Mid-America Apartment Communities Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 2, 2023

There are 20 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the MAA 4th Quarter and Full Year 2022 Earnings Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, the company will conduct a question and answer session. As a reminder, this conference call is being recorded today, February 22, 2022. I will now turn the call over to Andrew Schaeffer, Senior Vice President, Treasurer and Director of Capital Markets of MAA for opening comments.

Operator

Please go ahead.

Speaker 1

Thank you, Nikki, and good morning, everyone. This is Andrew Schafer, Treasurer and Director of Capital Markets for MAA. Members of the management team also Participating

Speaker 2

on

Speaker 1

the call with me this morning are Eric Bolton, Tim Argo, Al Campbell, Rob Delfrore, Joe Fracchia and Brad Hill. Before we begin with our 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 statements section in yesterday's earnings release and our 34 Act filings with the SEC, which describe risk factors that may impact future results. During this call, we will also discuss certain non GAAP financial measures.

Speaker 1

A presentation of the most directly comparable GAAP financial measures as well as reconciliations of the difference between non GAAP and comparable GAAP measures can be found in our earnings release and supplemental Earnings release and supplement are currently available on the For Investors page of our website at www.maac.com. A copy of our prepared comments and an 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.

Speaker 3

Thanks, Andrew, and good morning, everyone. MAA wrapped up calendar year 2022 with 4th quarter results for core FFO that were ahead of expectations as higher fee income Along with continued growth in average rent per unit and strong occupancy more than offset pressure from higher real estate taxes. Looking ahead to the coming year, there's clearly some uncertainty surrounding the outlook for the employment markets, the pace of inflation and the broader economy. In addition, while we do know that new supply deliveries in 2023 broadly will be higher than in 2022, We continue to believe that MAA is well positioned for the coming year as the leasing market returns to more normalized conditions. Our expectations for the coming year are built in a lease over lease pricing environment of 3%.

Speaker 3

This performance assumption, coupled with the earn in from 20 22's rent growth, should drive growth in effective rent per unit of around 7% over the coming year. We will of course see conditions vary some by market and submarket location, We believe that our portfolio is in a uniquely solid position to weather expected moderation from the historically high rate growth of last year. This view is really supported by 3 key variables. First, we continue to believe that our Sunbelt footprint maintains an advantageous position for capturing demand given the stronger and more stable employment markets in the Sunbelt states. We continue to see job growth, positive migration trends, affordable rent to income ratios and low resident turnover.

Speaker 3

Secondly, MEA's unique diversification across the Sunbelt region, including both large and high growth secondary markets, Provides exposure to a good range of employment sectors and works to help soften some of the pressures surrounding new supplier levels in a number of our larger markets. And thirdly, with a rent price point average for our portfolio that appeals to our broad segment of the rental market And it is around 20% below the price point of the mostly high end new product being delivered, we believe we will capture more stability and top The economy or a recession, as MAA has consistently demonstrated over the past 20 years, We expect to perform with a lower level of volatility than what generally is seen with more concentrated portfolios And or those concentrated in large coastal markets. The transaction market remains very quiet and we are likewise remaining patient With what opportunities we do see, I expect it will be the second half of the year before pricing data becomes more readily available. We do have plans to initiate development on 4 new projects in 2023 associated with sites that we already own or that are under our control. These projects will of course not actually start delivering units for another couple of years.

Speaker 3

In conclusion,

Speaker 4

I want to give a

Speaker 3

big thank you to our MAA associates for their tremendous We have the company well positioned for the next cycle as a number of new tech initiatives Will positively impact performance over the coming years. Our external growth pipeline continues to expand and the balance sheet provides a good Strong foundation for supporting our current portfolio operations as well as active pursuit of new growth opportunities. That's all I have in the way of prepared comments, and I'll turn the call over to Tim.

Speaker 5

Thank you, Eric, and good morning, everyone. Same store performance for the quarter was once again strong and ahead of our expectations. While pricing performance moderated during the Q4 from the record growth We achieved September year to date blended lease over lease pricing was up 5.7%. As a result, Effective rent growth or the growth on all in place leases for the 4th quarter was 14.9% versus the prior year and 2.0% sequentially from the prior quarter. Full year 2022 blended lease over lease pricing was 13.9%, helping to drive full year effective rent growth of 14.6%.

Speaker 5

Alongside the strong pricing performance, Average daily occupancy remained steady at 95.6 percent for the 4th quarter and 95.7% for the full year 2022. In line with normal seasonality, our January new lease rate of negative 0.3% improved from December's new lease rate of negative 0.9 percent and other than 2022 represents a higher new lease rate than any year since we have been tracking the data. Combined with renewal pricing of 8.6%, January blended lease over lease pricing was 4.2% and average daily occupancy was 95.7%. With new lease pricing moderating as expected, renewal pricing which lagged new lease pricing for much of 2022 It's providing a catalyst for the strong January pricing and is expected to be strong for the next few months before moderating to a more typical range. We are achieving growth rates on sign renewals of around 8% to 9% for the Q1.

Speaker 5

We do expect new supply in several of our markets remain elevated in 2023, putting some pressure on rent growth, but the various demand indicators remain strong and we Our portfolio to continue to benefit from population, household and job growth. As Eric mentioned, should we see a more dramatic downturn in the economy from here, We expect our markets diversification and price point will help mitigate some of the impact to performance. During the quarter, we continued our Various product upgrade initiatives. This includes our interior unit redevelopment program, our installation of smart home technology and our broader amenity based property repositioning program. For the full year 2022, we completed more than 6,500 interior unit upgrades and installed over 24,000 smart home packages.

Speaker 5

As of December 31, 2022, the total number of smart units is over 71,000 And we expect to finish out the remainder of the portfolio in 2023. For our repositioning program, leases have been fully or partially repriced at the first 11 properties in the And the results have exceeded our expectations with yields on cost averaging approximately 17%. We have another 4 projects that will begin re pricing this quarter and 5 additional projects currently under construction. Those are all my prepared comments. So I'll now turn the call over to Brett.

