Kennedy-Wilson Q1 2023 Earnings Call Transcript

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May 4, 2023

There are 9 speakers on the call.

Operator

Good day, and welcome to the Kennedy Wilson First Quarter 2023 Earnings Conference Call and Webcast. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask Please note this event is being recorded. I would now like to turn the conference over to Devin Bobstar. Please go ahead.

Speaker 1

Thank you and good morning. This is Devin Bobstar and joining us today from Kennedy Wilson are Bill McMorrow, Chairman and CEO Mary Ricks, President Matt Windisch, Executive Vice President and Justin Enbody, CFO. Today's call will be webcast live and will be archived for replay. The replay will be available by phone for 1 week and by webcast for 3 months. Please see the Investor Relations website for more information.

Speaker 1

On this call, we will refer to certain non GAAP financial measures, including adjusted EBITDA and adjusted net income. You can find a description of these items along with a reconciliation of the most directly comparable GAAP financial measure and our Q1 2023 earnings release, which is posted on the Investor Relations section of our website. Statements made during this call may include forward looking statements. Actual results may materially differ from with the Exchange Commission. I would now like to turn the call over to our Chairman and CEO, Bill McMorrow.

Speaker 2

Thanks, Devin, and thank you everybody for joining the call. Yesterday, we reported our Q1 results and I'm pleased with the performance of our global portfolio. The record levels of estimated annual NOI and fee bearing capital that we achieved and the progress we have made on our $3,000,000,000 of new developments, many of which are nearing completion. Our assets under management totaled $23,000,000,000 which has increased by $5,000,000,000 Starting in July and through year end, we will begin delivering almost 1500 multifamily units in the U. S.

Speaker 2

And Dublin, the iconic 150 Room Oceanfront Kona Village Resort and in Dublin, a mixed use property comprised of 471 multifamily units and 2 office buildings totaling 400,000 In Dublin, both office and apartment leasing fundamentals remain very strong. Our portfolio is concentrated in asset classes where we're seeing cash flow growth, including apartments, logistics, in our floating rate loan book. These sectors account for approximately 2 thirds of our portfolio. Occupancy remains solid, totaling 94% for our multifamily and office and 98% for our industrial portfolio. The global transaction market for real estate remained quiet in the quarter, primarily as a reaction to higher interest rates.

Speaker 2

In the U. S, transaction volumes dropped by an estimated 60%. We remain patient on new investments With our capital deployment limited in Q1 to our debt origination platform where we completed Where we deployed $60,000,000 of capital in the quarter. In total, over the last 3 years, we have spent $500,000,000 of capital on these long term value add construction developments. On the disposition front, we made further progress on our non on core asset sale program and completed $118,000,000 of wholly owned asset sales from our consolidated portfolio generating $82,000,000 of cash to KW.

Speaker 2

Looking ahead, we remain very focused on executing several important strategic initiatives aimed at growing the recurring cash flow to KW. The first is the completion and leasing of several large development projects. The majority of our development pipeline will be completed by the middle of 2024. In total, our development and lease up portfolio is expected to generate $97,000,000 of additional NOI to KW, 70% of which is expected to stabilize by the end of 2024. Another important initiative is to Capitalize on the momentum in our investment management platform, which allows us to grow our recurring fee revenue in a capital light manner.

Speaker 2

Our debt and logistics strategies were launched in 2020 and have seen rapid growth backed by very strong institutional strategic partners that are still very keen to continue deploying capital with KW. Going public in 2009, KW has now completed over $9,000,000,000 in debt investments and since 2020 We have grown our global logistics portfolio to over $1,700,000,000 in assets. We have ample dry powder in both of these platforms as opportunities present themselves. And third, our multifamily portfolio, which is our largest asset As we complete our 5,000 units under development in both the U. S.

Speaker 2

And Dublin. 90% of our U. S. Apartment assets are suburban and offer a high quality lifestyle at an affordable price point and are located in cities and states with lower costs. We believe rental demand will remain strong as With that, I'd like to turn the call over to our CFO, Justin Ambode to discuss

Speaker 3

our for financial results. Thanks, Bill. On a year over year basis, our consolidated revenue grew by 6%, driven by higher levels of rental and Looking across our entire portfolio, our share of property NOI, loan income and base management fees increased by 4% to $127,000,000 in Q1 or $508,000,000 on an annualized basis. As Bill just mentioned, our Q1 results highlight our achievement of improving our recurring investment income, which has been and continues to be an important focus for us. This improvement, along with higher levels of realized gains on sale were offset by decreases in the level of non cash unrealized fair value adjustments and performance allocations on a year over year basis.

