidance at 1.5%. However, we are changing some of the underlying assumptions. Our original guidance assumed 1.2% of rent growth comprised of our 50 basis point earn-in at the end of 2023, effectively flat loss to lease, and approximately 70 basis points of market rental rate growth recognized over the course of the year. We also assumed flat occupancy versus 2023 and a 30 basis point contribution from lower bad debt, bringing us to our 1.5% total budgeted revenue growth at the midpoint of our original guidance range. Our current revenue guidance reflects the same assumptions of a 50 basis point earning in flat loss to lease but now with 25 basis points of market rental rate growth and 10 basis points of occupancy gains as a result of our first quarter marketing initiative. In addition, our revised estimates for bad debt will add 65 basis points of revenue growth, bringing us back to the 1.5% midpoint for our current revenue guidance. Last night, we lowered our full-year expense guidance from 4.5% to 3.25%, entirely driven by the assumption of lower-than-anticipated insurance and property taxes. Insurance represents 7.5% of our expenses and was originally anticipated to increase 18%. In addition to lower insurance claims in the first quarter, we just completed a very successful insurance renewal and we are now anticipating insurance will be flat year-over-year. Property taxes, which represent approximately 36% of our total operating expenses, were originally projected to increase 3% in 2024. We have since received very favorable tax valuations, particularly in Houston, and we are now assuming a 1.5% year-over-year property tax increase. These positive expense variances are partially offset by increases in salaries, in part associated with increased performance incentives and higher marketing costs associated with higher search engine optimization expenses. After taking into effect the decrease in expenses, we have increased the midpoint of our 2024 same-store NOI guidance from flat to positive 50 basis points. We are maintaining the midpoint of our full-year core FFO at $6.74, as the accretion associated with lower same-store operating expenses is entirely offset by higher-than-budgeted floating rate interest expense, primarily as a result of fewer than anticipated Fed rate cuts. At the midpoint of our guidance range, we are still assuming $250 million to acquisitions, offset by an additional $250 million of dispositions with no net accretion or dilution from these matching transactions, and up to $300 million of development starts in the second half of the year with approximately $175 million of total 2024 development spend. We also provided earnings guidance for the second quarter of 2024. We expect core FFO per share for the second quarter to be within the range of $1.65 to $1.69, representing a $0.03 per share sequential decline at the midpoint, primarily resulting from an approximate $0.01 decrease in interest income due to lower cash balances, a $0.01 increase in overhead costs due to the timing of various public company fees, and a $0.01 sequential decrease in same-store NOI as higher expected revenues during our peak leasing periods are offset by the seasonality of certain repair and maintenance expenses and the timing of our annual merit increases. At this time, we'll open the call up to questions.

We are beginning to see improvements in our situation, particularly in Fulton County, which has been a challenging area for eviction processing and dealing with nonpaying residents. An ordinance was passed there that requires tenants who are behind on rent to pay their rent to the court instead of directly to the landlord to avoid eviction. This development has positively impacted the regulatory environment surrounding rent nonpayment. Progress is occurring faster than we previously expected. In prior calls, we noted that reaching a bad debt expense of 50 basis points again, which was the case for 30 years before the COVID market shifts, seemed distant. However, we are currently at 80 basis points, which is more than halfway towards that long-term goal. I feel more optimistic than I have in the past two years that we could return to those historical levels.

I believe that our ability to adapt with technology in response to individuals who exploit identity theft to rent apartments is significant. Being able to utilize new technology to identify these individuals before they gain access to our properties is crucial. It's similar to other situations where if the wrongdoers realize they can't enter through one method, they will try another. I'm genuinely excited about the speed with which we have been able to implement technology and adjust to these circumstances.

Ric or maybe Keith, can you talk a bit about what the operating strategy here for the portfolio going into peak leasing? You talked about pulling back a bit on rate to get occupancy to 95%. It seems like you've maintained that in April. So I'm curious, is the plan to continue to push rate here? Are you willing to trade some occupancy, and maybe which markets do you expect to be able to push rent a bit more near-term beyond the current context?

Go ahead, Keith. Go ahead.

We're back to the occupancy level we aimed for, reaching 95.2% by the end of the quarter, and we've slightly improved to 95.4% in April. Our focus is not on current pricing or occupancy but rather on projections for the next 6 to 8 weeks. We're pleased to have regained the desired occupancy and the next step is to increase rents. In markets with less supply pressure, we expect to have opportunities to raise rents and achieve our revenue goals for the year. I'm particularly encouraged by the pricing strength in the D.C. Metro and Houston, which are significant for us as they account for 25% of our same-store portfolio and are performing well. I believe this positive trend is likely to continue.