Speaker 6

Thank you, Tim, and good morning. Despite execution challenges in the transaction market, our team successfully completed our disposition plan for 2022 By closing our last two dispositions in the 4th quarter, our total disposition proceeds for the year were approximately $325,000,000 representing a stabilized NOI yield of 4.3% and an investment IRR of 17.7% for assets with an average age of 25 years old. In 2023, we will continue the discipline of steadily recycling capital out of older higher CapEx properties with the intent to redeploy the capital into newer lower CapEx, higher rent growth properties to drive higher long term earnings growth within our portfolio. While transaction volume continues to be muted, we believe it's likely that the transaction market will provide more opportunities toward the back half of the year. Currently, the number of marketed properties is down substantially from 2022 with the majority of sellers waiting until at least the spring leasing season before reevaluating their planned sale timing.

Speaker 6

In the face of this lower volume, we have seen some upward pressure on cap rates With the degree of the movement varying based on property characteristics, embedded rent growth as well as market and submarket location. However, until closed transactions materially increase, transparency around cap rates will be difficult. When marketed deal volume does increase, we During 2022, we started construction on 12.53 units at a cost of $468,000,000 A record level of starts for MAA. During the Q4, we started construction on 2 projects that have been in predevelopment for some time. These two projects will begin delivering units in 2 years and should finish construction in 3 years, lining up well with what we believe is likely to be a strong leasing environment.

Speaker 6

While the timing of planned construction starts can change as we work through the local approval and construction bidding processes, We expect to start 4 new developments during the back half of twenty twenty three. This includes 2 in house developments, 1 located in Orlando and 1 in Denver And 2 prepurchased joint venture developments, 1 located in Charlotte and the other a Phase 2 to our West Midtown development in Atlanta. Our construction management team continues to do a tremendous job actively managing our projects and working with our contractors to keep the inflationary and supply chain pressures from causing a meaningful increase to our overall development costs or our schedules. Despite these headwinds, the team delivered 3 projects on time in 2022 and under budget by approximately $4,500,000 During the Q4, construction wrapped up on MAA Windmill Hill and we reached stabilization at MAA Robinson, MAA WestGlen and MAA Park Point with operating results well ahead of our pro form a expectations, delivering stabilized NOI yields on average of 6.6%. Leasing demand at our new properties remains high and the competition from other new supply has to date Not had a significant impact on our lease up performance with rents being achieved well ahead of pro form a.

Speaker 6

That's all I have in the way of prepared comments. So with that, I'll turn the call over to Al.

Speaker 4

Okay. Thank you, Brad, and good morning, everyone. Reported core FFO per share of $2.32 for the quarter was $0.05 above the midpoint of our guidance and contributed to Core totaled the full year of $8.50 per share, representing a 21% increase over the prior year. Same store rental pricing levels were in line with expectations for the quarter, while higher fee and reimbursement revenues combined with strong lease up and commercial revenues to produce about 2 thirds of this earnings outperformance for the quarter. This favorability was partially offset by real estate tax expenses As final millage rates came in higher than expected during the quarter for several markets, primarily in Texas, our real estate tax estimates were based on strong valuations Rollbacks occurred but were less than expected in Texas, particularly in Dallas and Austin.

Speaker 4

Our internal guidance for our initial guidance, excuse me, for 2023, which we'll discuss more in a moment and anticipate some continued pressure in this area given its backward looking nature. Our A- balance sheet remains very strong we ended the year with historically low leverage, debt to EBITDAre of 3.71 times with 95.5% of our debt fixed at an average interest rate of 3.4% And with $1,300,000,000 in available capacity to support growth and manage our debt maturities late in 2023. Also at the end of January, we settled our Board equity contracts providing an additional $204,000,000 of capacity at an attractive cost of capital. We currently expect to fund our near Term acquisition, development and refinancing needs with short term debt capacity allowing the financing markets to continue to stabilize before locking in long term financing. Finally, we did provide initial earnings guidance for 2023 with our release, which is detailed in the supplemental information package.

Speaker 4

Core FFO for the year is projected to be $8.88 to $9.28 per share or $9.08 at the midpoint, which represents a 6.8% increase over the prior year. The foundation for the projected 2023 performance is same store revenue growth produced by historically high rental pricing earn in of about 5.5% Combined with the more normalized blended rental pricing performance of 3% for the year as well as a continued strong occupancy remaining between 95.6% 96% for the year. Based on this, effective rent growth for the year is projected to be a solid 7% at the midpoint of our range, with total same store revenues expected to grow 6.25%, slightly diluted from the other revenue items primarily reimbursement of the income which grow at a more modest pace. Same store operating expenses grow at 6.15 percent at the midpoint for the year with real estate taxes and insurance producing the most significant growth pressure. Combined, these two items alone are expected to grow just over 7% for 2023 with the remaining controllable operating items expected to grow around 5.5%.

Speaker 4

These expense pressures are offset by the continued strong revenue growth with NOI for the year projected to grow 6.3% at the midpoint. We also expect to continue to external growth both through the acquisitions and development opportunities during the year with combined $700,000,000 full year plan investment. This growth will be partially funded by asset sales providing around $300,000,000 of expected proceeds. We expect to fund the remaining capital needs for the year internal cash flow and short term variable rate borrowings as we anticipate the financing markets to continue stabilizing over the next year, Eventually providing better opportunities to lock in long term debt rates. This does produce some slight pressure on current year FFO performance given high short term rates Those expected to be rewarded with lower long term financing costs when markets stabilize further.

Speaker 4

So that's all that we have in the way of prepared comments. So Nicky, we'll now turn the call Back to you for any questions.

Operator

Thank you. We will now open the call up for questions. And we will take our first question from Nick Yulico with Scotiabank, please go ahead.

Speaker 7

Thanks. Good morning, everyone. So I just wanted to start with the guidance on same store revenue. So if you're at sort of right around 6%, the midpoint, I think you guys had an earn in that was close to that number Coming into the year, so you have occupancy being roughly flat in the guidance. So just trying to understand kind of what Might be the offset as to and you are assuming some market rent growth as well.

Speaker 7

So just trying to understand kind of the build up there and Is there anything we're missing as to why the revenue growth guidance wouldn't be a little bit higher based on the earnings you've cited? Thanks.

Speaker 4

Yes, Nick, I'll give you the components. This is Al. I'll give

Speaker 8

you the components of it,

Speaker 6

how we built it and maybe Tim can give

Speaker 4

a little color if he would like on some of the But really it's built on the earnings you talked about based on where pricing was, when we think about earnings pricing in the year, if it were to carry forward that same level, Not up or down, what would it be built into our portfolio? That's about 5.5%. That's the way we think about it. And on top of that, You get about half of the current year expected blended pricing. And as we talked about, we're expecting about 3%.