Speaker 3

As such, GAAP EPS totaled a loss of $0.30 per share and adjusted EBITDA for the quarter totaled $91,000,000 Turning to our balance sheet and debt profile. At quarter end, we had $349,000,000 of consolidated cash and $249,000,000 drawn on our $500,000,000 line of credit. During the quarter, we paid down that line of credit by 34,000,000 We continue to execute on our strategy of minimizing our interest rate exposure, and we ended the quarter with 97% of our debt, either fixed or hedged. 3% of our debt maturing this year. Overall, our debt has a weighted average maturity of 5.6 years and has an effective Interest rate of 4.3 percent when taking into account the caps and swaps.

Speaker 3

With that, I'd now like to turn the call over to Matt Windisch to

Speaker 4

Thanks, Justin. As Bill mentioned, our multifamily portfolio is our largest sector, representing 54% of our global portfolio and $270,000,000 of annual NOI to KW. Our portfolio totals over 32,000 stabilized units with another 5,000 units in lease up or development that are expected to add $45,000,000 in multifamily NOI to KW. Our ownership in our lease up and development assets is approximately 60%. Our global market rate portfolio produced same property revenue growth of 6% and NOI growth of 5% in Q1.

Speaker 4

In our largely suburban apartment communities in the Western US, Leasing spreads increased by 5%, resulting in same property revenue growth of 6.4% and NOI growth of 5.4%. Operating expenses increased by 8.4%, primarily due to increased labor costs as we filled positions that were open in Q1 of last year. However, compared to Q4 of 2022, our operating expenses have actually declined by 3% sequentially. At quarter end, our in place rents were 7% below market. Looking at this regionally, The strongest performance came out of our top 2 apartment regions, the Mountain West and the Pacific Northwest, which generated same property NOI growth of 9% and 10%, respectively.

Speaker 4

Leading the charge in the Mountain States were our assets in Utah, where same property NOI grew by an impressive 12% from Q1 of last year. Our assets in Colorado saw NOI growth of 15% And in our smaller but growing portfolio in New Mexico, same property NOI grew by a robust 23% from Q1 of 'twenty two. We believe that our Mountain West portfolio is positioned to continue generating strong demand for rental housing, supported by a solid combination of lower cost of living, Large growing university systems, steady job growth and low unemployment. Large cap companies such as Micron Technology and Voisey Texas Instruments in Utah are investing 1,000,000,000 into the development of large chip facilities. We also continue to see expansion by local universities and healthcare facilities to keep up with some of the fastest population growth in the country.

Speaker 4

In the Pacific Northwest, our 2nd largest region, Occupancy has remained stable and same property revenue grew by 8%, resulting in NOI growth of 10%. We expect this region to benefit from increased demand from employees who return to work, such as Amazon, who started to have workers in person starting on May 1. We are already seeing signs of increased traffic at our properties in and around Seattle. Finally, in our Northern and Southern California assets, Similar to what we saw in Q3 and Q4 last year, the ending of the eviction moratoriums has resulted in higher bad debt and property level expenses along with lower occupancy. Over the next few quarters, we will go through the process of recapturing units from nonpaying tenants and look forward to resetting these units to market rents as both of these regions in California have a loss to lease nearing 10%.

Speaker 4

Excluding our California multifamily assets, our U. S. Same property portfolio produced NOI growth of 9.2% quarter over quarter versus 5.4 percent when including California. We also made progress on our renovation program, completing another 3 30 units at an average cost of $12,000 which resulted in a 21% increase in rents. We have another 1,000 units that are remaining to be renovated in the U.

Speaker 4

S. With 75% of those units located in the Mountain West and Pacific Northwest regions, which positions us well for future portfolio growth. April leasing looks solid in the U. S. With blended leasing spreads of 5% across our market rate portfolio.

Speaker 4

Turning to Dublin, where we have a 50% ownership in over 2,500 units, we continue to see the highest levels of occupancy at 99%. Demand for our institutionally managed high quality rental apartments remains strong in Ireland. Similar to the U. S, there remains an undersupply of housing. We look forward to beginning to deliver our approximately 1,000 units under development in the 3rd quarter.