I appreciate that. If I could ask about new lease rates. You mentioned that you had tweaked some of the underlying assumptions within your same-store revenue, but can you talk about what your expectation on the new lease rate side is here? Maybe give us a sense of where you expect that to be broadly for the year and maybe over the next couple of quarters?

Yes, absolutely. So when we're looking at new leases, we're assuming that we're going to be probably right around a negative 2% for the second quarter and then negative 1% for the next two quarters after that.

Can I just follow up on that? So your guidance now has 25 basis points of market rental growth, and that's down from the original guidance that's offset by higher occupancy and better bad debt. But I guess my question is how realistic is that 25 basis points? Is that something that you just plug in to maintain your same-store revenue guidance? Or do you think that's what you're going to achieve?

No. It's absolutely what we think we're going to achieve. Obviously, what we do is we look at the conditions on the ground. We look at our third-party data providers, and we take all that information and just like we do our original budgets, we do reforecast from the community level on up, and so this is exactly what we expect to achieve.

And is that the occupancy versus rate trade-off? Or are there some markets that are potentially underperforming your original expectations?

Well, if you think about it on the occupancy side, all of our markets are doing better than we thought on occupancy. And then clearly, we're bringing down the rental rates. The rental rate bring-down is generally across the board. The offset, once again, is the much lower bad debt.

Alex, just wanted to clarify what the revised lease rate growth assumption is for this year versus the 1.2% you had previously provided. And can you just share, I guess, what the implied lease rate growth is that you need for the balance of the year?

Yes. I mean here's probably the best way to think about it. We're assuming a 75% blend new lease and renewals for the full year, 75 basis point positive. And so you've got a component of that, that is picking up the earn-in, which is about 50 basis points. And then you've got the 25 basis points that you're getting from the market rent growth to that. So I guess it is 75 basis points. To that, you're going to add to 10 basis points of higher occupancy '24 versus '23, that gets you to 85 basis points. And then we're assuming that our bad debt is going to be 75 basis points for the full year. That compares to 140 basis points last year. So that's a 65 basis point pickup, and that's how you get to the 1.5%.

Got it. Okay. So it seems like about 1.25% to 1.5% from here out on the blend is kind of the math I was getting to?

When considering the setup for '26 and '27, our development side has a solid pipeline ready to begin. The key question is when we will pivot. If the absorption and demand continue as we anticipate, based on our earlier discussions, we will become more aggressive in development towards the year's end and the start of next year. Currently, the best strategy in the first quarter has been selling assets and buying stock. We're purchasing stock at a high 6 cap rate while the market is at a low 5 cap rate, making this a sensible move. Ultimately, we will shift to a more aggressive approach once we observe that supply is being absorbed between now and around mid-summer. It's essential to watch how the peak leasing season develops before we take more aggressive actions at this stage.

And I'm trying to keep to the one-question rule here. So yes, it's just observational stuff. What do you think explains the difference in perspective between you guys saying accelerating rent growth in 2025 and '26 and Equity Residential and AvalonBay, which essentially think that you're not going to get any rent growth until 2026? Is there an interpretation issue? Is it just you have more information, so you have more sort of knowledge is a concern when you hear them say that because they're not dummies either? So like I'm just curious what you think the difference is?

I think the difference is, is that pretty much everybody talks to their own book, and that's part of it.

Is that what you're doing?

No. We're going to say what we believe, and I'm sure they believe what they say as well. The issue is they aren't operating in these markets. I'm not going to comment on what San Francisco is doing, especially since it hasn't yet regained the jobs lost during COVID. When we analyze our markets, using various data providers, many of them indicate strong demand and show that rent growth is expected to accelerate in 2025 due to high demand for multifamily housing and the other factors we discussed earlier. Everyone tends to have a bias regarding their own markets, but we have firsthand experience from being in these markets for over 30 years. It's misleading to assume that having a few properties in New York City gives a complete picture of the situation there. For instance, Los Angeles has lost 43,000 jobs since 2019, while San Francisco has lost 52,000. In contrast, Dallas has added 418,000 jobs, Houston 233,000, Austin 205,000, and Phoenix 223,000. The ongoing demand is what drives the markets in the Sunbelt. It's notable that our counterparts on the West and East Coasts are experiencing better revenue growth due to their deep losses from which they are recovering. I find it puzzling that there’s a 100 basis point gap in the implied cap rate between Mid-American Camden and Equity and AvalonBay. Moving forward, job growth and household formation will be key drivers of growth. Unless one believes that growth will shift back to the major cities, I don’t think that’s likely to happen. There's a fundamental shift in the growth dynamics between these markets and those on the East and West Coasts. We may agree to disagree on this, which is part of stock trading, so it will be interesting to see who turns out to be correct.

Great. Ric, I guess I wanted to piggyback on your comment about the possibility of starting some new development. And I'm just curious which markets are kind of higher up on your list? And if you looked at the economics today, where do those deals pencil? Or how far away are they from actually penciling where you think the development needs to be?