Speaker 4

So you add those two numbers together, you get right at the 7% Effective rent growth guidance that we put out. Now that is as we mentioned in the comments a little bit moderated from Other income items, about 10% of our revenue stream is from reimbursements and fees and those things and they're expected to grow more modestly than that. So that's what gets us to 6.25 percent. But in terms of the earn in and the components, that's really what it is.

Speaker 7

Okay, thanks. That's helpful. And then just second question is just to get a feel for what type of economic scenario Is baked into guidance, whether this is a softer landing with modest job losses? Any commentary from you guys on the economic outlook would Helpful. Thanks.

Speaker 3

Nick, this is Eric. I mean broadly as Al mentioned, I mean we do expect that the overall Rent growth for the market next year will be something around 3%, which I think is going to be Fueled by what we expect to be a continued relatively stable employment backdrop To what we're seeing today, we're not seeing any real evidence, significant evidence building in any of our markets at this point Relating to employment weakness or people losing jobs, we're not having any kind of issues surrounding collections. Migration trends continue to be very positive. And so as we think about The outlook for 2023, I mean, we're it's definitely moderated from what it was in 2022, But we're not seeing any concerns at the moment that a severe contraction or any sort of a worse A materially worse decline in the employment markets were to occur now. If that does happen, as I alluded to in my comments, We've been through recessions in the past and we think that if we find ourselves in a more severe economic contraction Where broadly the employment markets start to really pull back, we think that that's where the sort of defensive characteristics that we've built into our You really start to pay a dividend for us and that's where our secondary markets come into play, our lower price point of our product comes into play And the broad diversification to employment sectors that we have across the large number of markets that we're in All provide some level of cushion, if you will, if we find ourselves in a more severe downturn.

Speaker 3

So Right now, we're not calling for that, but we think that it should happen. We would probably weather that pressure better than a lot of others.

Speaker 7

Thanks, Eric.

Operator

We'll take our next question from Alexander Goldfarb with Piper Sandler. Please go ahead.

Speaker 9

Hey, good morning. Just first question is on development and Your appetite for using capital, you said that cap rates overall for stabilized products are still sort of in The debt market is clearly better for apartments, but CMBS, which you guys don't use or Fannie, Freddie, whatever, that's still well, I guess more CMBS remains sort of closed. So as you guys think about development, Do you think more about starting on your own account? Or do you see the potential that you're better off buying from other people who may run into financial difficulty, We're on a risk adjusted, you're better off to pick from someone else rather than starting ground up from you guys.

Speaker 6

Yes, Alex, this is Brad. I'll start off with that. I'd say it's both. We're looking at both opportunities, both On our balance sheet and then working with partners as well, I mean, what we haven't seen broadly yet are developers kind of spitting sites, Spitting land sites, we've seen it a little bit, but it's been sites that we're not really interested in. We've not seen The well located sites that have gone under contract kind of being let go.

Speaker 6

We've not seen that yet. So we will keep our eye on that for sure because I think that's where the opportunity presents itself for our own balance sheet developments where we can pick up Kind of showing up through some of our development partners, maybe they can't get the debt financing for some of their Developments going or equity partners backing out on deals. We are seeing that short term. We've got a team of folks This week that are out at NMHC and we've already gotten a number of emails of projects, JV development opportunities that are a follow-up From that, we're they're shovel ready, could start mid year. So we'll begin evaluating those Because I think those are the ones that are going to be impacted by the debt market and just how tight that is right now.

Speaker 6

But the long story is we'll look for opportunities in both of those areas.

Speaker 9

Okay. And the second question is just going back to Nick's question on sort of state of the markets and the employment. One of the common refrains about the Sunbelt is, it always has a lot of supply, but the economic growth seems to be more than offset. And you spoke about that relative Your ability to manage higher taxes, higher insurance. As you look at this year and based on what your property managers see among the resident base And employment stats within your markets, do you see any like substantial risk that Employment or economic job growth in your markets will not be able to exceed the new supply coming on?

Speaker 9

Or as you sit here today, you're as you guys sit around the round table, you're like, there are a few more markets that we're more concerned about now than we were back in, Let's say November, when you guys were assessing how 2023 would look?

Speaker 3

Well, Alex, this is Eric. As we sit here today, we continue to feel Good about the demand side of the equation for us. As I mentioned, we're not seeing any The lead volume and traffic that we're seeing is still strong. We're seeing Not seeing any evidence of stress with our renters in terms of collections. We're not seeing any evidence of People coming in talking about losing their job because of and needing to get out of their lease.

Speaker 3

We're not seeing any room meeting trends Starting to pick up. And so as we sit here and then also you look at the migration trends, We still saw 12% of the leases that we did in the Q4 were for people moving into the Sunbelt from outside the Sunbelt. So, we are still not seeing any worries build on the demand side equation at this point, Moderating from what it was, but still quite strong.

Speaker 9

Thank you. We're

Speaker 4

getting a little feedback. Is that coming?

Speaker 9

Yes. All good on our end. Thank you, though.

Speaker 10

Okay. Thank you.

Operator

We'll take our next Question from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Speaker 2

Great. Thanks guys. I was just curious if you could share how I believe the 3% figure you provided on lease over lease is the blended lease rate growth assumption embedded in guidance. And I was just wondering if you could break down That between sort of the first half assumption, and back half as you alluded to kind of renewals maybe trending a little bit lower as the year progresses.

Speaker 5

Hey, Allison, it's Tim. Yes, you heard me mention in the comments that Renewals right now are the catalyst for us and kind of carrying the strength. New lease pricing outpaced renewals for The bulk of 2022, so we knew we kind of had some runway on the renewal side that's carrying us through this early part of 2023. So The 8% to 9% I talked about in renewals, I think that probably carries through the Q1, call it, and then starts to moderate a little bit as you get into Probably June through the rest of the year, I would expect it to be a little more normal with sort of what you typically seeing from MAA, which is kind of in that 6% to 7% range. And then on the new lease side, we're sitting slightly negative right now.

Speaker 5

I think that will Slowly accelerate through the spring summer and go modestly positive and then trend back down towards the end of the year. So Kind of higher renewals in the first half of the year, moderating a little bit, new lease rates growing slightly through the year and then Moderating just for seasonality as we typically would see in Q4 and that you kind of blend that all together and get to the forecast that we have for blended lease over lease.