Speaker 4

And finally, in our Vintage Housing affordable portfolio, which totals 9,200 stabilized units and another 2,400 under development, We continue to see strong demand with occupancy of 97% and same property NOI growth of 5% in the quarter. Post quarter end, we sold the wholly owned apartment community in Reno into our Vintage portfolio. The sale generated $11,000,000 of cash to KW. Separately, We expect Vintage to produce another $20,000,000 of cash to KW in the short term, primarily driven by the sale of tax credits, resulting in robust quarterly distributions from this platform. Turning to our Investment Management business.

Speaker 4

Our fee bearing capital ticked up to $6,000,000,000 in Q1. Our growth over the last few years has been driven primarily from our debt and logistics platforms. The launch of our debt investment strategy back in 2020 has been very beneficial as the private credit asset class continues to generate attractive returns in the current lending environment. We've seen tightness in the banking sector and a pullback in lending from traditional providers of capital, which benefits our platform. Higher rates and spreads have resulted in solid unlevered risk adjusted returns north of 20%, inclusive of our asset management fees.

Speaker 4

In Q1, we completed $113,000,000 of new floating rate originations and fundings with an average spread of 3.90 basis points over sulfur and an LTV of 50%, resulting in growth of the platform by 5% to 2,800,000,000 We have additional loan capacity of approximately $3,000,000,000 and look forward to growing this business as opportunities arise. With that, I'd like to turn the call over to our President, Mary Ricks, to discuss our industrial platform.

Speaker 5

Thanks, Matt. The rapid expansion of our global industrial portfolio has been a key driver of growth for our investment management platform. Our portfolio now totals 11,000,000 square feet with over 80% of our stock comprising institutional quality last mile assets located across the U. K. Where we continue to see solid fundamentals.

Speaker 5

Industrial vacancy rates in the U. K. Remained very low at 2.7%, significantly below long term averages. Occupier demand for quality assets remains strong as they seek to build supply chain resilience and achieve greater operational efficiency. On the Higher financing and construction costs are slowing new developments, which we anticipate will support further growth in rents.

Speaker 5

These attractive fundamentals resulted in a solid quarter of leasing during which we completed lease transactions across expectations with in place rents growing by 50%. Even with our successful leasing in the quarter, Our portfolio's in place rents remain 30% under market, providing us with a runway for future growth. We have over $1,000,000,000 in capacity in our logistics joint venture and are actively looking for new opportunities to continue growing our portfolio in Europe as well as our logistics footprint in our U. S. Markets.

Speaker 5

In total, our investment management platform has an incremental $3,400,000,000 of non discretionary capital, which we are looking to deploy across all of our announced platforms. This will add significantly to our existing $6,000,000,000 of fee bearing capital, which has doubled since the start of 2020. Turning to our office portfolio. The majority of our stabilized office assets are owned through partnerships or funds within our co investment portfolio. In total, our consolidated portfolio sits at 3,900,000 square feet and is centered around well located high quality office buildings with leading tenant amenities and strong ASG credentials.

Speaker 5

As the polarization in the office market between Grade A stock and the rest accelerates, We are well positioned to continue attracting tenants who are relocating to the highest quality space. With that said, we're pleased to report we have seen a pickup in leasing activity in 2023, and we completed 380,000 square feet of global office leasing through April with a weighted average term of 6.2 years. This is more than double the leasing activity we saw for the same period last year. Approximately 70% of our office NOI comes from our European assets, predominantly the U. K.

Speaker 5

And Ireland. In the U. K, the lack of Grade A supply and absence of speculative development activity across the country is a very different backdrop to previous downturns, supporting headline rents and encouraging occupiers to secure the best space while still available. In Dublin, location and Sustainability remained pivotal themes behind Q1 deals, with most space occupied in the core areas of Dublin City Centre with good energy and of sustainable credentials. In Q1, we saw strong improvement in occupancy in the U.

Speaker 5

K. And we completed successful rent reviews in Ireland, leading to an increase in our global same store office NOI of 6%. Our European office portfolio has many resilient characteristics, which reduces our risk exposure in today's market, including strong occupancy of 95% and 8 year weighted average lease term to maturity, Landlord friendly lease structures with 97% of our office leases in Europe fully repairing and insuring or FRI leases, similar to a triple net lease in the U. S. A solid roster of high quality credit tenants, which make up 90% of our European rental income, including State Street, KPMG and Fiserv to name a few, and stable in place income, which we continue to grow through rent reviews and active asset For example, in Ireland, our best in class office portfolio is made up of 9 properties with a weighted average lease term of 11 years to expiration and average occupancy of over 95%.