Well, if you check our development page in our supplement, you can see our projects and their locations. The closest developments will be in Charlotte, where we're leasing over 40 units a month at our new sites, despite facing a significant supply push. If you go down the list, you'll find more information. Economic conditions vary; for instance, we have two developments in Nashville, which faces a larger supply issue compared to other cities like Austin. We'll closely examine those figures. Currently, cap rates are in the low 5s, with some transactions occurring in the high 4s. Although there’s negative leverage, buyers are purchasing at 40% to 50% of replacement cost, speculating that once the supply is absorbed, rent prices will spike in 2026, 2027, and 2028, similar to spikes we witnessed in 2012, 2013, and 2014. Based on this, many of our developments could yield returns in the 6s. However, the key is to see how this leasing season progresses this year before we invest significantly in development. Therefore, you can check the supplement for details on our project starts.

Ric, I hope you trademark that; it sounds like it could be a good moneymaker. Regarding the jobs and strength in the Sunbelt, there's clearly a lot of supply, but during this earnings season, everyone is highlighting the strong job market in that region. However, while many economists and analysts are discussing the possibility of a recession or a hard landing, all indications from the apartment sector point to strong demand. It seems hard to believe that the low move-outs to homes and the typical renter's inability to afford a home is the only explanation. It appears that the economy in the Sunbelt markets is performing better than what the analysts suggest. Would you agree with this perspective? Or is there another factor that explains the gap between the broader economic concerns and the absorption and demand you're experiencing in your markets?

I think there is definitely a risk of both recession and whether it will be a hard or soft landing. This is something the market is currently reacting to. If we look at the first quarter and the recent job report showing 175,000 jobs, the consensus was actually lower than expected, which led to a market rally on that good news. If a hard landing occurs, then everything is uncertain. Ultimately, the economy drives multifamily demand and demand for any product. Currently, the economy is strong, jobs are abundant, especially in the Sunbelt. If the economic conditions remain stable or we experience a soft landing, demand will absorb the supply, and our numbers will reflect that. However, should we face a hard landing and lose 2 or 3 million jobs, it would raise significant questions.

I think you said that you expect a 10 basis points contribution from occupancy now. So just trying to go through the math, I think that means that you're expecting like 95.4% through the year, which would mean they call it about 95.5% through the remainder of the year just based on what you've done so far. Is that the right way to think about sort of what you think occupancy will average?

That's exactly right. So we're assuming that we're going to be at about 95.4% for the second quarter, 95.5% for the third quarter, and 95.4% for the fourth quarter, so exactly in line with your math.

Got you. And then you touched on this briefly, but you said that the sort of forward indicators of occupancy were telling you that there could be some improvement. I was just wondering if you could maybe go through like the lease rate, the percentage of tenants renewing, just sort of anything that you're seeing that sort of gives you confidence that occupancy should continue to rise?

Yes. What I was referring to, Eric, is that when we consider adjustments to our strategy, we utilize YieldStar, which is a forward-looking tool. It examines trends at least 6 to 8 weeks ahead, projecting future occupancy based on the current state of our portfolio and upcoming lease renewals. When we make strategy changes, we collaborate with our revenue management team that uses YieldStar to provide insights not just on the present situation, which we are aware of, but also on what occupancy might look like 8 weeks from now if we either stick to our current course or implement changes. Currently, we are optimistic because YieldStar indicates that we have an opportunity to raise rents in certain markets, and we intend to capitalize on that. What I meant is that our model looks ahead, and we apply our historical knowledge and experience to inform our strategic decisions.

Great. I want to revisit your thoughts on capital allocation. You mentioned buying back stock at around 6 with cap rates near 5, but if you're anticipating rent increases in the coming years, you indicated there’s about $450 million remaining on the repurchase plan. How do you view the next $100 million or $200 million in light of the current market conditions? Is this the right time to make investments across the capital stack or to buy back shares, especially considering that you’re not particularly fond of joint ventures?

We don’t favor joint ventures, so we won’t pursue that. Our balance sheet is extremely strong, as we own 100% of our assets without any partners, allowing us full control over our decisions. Capital allocation is always an interesting topic. We have maintained that if there’s a significant gap—over 20%—between our stock price and the perceived value of our underlying assets, and if that gap continues, we will consider selling assets to repurchase stock. We did this in the first quarter, and we may do so again as the year progresses. When we choose to actively pursue new developments and potential acquisitions, the market presents some intriguing opportunities. Transaction volumes could see an uptick, especially since activity levels have been at a low not seen since 2014. While there haven’t been many deals lately, there could be opportunities to sell some properties and acquire others to enhance the quality and growth potential of our portfolio. However, we need to see how the peak leasing season develops before we make any moves.