Speaker 2

On the new lease rate side, I guess what specifically, I mean, it seems like that's fairly low relative to what you've achieved historically Pre pandemic period and with 3% market rent growth, you would think that you kind of surpass that 3% into the peak leasing season before it moderates in the back half of the year. So, I guess I'm trying to understand that kind of cautious new lease Great growth assumption in your guidance. And then could you also just share what would get you to the low end of the guidance range because that Seems like a pretty draconian scenario to be able to achieve the lower end.

Speaker 4

I'll give you sort of the forecast how it's laid out quarter by quarter and Tim can give a little more specifics on it. It is Fairly consistent around that 3% for the year with obviously more a little higher in the second 2 quarters of the year, as Tim mentioned, as we get more traffic and Renewals hold stronger and new lease pricing becomes most robust. It's really going to come down to new lease pricing as the variable through the year, but the band is fairly tied around 3% in our expectation, just given the blend of overall demand. And so Yes. And just

Speaker 5

following up on the new lease rate. I mean, we Again, absent last year that was record highs, new lease rates kind of November, December, Early part of the Q1 typically are negative. So it's not unusual kind of the new lease rates that we're seeing right now and then they Start to accelerate as we get into the spring summer. But in terms of getting to the low end, I think it's kind of back to Eric's comments on the economy. If we see A further deceleration in demand or see something a shock on the economic front that could drive pricing obviously lower And that's how you get towards the lower end of guidance and then the opposite a little bit better economic backdrop would push pricing higher and get

Speaker 4

us more towards the higher end of Revenue guidance. If that shock came, it would given it's coming the impact will come through pricing, it would be manifest probably in the latter part of the year as those new leases blended in.

Speaker 2

Right. Got it. That's helpful. Thanks everybody.

Operator

We'll take our next question from Nick Joseph with Citi. Please go ahead.

Speaker 11

Thanks. Eric, in your comments on this up, you talked about the strong balance sheet and that being in a position Capturing those opportunities, it sounds like you think may emerge. From your comments on the call, it sounds like maybe that's more of a second half 'twenty three comment. But Where do you think those opportunities could come from? Is that more acquisitions, AVs, land, something else?

Speaker 3

Nick, I would tell you that my belief is that we've been through this in the past where we tend to find the best opportunity Is in projects that are in lease up, fairly newly constructed. They're more likely than not have already finished the construction. They may be at that 50%, 60% occupancy level in their initial lease up. They've been leasing for probably the better part of a year. So they're still they're now getting to a point where they're starting to run into lease expirations and related turnover, which just brings that much more pressure on the lease Effort itself.

Speaker 3

And these, as I say, are not yet fully stabilized assets and thus they're more difficult to finance from a typical leveraged buyer. And so that's where we are hopeful that we will find more emerging Judy, is in that kind of a scenario, we've certainly seen that in the past. And one of the things I think is important to point out, I mean, our assumptions is built around For 2023, our guidance is built around the assumption of a $400,000,000 acquisition volume. Now, we are assuming that their initial yield on this $400,000,000 of acquisition is only 3%, Reflecting that non stabilized status of these investments. So while that is weighing on FFO performance for the year, We think that it has great value proposition, value opportunity going forward long term.

Speaker 3

And so We're given the supply that's coming to the market, given the difficult financing environment we find ourselves in, we think that that area of opportunity is going to emerge over the course of this year and that's what we've kind of dialed into our guidance for the year.

Speaker 11

Thanks. That's very helpful. And then I guess we've spent a lot of time on kind of macro backdrop and the blended rent growth assumptions and everything that goes into revenue. But if you think about from a market perspective, in 2023, given your kind of new guidance, What does that imply for which markets are kind of the top performers and which we are more concerned about?

Speaker 5

Yes, Nick, this Tim, I mean, with the earned in, we talked about of our larger markets, I expect just rent growth or revenue growth should be pretty Solid for several of our markets due to that earn in. But if you think about some of the stronger wins that we think will continue into 2023, I mean Orlando Continues to be a really strong market for us. It's been strong now for a couple of years. In terms of demand, it's our number one job growth market that we're expecting For 2023, it is getting a little bit of supply, but it's not necessarily situated where our portfolio is in Orlando. Some markets in our portfolio that are getting the most supply, only one of those is in Orlando.

Speaker 5

So the demand combined with the supply there Orlando to be strong. It's continued to have really strong blended pricing both in Q4 and January. And then Dallas is another one I would point out that We think can show some strength in 2023. It's one of our lower supply markets we would expect. There's a couple Some markets that we're in, particularly in North Dallas, Frisco, Plano, Allen that will get some supply, but broadly Dallas isn't seeing as much Supply pressure and we've seen the pricing both in Q4 and January been a little bit higher than portfolio average.

Speaker 5

So those Other couple that we've kind of got our eye on from a strength standpoint, Austin is probably one that on the downside that we're keeping our eye on more than anything. It's kind of got the extremes on supply and demand. It's one of the better indicators in terms of demand with job growth, migration, Population and all that, but it also has absolute highest supply coming into the market of any of our portfolios or any of the markets in our portfolio out of the Various submarkets that we're seeing supply, 4 out of the top 20 are in Austin. So that's one we do expect to moderate, though it does have Pretty good earned in rate growth. So those are a couple that we're kind of keeping our eye on.

Speaker 11

Thanks. That's helpful. So it sounds like maybe the large Still outperformed the secondary markets in 2023 or maybe that spread narrows a bit?

Speaker 4

Yes. It probably narrows

Speaker 5

a bit just With the moderating rent growth, we typically see the secondary markets hold up a little more if we get into a softer economic environment. But I think Broadly in terms of revenue growth again with the earn in, I would expect that the large markets hold up pretty well.

Speaker 12

Thank you very much.

Operator

We'll take our next question from Anthony Paol with Barclays. Please go ahead.

Speaker 5

Hi, good morning.

Speaker 13

Just a question on new lease spreads and pricing going into the spring. What would cause you to get a bit more, I guess, the confidence on pushing rate more as you get to Would it be just general improvement in economic sentiment, job growth continuing to be where it is, the market continuing to I do well. Just curious how you may change your approach to pricing in spring if things get a bit better?

Speaker 5

Yes. I mean, generally, it's going to be it'll be that. It's the economy and the demand and we look at lead volume, we look at exposure, We look at rent to income and various things there that drive some of our decisions on we're always sort of balancing how much we want to Price versus occupancy. So there's nothing there's no blinking red lights right now that would suggest that we see any sort of downturn. We're kind of monitoring all those various metrics right now and everything looks about what you would typically think during this time of the year, during the winter.