Speaker 5

We have an active leasing pipeline for our limited remaining space, which We look forward to executing over the remainder of the year. Turning to our development and lease up portfolio. As we've been discussing on our last few calls, we are nearing completion on many of our developments as well as making progress on our lease up portfolio. Our development and lease up portfolio is expected to add $97,000,000 to our estimated annual NOI over the next several years. One of the projects we're very excited about is the redevelopment of the iconic and historic Kona Village Resort situated on an unmatched location on the Kohala Coast of the Big Island of Hawaii.

Speaker 5

KW has 50 percent ownership interest in this reconstructed luxury resort, which totals 150 stand alone guest hallways and suites and will be providing incredible guest amenities across 81 acres. The property will feature solid sustainability features such as generating and storing 100% of renewable energy on-site and is targeting LEED certification. Travel demand has remained robust as we are seeing very strong forward bookings for the second half of the year. We look forward to welcoming our first guests in July. We are also making great progress at our 6 market rate and affordable multi developments in the U.

Speaker 5

S. And our 3 Dublin developments, all expected to complete construction later this year. In total, the developments and lease up we expect to complete this year represent $64,000,000 of estimated annual NOI to KW when stabilized, laying the foundation for strong future growth. With that, I'd like to pass it back to Bill.

Speaker 2

Thanks, Mary. Over our 3 decades of investing in real estate equity and debt, KW has a long history of uncovering opportunities in periods of Uncertainty like we're in today. We are prepared to react alongside our well capitalized strategic Partners to take advantage of any new opportunities, which generally are sourced through our global network of established relationships that enable us to find off market negotiated transactions. We have a great team With extensive experience in acquiring, renovating, building and asset management, which will allow And with that, Devin, I'd like to open it up to any questions.

Operator

We will now begin the question and answer The first question today comes from Derek Johnston with Deutsche Bank. Please go ahead.

Speaker 6

Hi, good morning out there and thanks Really excited about the development portfolio that's going to deliver and Stabilize hopefully by year end 'twenty four. And Mary did touch on the hotel in Hawaii. I just had a question. I hear that there are bookings coming in, but how are the initial bookings tracking towards your underwriting Initially and then secondarily on this question, how is the labor Which tends to be difficult in Hawaii, how have you been able to staff the hotel in preparation for the grand opening?

Speaker 3

Thanks, Eric. This is Justin. I'll take that call for that question. So far, what we're seeing, we have meaningful amount of bookings ahead of the opening, And we're seeing the ADRs far in excess of what our underwriting was. There's significant demand.

Speaker 3

This hotel, as you know, has a lot of followers and Historically, it's been open for a very long time, and we're seeing a lot of people who can't wait to get back. So we're very pleased with what we've seen so far in the And as it relates to employment, obviously, as you know, on the island, it's difficult. There's a limited supply of employees, but so far, we've staffed A meaningful amount of the property already. The team on-site has done a great job. Rosewood has done a great job.

Speaker 3

So we're excited to be open on July 1 and start

Speaker 6

Okay, great. Thank you. And then on the debt platform, It was nice to see it grow here in Q1 in a tough environment. I would assume your positioning is pretty favorable, given banks are pulling back and Even non banks like private equity, they use repos, which obviously are part of the banking system. The secret sauce that you guys have clearly is your partners in mostly insurance companies.

Speaker 6

Have you seen any pullback or differences in their ability to underwrite deals that you bring to them as the success rate remains high? And any insights you can give us on the debt platform strategic positioning would be helpful.

Speaker 4

Yes, happy to answer that, Derek. So you hit the nail on the head there. I mean, we're not relying on the banking system to utilize our debt platform. So we're not using any repo financing. We're using primarily insurance company and sovereign wealth money globally throughout our platform.

Speaker 4

And so we're in a unique situation right now. Although the transaction volumes are certainly down, so the kind of the overall pie for debt financings is smaller, We've been able to capture a bigger market share just given our platform and the certainty of close. We've been able to Attract very high quality sponsors. We've been able to keep our pricing levels kind of in line with where they were last quarter, But we've also been able to bring down the loan to values across our most recent originations. And so we feel very comfortable kind of where we are in Capital structure being at, like we said, 50% LTV last quarter on the originations.