This is Ami on for Michael. I was just wondering, it sounds like you've made a lot of progress on the bad debt, so that's good. Is this pace of bad debt reduction sustainable? And is there potentially room for you to improve bad debt below the historical average with the enhanced screening processes?

Well, so the first thing I would tell you is we think bad debt as it is today is absolutely sustainable. Keith talked about it quite a bit. If you think about Atlanta was one of our problem markets. And obviously, we have legislation there that's really helpful for us today and makes sure that we can enforce contracts. And so we think we are today is certainly sustainable, and that's why we have it running through the rest of the year. Getting below 50 basis points, which is the long-term average, I think we'll have to see. What we're trying to figure out today is whether or not consumer behavior has changed for the worse. And if it has, then I think it's going to be probably a constant battle through the use of technology to offset consumer behavior. But at this point, we're optimistic that we can at least get back to 50 basis points, but certainly not putting any bets on getting better than 50%.

And let me just follow up on that.

Alex, I just wanted to clarify the second half negative 1% new lease rate growth you mentioned earlier. Does that assume the leases get to flat or positive in the third quarter before normal seasonality kind of takes over in the fourth quarter? Or is there a different rent dynamic assumed given the supply backdrop?

Yes, the negative 1% is relatively stable from the third to the fourth quarter. The counter to that is renewals, which we expect to be around 4% for both quarters. This adjustment leads us to an overall rate of 1.6% in the third quarter and 1.2% in the fourth quarter. Currently, we are not factoring in any scenario where new leases become flat in our model.

I wanted to ask about the cadence of supply, really the cadence of deliveries in the coming quarters and really into next year. I think the improvement so far year-to-date in new lease and what you'd be able to do with occupancy at the same time are impressive in the face of this unprecedented supply. I really just want to know as deliveries presumably accelerate over the coming months and quarters, how do you view absorptions in light of this accelerating delivery cadence?

We primarily use rent growth estimates because they offer more detailed insights into the pace of deliveries. For Camden's portfolio in 2024, we project about 230,000 completions. However, looking more closely, there may be a slight deceleration since deliveries in 2025 are expected to be around 200,000, marking a year-over-year decline of about 30,000. It's clear that the deliveries in 2025 will likely be front-end loaded. Historical data shows that delivery rates have been declining significantly when we look back over the last 18 months. Therefore, I believe that 2025 will have a concentrated supply at the beginning of the year. We have to manage the supply, but I don't anticipate 2025 will pose more challenges than 2024 in terms of total deliveries. Our absorption rates have been robust due to various factors, and if we consider the expected employment growth and ongoing migration to the Sunbelt, 2025 is poised to be another strong year for apartment absorption, assuming no significant economic downturn. Thus, with front-end loaded supply and continued strong demand, the outlook seems positive.

Looking at your initial expectations from last call. Have any of the expectations changed among the markets and which ones are maybe better or worse compared to your initial thoughts?

Yes, I always review that before the call, and nothing significant stood out to me. If I were to assess the portfolio today, I wouldn't say I would modify any of the grades. I might have been a bit tougher on Austin and Nashville compared to a quarter ago since they have been the worst-performing markets in terms of new lease rates. We have two assets in Nashville and also have exposure in Austin. Those are the only two that make me think they probably should have received a lower rating than I initially thought just a quarter back. However, the rest would remain the same.

Just wondering, do you expect to enter any new markets or exit any existing markets over the next few years?

We clearly aim to expand into some of the markets mentioned by Keith. We have two properties in Nashville, and we believe we need to increase our presence there. Over time, we've discussed reducing our presence in Houston and Washington, D.C., while increasing our investment in other markets where our net operating income is only 3% or 4%. We will continue to oversee and manage our portfolio with this strategy in mind over the next few years.

Just on the new lease rate growth assumption now, the minus 1%. I guess what periods historically have you seen that improve sort of in the back half of the year when you typically see seasonality take hold? Is it something to do with comps or getting the long-term delinquent units back that gives you the confidence that you can drive new lease rate growth in a period that usually has a little bit less traffic and less demand?

Yes, absolutely. So first of all, the third quarter is a high-demand quarter for us in our markets. So that's one point. The second thing that I will tell you is that with all the pricing initiatives that we ran through the first quarter, that gave us the ability to have stronger pricing as we hit peak leasing. And so that's why we think that's going to be very helpful for us as we move throughout the rest of the year. And then the fourth thing is, is exactly right, is the comps become much easier as we go through the rest of the year.

Well, we appreciate your time today, and we did get it done under one hour, which is a record, even though we are the last but not the least in terms of reporting. So we'll look forward to seeing you in NAREIT, and thank you for being on the call. Thanks. Bye.