Speaker 5

So it will really be as we get into spring summer as demand picks up and traffic pick up and lead pick up, that will be really the determining factor on Where 2023 heads in terms of demand.

Speaker 13

Thanks. And turnover seemed pretty And any changes in how certain residents responded to lease renewals, price increases and any trends there you want to call out?

Speaker 5

I mean, the turnover was remains pretty low. Historically speaking, it was up a little bit in Q4, but the reasons for turn have been Pretty consistent. We've actually seen the move out to rent increase decline a little bit, But it's still it's job transfer and buy a house are still the 2 biggest factors, but those are Certainly been down from what we've seen in the past, but no notable trends one way or the other.

Speaker 13

All right.

Speaker 14

Thank you.

Operator

We will move next with Janney Luthra with Goldman Sachs. Please go ahead. Hi, good morning and thank

Speaker 15

you for taking my questions. Could you spend some time talking about the outlook for 2023, what would get you to the low end versus the high end? And guidance does talk about property taxes in there, but perhaps You could spend some time on other elements and then what are the markets where you see more tax pressures versus others? Thank you.

Speaker 4

Shoney, this is Al. I'll start with that and

Speaker 6

then maybe Tim can give

Speaker 4

some color on some of that the way to think about that as you go into 2023 is, we're continuing to see general inflationary pressures a bit in our expenses, but really tax And as I mentioned in my comments, those 2 together are over 7%. And so that's really and taxes are 35% of all operating expenses, so it's very meaningful. And then the other expenses together are about 5.5%. I think We're beginning to see some moderation in your personnel, repair and maintenance and those things. I think you'll see that manifest and Tim can talk about components of it.

Speaker 4

But as we move more into the back of the year, you'll see a little more That manifests in those line items. But taxes and insurance, there's a pressure point. What can take us higher or lower to our guidance on the overall, which is primarily going to be taxes and insurance Would be we don't have a lot of information yet on either one of those. Taxes, when you go into the year, notoriously, you don't have a lot. You're going off you have a good idea what you think valuations will be based on cap rate markets, but you're totally guessing on millage rates and that has been very volatile in the last year or so As municipalities deal with their budget issues, so we think we and we've got a few fights left over from last year.

Speaker 4

I mean we've got some things that we're going to fight hard and we continue to. At Texas, we We'll formally litigate half of our properties this year and we did last year and some of those have not yet finished. And so there are things like that that can make you go higher or lower. We feel like we've got our best estimate in there right now and that's the appropriate thing to do. And so overall, we'll see some moderation in the controllable expenses, but It's pressure driven by insurance and taxes.

Speaker 5

Yes, Sean, I'll add to that. As Al mentioned, about 40% of our expenses are taxes and insurance, Call it around 7% and then the other 60% around 5.5%. So if I had to just thinking in terms of Absolute year over year growth, I'd sort of rank them, I would say. Insurance is probably the highest, R and M probably the 2nd highest and real estate taxes are 3rd. So Getting on R and M, it's really driven by inflationary pressures, not so much that we expect to get really any worse in 2023, but kind of carryover Earn in, if you will, on some of the inflationary increases that we saw in 2022.

Speaker 5

We've seen HVAC up 16%, plumbing up 18%, appliances up 17%. So that's expected to drive the pressure on the R and M side, but we still remain On a per unit basis lower than the sector average. I do think personnel moderates from what we saw in 2022. We have some opportunity there, but And then the other smaller line items are fairly manageable. So it's really on the controllable, if you will, side.

Speaker 5

It's R and M we think is driving the bulk of the increase.

Speaker 15

Thank you for all that detail. For my follow-up question, I just wanted to clarify or trying to understand how you're thinking about bad debt In 2023, what's embedded in your guidance, if there's anything and how does that compare versus 2022? And then as you've obviously talked about supply being higher in 2023, how are you Thinking about concessions, are you seeing more concessions in your markets, in your properties? Any thoughts around that would be very helpful. Thank you.

Speaker 4

I'll start with the bad debt. I mean, I think in terms of what we have in our guidance collection practices have come pretty much back to normal, not 100% maybe, but very close I would say. Rob may have something to say about that. But so collections are very good. What we dialed in is close to historic normal, I'll call it 40 to 50 basis points delinquency, which is very low.

Speaker 4

And we have almost no Collections coming from any government programs. We have, the amount of our uncollected from history continues to decline. So we're in a very good position there and so our forecast for the year reflects that. And so the moderating or normalizing trends that we're putting on forecast really has Collections about where they typically are in a normal environment.

Speaker 5

Yes. And one I'll add on the concession point. We're not seeing any significant increase in At this point, it was 0.3% of rents overall in Q4, which is in line with what we saw in Q3. We are to the extent we're seeing them, it's still largely across the portfolio more in some of the urban or downtown submarkets, which has seen More of the supply and seeing less concession usage on the more suburban assets, but generally no big change from what we've seen in the last

Speaker 15

Thank you for that.

Operator

We'll take our next Question from Haendel Singh Jost with Mizuho. Please go ahead.

Speaker 14

Hey, good morning out there. Two questions for me on the external growth front. I was at National Multi Housing 2, and heard that there is a ton of buyers, More digital demand, but a shortage of sellers and products. So I guess I'm curious if you would see an advantage of selling more assets Now is there perhaps a fair speed premium? And perhaps be willing to sell a bit earlier in the year Capitalize on even if it does mean a bit of dilution as you wait to redeploy in a more favorable acquisition market in the back half?

Speaker 6

Yes. Haendel, this is Brad. I'll take that. As we enter this year, our Disposition plan is really a big component of that as you mentioned is the ability to redeploy that capital. That's a big part of what we're looking to do.

Speaker 6

And so we're not generally looking to time the market. We do a very In-depth review of our disposition plans in the 3rd, Q4 of the year to really identify what we're going to sell for the year. And we generally don't factor in what we think are going to be the Market dynamics in terms of just maximizing value. We want to do that, but broadly speaking, what we're trying to do is really build a long term earnings Profile within the company that really supports our ability to pay a growing dividend over time. And so we think that's better done on a consistent basis, We're in a position to be able to sell assets, maximize our proceeds to the best we can and then Redeploy that capital into external growth opportunities.

Speaker 6

So what we have in our forecast right now is a sale of one asset Earlier in the year and the reason for that is we're targeting a strong primary market that's in Charlotte Where we think we can kind of maximize the proceeds given the fact that there aren't a lot of sellers out there right now in that specific market. And then we'll come out with our other assets later in the year when we think the debt markets will be a little bit settled down a little bit, Spreads will be a little bit less volatile than where they are right now and frankly where buyers can get a little bit more visibility on values. We think that that's the best Direction for us in terms of our dispositions and our external growth plan.

Speaker 14

That's very helpful. Appreciate the color there. A follow-up on maybe on a different tax, but external growth related. We've seen a lot of mid and high 4 cap rate trades of late, But hearing the bid ask spread that remains fairly wide 10, 6, I've referred from some folks. So curious kind of what you're hearing or seeing on The bid ask spread and how this plays out?

Speaker 14

What do you think the market clearing price is? Or what you'd be willing to pay to get some deals done with? Thanks.

Speaker 6

Yes. It's hard to say. I mean, there's just as we looked at The market in the Q4, honestly, in terms of the assets that we would be interested in buying and track, there was really only 7. So in the universe of us normally tracking 40 deals in a quarter to only have 7 TRANZACT is a very, very small universe and we have seen cap rates move up. I'd say in the Q3, They're around a 4.5 on the projects that we looked at.

Speaker 6

In the Q4, they were 4.75. We but there's a Spread, obviously, and it really depends on where the assets are located. We saw 1 in the Q4 that traded, call it, for 5.25%. But Generally, when you're getting into that cap rate range right now, we found that the quality of the asset or the location It's not ideal and it's not generally a location that we're interested in. So for assets we're interested in, they're still in the 4.75 range.

Speaker 6

To your earlier point, I think part of the driver there is that there's just not a lot on the market. And I think as more volume Begins to come to market, which we think will happen late Q2 and end of Q3 later this year even. Come to market that those cap rates likely expand a bit. I mean the fact is interest rates are up substantially. Today, the debt rates are 5% to 5.5%, and that's got to push cap rates up at some point negative leverage It's not something that we can maintain in perpetuity, but until you have a significant volume of assets coming to market, There's still going to be a number of aggressive buyers out there that are bidding hard at assets that are really setting a lower cap rate range.

Speaker 6

And then I would also say that A majority of what's selling right now continues to be loan assumptions. And so that kind of masks what true cap rates are Out in the market and we just need volume to really help us see that.

Speaker 14

That's really helpful to appreciate that. If I could squeeze in one more, I don't think I heard Can you share what your turnover assumption is for full year 'twenty three? Thanks.

Speaker 5

Yes. Hey, Neil, this is Tim. For now, we're expecting it to be pretty similar. I think Some of the reasons that drove turnover this year probably moderate a little bit and maybe some of the other reasons go up a little bit. But In general, we're expecting similar turnover to what we saw in 2022.

Speaker 14

Got it. Thank you.

Operator

We'll take our next question from Rich Anderson with SMBC. Please go ahead.

Speaker 16

Thanks. Good morning. So my first question is The expected deceleration of rent growth obviously in 2023, no one's surprised by that. But I'm wondering if you can Sort of get into some more of the nitty gritty detail of where you're landing, how much of it is proactive on your How much of is it reactive? Are you sensing fatigue from customers?

Speaker 16

Are you noticing occupancy moving around Our turnover, I think you mentioned Tim, I think you mentioned turnover uptick in the 4th quarter. Are there any things that you're reacting to that's causing you to Pinpoint where you're headed for same store growth revenue growth in 2023? Or are you just Sort of protecting the downside given some of the uncertainty in the macro environment and being more proactive in your approach.

Speaker 3

Well, Rich, this is Eric. Let me try to answer that. I think that at the ground level, I would We're not really seeing anything at this point that causes us to believe that We're looking at a much weaker demand environment over the coming year. As I Touched on earlier, I mean, we're still seeing no evidence of distress with our renter base. Our rent to income ratios remain very Stable relative to where they have been.

Speaker 3

Collections performance has been very strong. We're not seeing any behavioral changes with roomating, Things of that nature, we're not in the trends to Migration trends continue to be quite positive. Move outs to non MAA markets Our move outs out of the Sunbelt continue to be quite low. So, I think more than anything for us, we're just Trying to keep an eye on the broader economy and the broader employment markets and any evidence That the employers are really starting to get aggressive at downscaling and downsizing Their staffing and we've not seen that yet, but that would be obviously a positive concern. But at a macro level, Move outs to home buying continues to be quite low and there's no evidence mounting that that's starting to change.

Speaker 3

And move outs due to The people not wanting to pay their rent increase, they were asking for still is our 3rd biggest reason, but we're still Having people come in after them when they do move out willing to pay more than what we were asking the renewing resident to pay. So, that's That to me is a fairly strong indicator that the market is still holding up quite well. And so, I think we're just we're moderating off of incredible highs and that's what's happening here. But in terms of any Significant pullback in demand. We're just not seeing that at this point.

Speaker 16

Okay, fair enough. Second question is, Just closing the loop on the supply conversation. What always happens, developers chasing 2022 growth by delivering product in 2024, always a smart strategy. But I guess, my question is, do you feel like Given the environment and interest rates and everything else, do you feel like sort of the private developer Model is on shakier ground than normal this time around and perhaps even more of an opportunity for you to step in at some point down the road or is it sort of A typical environment, different obviously variables, but a typical opportunity for you a year or 2 down the road.

Speaker 6

Hey, Rich, this is Brad. I definitely think in terms of new starts, they're on much Shake your ground, the privates are for sure in terms of getting financing. I would say that for anything that is in Lease up right now, I mean, there's not distress in that market currently. So there's not a lot of forced selling at the moment. Now there are still equity and capital folks that they want to cycle out of.

Speaker 6

As I mentioned earlier, Our region is predominantly controlled or developed by merchant developers and they're really Their model is built on developing an asset and selling it, taking the profit, moving on to the next deal and rinsing and repeating. I'd say that that's a little bit influx right now with nothing selling and the inability to start New assets, so I would say the private developer is a little bit more influx right now Because of those reasons.

Speaker 14

Okay. Thanks very much.

Operator

We'll take our next question from Wes Golladay with Baird. Please Go ahead.

Speaker 17

Hey, good morning, everyone. Last year, you had about just under $200,000,000 of non recurring CapEx. How are you thinking about the spend for this year? And is there anything in there that would drive down expenses maybe in 2023 or 2024?

Speaker 4

Wes, this is Al. I'll start and frame the capital. I mean, overall, we're spending all the programs together Probably around $300,000,000 in recurring and rent enhancing together, probably $180,000,000 And so that's Well, dollars 1800 a unit, probably $1,000 recurring or a little more, and the rest being revenue enhancing. We continue our programs in program, which includes our SmartRent. So we'll do those interior programs.

Speaker 4

The SmartRent together, that's another $97,000,000 And we'll continue our property Repositioning program, where Tim talks about taking properties and increasing their revenue potential another $20,000,000 or so. So overall, it's about $300,000,000 I mean certainly there's some Tim can talk about. There's certainly some things in the revenue enhancement. We think whether it be some ESG investments and some things like that that will have some potential for the future. We're also seeing some inflationary pressures in that as well.

Speaker 4

And then a large portion of that is just investment for the future. Some of those programs, Repositioning program, unit redevelopment and small ramp. So that's kind of how we think about that.

Speaker 17

Okay. And then I guess as we maybe fast forward The next few years, does this ever start to ramp down or do you have just a big pipeline of when the smart rinse done, you just move on to something else? How should we think about a multiyear view on this?

Speaker 5

Yes. Wes, it's Tim. I mean, in total, I think it comes down a little bit. The Smart Brent installations is a fairly significant piece of that. We expect to finish that capital project this year.

Speaker 5

I think you'll see that come down. But I would expect Both on the unit interior redevelopment program and the broader sort of amenity based property repositioning programs that we expect to continue those at similar levels.

Speaker 14

Okay. And then did you

Speaker 13

comment on the

Speaker 17

exposure right now? I might have missed it.

Speaker 5

Exposure right now is sitting at about 7.5%, which is in line with what it was last year and kind of what we would typically expect this time of year.

Speaker 14

Okay. Thanks a lot everyone.

Operator

We'll take our next question from Rob Stevenson with Janney. Please go ahead.

Speaker 18

Good morning, guys. Brad, what are the markets represented by the 4 to 6 development starts over the next year plus? And given Tim's comments on R and M pressures, what are you seeing in terms of construction cost pressures going forward for new starts?

Speaker 6

Yes, Rob. So for the 4 starts that we feel we're in good shape on for this year, we've Got one in Charlotte. We've got one in Denver. We've got one in Orlando and one in Atlanta.

Speaker 5

I think I had those in

Speaker 6

my prepared comments. So those are projects we've been working on for a while and plans are in So we feel pretty good about those. In addition to those projects, we own a number of sites And we've got some in Denver, another phase in Orlando, second phase in the Raleigh market. So a number of those projects That would add up to that 6 over the next 18 months or so. But for this year, the 4 are the ones that I mentioned in my comments.

Speaker 6

In terms of construction What we're seeing right now is that costs are not escalating like they were in 2020 2, we saw a significant increase in construction costs throughout the year. At this point, we're not seeing that at the moment. It's certainly our hope that as we get further into this year, the times where our developments will be starting second Our 3rd Q4 that perhaps we get some relief there. The first signs of that are that we're getting Calls from contractors saying they didn't think they had capacity to bid our job originally, but now they do. We're hearing that from subcontractors as well.

Speaker 6

Given where the single family market is and the fact that we expect new supply starts and To come down on multifamily, we hope to see some relief on the construction side. But for now, it's just holding flat.

Speaker 18

Okay. And then Al, G and A was 58.8 in 22 and the guidance is 55.5 at the midpoint for 2023. Obviously, Tom's left, but what else is in that expected decrease?

Speaker 4

I think that's a well, let me start with Rob. As we talked about, we really look at overhead as So I would focus more on the $128,500,000 and then that's a little over 3% growth in total for the year, which we think is reasonable. But on that specific G and A line, the biggest item there is we had very strong performance in 2022, so you've got certain programs, that performance incentive programs that are max. And then we set our guidance for next year is based on the target. So that's a big part of that.

Speaker 4

And then on the property management expense line, the growth in that that you see It's really investments primarily in technology, both to strengthen our platform and to support initiatives that were going on. So And I answered both of those because I think that's both together a part of that overall overhead growth for the year, Rob.

Speaker 18

Okay. Thanks guys. Appreciate it.

Operator

We'll take our next question from Michael Goldsmith with UBS. Please go ahead.

Speaker 10

Good morning. Thanks a lot for taking my question. What's the expected expense growth cadence through the year? Is that Relatively flat or is that accelerating and within that, are you you have a mid year renewal on insurance Easier compares in the back half, how does that reconcile? And then on real estate taxes, the midpoint of the guidance is 6.25%, but that would be lower than 6.5% last year.

Speaker 10

So just trying to understand The shape of expenses through the year and also why real estate taxes would be Perhaps slightly down this year.

Speaker 4

Okay. I'll try to answer that. This is Al. I think what you the cadence for expenses, you should see the most pressure in probably Q1 And that's because you've got continuation of sort of the inflationary levels that we saw in 3rd Q4 carrying sequentially over And comparing to Q1 last year with a lot of inflationary pressure wasn't yet built in. And so the highest point would probably be Q1 and it will moderate down Q2 and Q3 To more level, more that mid single digit range.

Speaker 4

So that's the main thing. In taxes, the 6.25 percent, I think We are last year what we saw in 2022 was looking back to a strong year, We saw millage rates come in that we thought would roll back more than they did. We got surprised a little bit in the 4th quarter as we talked about. And so that was we ended the year a little higher than we expected in 2022. And I think as we move in 2023, though we don't expect significant reprise in key areas, our We got a pretty we have a pretty good beat on what's revaluing this year.

Speaker 4

It's primarily Texas and part of Atlanta parts of Georgia. There's primarily Atlanta. And so given what's revaluing and our expectations for mills rates and we have a few of our Cases from 2022 that we're litigating that are spilling over into 2023. And so we've got an estimate of what we think will win on that. We may be wrong, but we've got an estimate on that including that.

Speaker 4

So all that together gets us to that 6.25% range. And a lot of unknown in that right now as we talked about, but we think where we stand, That's a very good estimate.

Speaker 10

Got it. And sticking with you, Al. NOI growth has been strong, but property values haven't had the same Magnitude of increase due to the rising cap rate. So does that leave more opportunity for successful appeals maybe 24 and beyond? Thanks.

Speaker 4

Yes. I think what we'd say is 23 is a year just that they're still looking back at Very strong revenue. It's kind of backward looking game. Looking at the beginning of this year, still looking at strong revenues from 2022 and a Pretty stable cap rate environment has changed, but it's still fairly stable. So that's driving it.

Speaker 4

I do think your point, I think is a very good point. As we move into 2024 That they're looking back in a more normalized year, we would expect some moderation in taxes, primarily in Texas, Georgia and Florida. We're seeing that most pressure Because there is going to be driven by normalized top line to your point. So we would agree with that comment.

Speaker 10

Thank you very much. Good luck in 2023.

Speaker 14

Thank you.

Operator

We'll take our next question from John Pawlowski with Green Street. Please go ahead.

Speaker 11

Thanks for keeping the call going. Al, maybe just a few quick follow ups on the property tax conversation. Can you just give me a rough sense what percentage of the portfolio you already have a high degree of visibility for the increases this year?

Speaker 4

Man, it's what we have a high degree of visibility is pretty low other than we have a good beat on what we think the values are. Obviously, We know given the current cap rate environment is what they are. And John, I mean, 70% to 75% of our tax exposure is from Texas, Florida, Georgia. So it's really going to come down to the millage rates. It's going to come down to what are the municipalities need, what are they going to we expect to have continued strong valuations And probably millage rates rolling back again.

Speaker 4

Where that all ends up, it's hard to have precise visibility at this point. I mean, I think we have So, it's helped us. We have a lot of market knowledge. So, it's based on our estimates based on Texas, Georgia and Florida, The key drivers are our expense. And that's I wish we had more at this point, but I do think that our experience, our history in the markets, our So it gives us a pretty good understanding at this point, as good as we can have until Q2, John, we'll have more.

Speaker 4

Q3, we'll have not perfect, but very good knowledge, I would say.

Speaker 11

Okay. I understand there's a range around all these estimates. But just curious, Al, what do you think a reasonable worst Case scenario is for property taxes this year?

Speaker 4

That's kind of why we put a little higher I'm sorry, yes, that's Good question. That's why we put a little bit higher range or wider range on that, John. You saw that we put 7 at the top end of our I think that's what we would say. I mean, we're at 6.25%. You could have some things go either way.

Speaker 4

We're hopeful that we have some strong fights in these areas, but I think 7 would be several things going against us that we didn't expect.

Speaker 11

Is 8, 9, 10, 0? 0 probability if cities don't lower millage I mean,

Speaker 4

8, 9 or 10, I mean, given what's revaluing and given the shape of where things are, I think 8, 9, 10 is probably low probability. I do think 0 to that low end is the low probably. I mean, the best health we have, we're looking back again to a very strong 22 to 2. I'm going to use that to put a cap rate on. And so I think it's hard to see much reduction in expectation this year.

Speaker 4

But as we mentioned, John, as we move into 2024, will be hard to not be able to argue that, some of those. So we would expect what moderation that we see to begin in 2024.

Speaker 11

Okay. Thank you.

Operator

We'll take our next question from Tayo Okusanya with Credit Suisse. Please go ahead.

Speaker 19

Yes. Good morning, everyone. Thanks for keeping the call going. Just a broader general question About the regulatory backdrop, again, I apologize if this has been asked. But again, just a lot of talk in several municipalities around additional rent control.

Speaker 19

Even At the federal level, you have the White House putting out guidelines. Just curious your overall thoughts on this, if you think you'll actually have any impact In the short, medium or long term, but if you kind of think maybe a lot of the suggestions are just things that may not impact you at all because it's all about just weeding out The bad players in the industry.

Speaker 8

Tayo, this is Rob. Take a shot at answering that. I think Really, like if you start at the federal level and the White House blueprint that they put out a couple of weeks ago, it really does seem to focus A lot on more on the affordable housing component of it and really almost using The agencies as part of the leverage there as we look at our states in which we operate and the municipalities there is Some rent control pressure or proposals that come up from time to time, but really don't ever see them gain any traction. So from a Kind of a short, medium term. We don't really see anything as we're tracking legislation across the board that gives us any significant concern And still view it as really if affordable housing is the end goal, it's more of a supply driven pressure that needs to Be added to the system rather than focusing on rent control, which ultimately is a negative for both The owners and the residents.

Speaker 11

Great. Thank you.

Operator

We will move next with Jamie Feldman from Wells Fargo. Please go ahead.

Speaker 12

Okay. Thank you. I guess just to follow-up on Tayo's question. I mean, do you in any way include handicap any kind of rent control risk in your guidance For your rent outlook?

Speaker 8

We have not.

Speaker 14

Okay. And

Speaker 12

then, I appreciate all the color So far in kind of markets, it sounds like things are still going pretty well. But I guess if you focus specifically on like Austin, Nashville, Raleigh, Some of these big tech growth markets in recent years and probably markets that have more layoffs than others. Can you provide any kind of anecdotal Evidence of anything changing there, whether it's different types of people backfilling vacancies or move outs or anything like that? Just those kind of markets versus the rest of the portfolio would be helpful. Thank you.

Speaker 5

Hey, Jamie, this is Tim. I mean, I think the ones you point out are right in Also, National and Raleigh are the ones where we would have more tech exposure than some of the others. But as of now, we haven't seen it. I mean, we're keeping an eye on What it exactly means in terms of which staff are going to be impacted by some of the announcements that have already been made. But today, we haven't seen any impact from that.

Speaker 5

No trends different in those markets other than sort of the broader we talked about Austin with the broader supply demand Concerns, but we haven't seen anything yet, but those are the ones we would be keeping an eye on for sure.

Speaker 12

Okay. Are you seeing slower demand from Those types of employees, people in those industries?

Speaker 5

Not really. I mean, a lot of these markets aren't quite The Silicon Valley in terms of the types of employments that we have there, it's a little more, call it, Mid level or if you want to say more a little more blue collar type tech, but we've not seen it yet. I said, it's something we're keeping an eye on and that could be what drives more of the downside risk on our forecast for 2023, Nothing reportable so far.

Speaker 2

Okay.

Speaker 4

All

Speaker 12

right. Thank you.

Operator

We have no further questions. I will return the call to M and A for closing remarks.

Speaker 3

Okay. We appreciate everyone joining us this morning. If you have any other thoughts or questions, follow-up, just reach out at any point. So thanks for joining us.

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