Speaker 4

And there are certainly fewer players in the market, but we're being very selective and how we deploy capital. That all being said, the demand from the institutional side to place money with remains extremely robust with our existing partners and certainly demand from others who have gotten some incoming calls from people wanting to participate as well. So we feel very positive about the future growth prospects. The other thing I'd say is in terms of payoffs, They've been very limited because the availability of financing from other lenders is a bit more limited than it was historically. So the level of payoffs we expect this year are going to be relatively low as well.

Speaker 6

Very helpful. Thanks and understood. And I guess lastly for me and then I'll pass the mic. Could you talk about your office portfolio outperformance? What has contributed to clearly is completely different than what we've seen from other public office REITs that are Primarily based here in the U.

Speaker 6

S, if you can kind of just walk us through some of the competitive advantages That you secured in your portfolio and why it's bucking the trend versus all other office REITs, Even though it's a small piece of the pie and you're basically a residential REIT, your office portfolio really surprised me this quarter.

Speaker 5

Sure. I'm happy to answer that. I mean, I would start by saying in the U. K. And Ireland, it's a completely different office market than in the U.

Speaker 5

S. And I think the UK in general has seen muted new supply and that's been over the last Probably 8 years. Overall, the U. K. Office markets have a vacancy of 8%.

Speaker 5

For example, Edinburgh has a vacancy rate of 2%. So you're really seeing not a huge Vacancy, and this has been going on now for many, many years. And I would say, unlike The U. S. CBDs, some of which are struggling, the European markets really don't have those factors.

Speaker 5

I would also say that tenants are paying up for best in class assets with ESG credentials. You really don't have an overhang of space, which I just described. And so really, I think corporates are prioritizing their employees, the workplace and highly amenitized assets, which is really what characterizes our assets. So when you think about our portfolio And if you think about the same store, for example, our Buckingham Palace Road asset, which is our largest office asset In Victoria, which is the West End, the West End has low single digit vacancy. So there's really just no space to speak of and that's now fully let a pharmaceutical or actually Corporate and security company, gaming company took the remainder of the space and then at Embassy Gardens, which is in London, A pharmaceutical company took the remainder of that space.

Speaker 5

And that's just long wallet. If you turn to our Irish portfolio, we have 9 office assets there and we have a very long wallet over 11 years. And it's just a solid office market there. And our assets, I would say, are new and they have ESG credentials. And As I've been talking about the amenities, which I think is really what the corporates are bringing people back to work given all the amenities that our office assets are providing.

Speaker 5

So I think we just have a different portfolio and the market itself is quite different than in the U. S.

Speaker 6

Good stuff. Thank you. That's it for me.

Speaker 5

Great.

Operator

The next question comes from Anthony Paolone with JPMorgan. Please go ahead.

Speaker 7

Great. Thank you. I guess first question is around just share issuance In the quarter, you guys it seems like you tapped the ATM and just curious thoughts around that and desire to either do more raise liquidity or However you were thinking about it.

Speaker 4

Yes. Hey, Joe, it's Matt. So our view on that is we thought it made sense to Add a little bit of liquidity in Q1 just given the current environment and what we expect to be some pretty interesting opportunities that will present themselves over the short to medium term. We were able to utilize significantly higher volumes in the stock as a result of the index inclusion that took place. So that's when we did the vast majority of the issuance under that program.

Speaker 4

I'd say going forward, we have a number of options at our disposal to create additional liquidity. I think it's worth noting we're kind of past the peak of our development spend. Q1 was really the peak and we now expect to have cash flow coming off those investments soon. So I guess what I'd say is, we'll continue to be very thoughtful towards any future use under this ATM program.

Speaker 7

Okay. Thank you for that. And then just as you mentioned, thinking about opportunities, You do have some developments in Ireland. You've done well there. What's just the desire to own more there, just increase the scale of that platform versus, Say other parts of the world where you're operating?

Speaker 5

Yes. Hey, I would say on the multifamily side, We definitely have a big appetite there. Our portfolio is operating at 99% occupancy, So really virtually no space, and we continue to see demand. I mean, Irish unemployment is at a 22 year low, So it's sub-four percent. It's just it's a market that we like.

Speaker 5

And as I'm sure as you know, we have a very well capitalized French insurance company is our partner, a great relationship with an incredible portfolio that we'd like to grow. And you've seen us Put quite a lot of capital into that portfolio and building our assets that we're adding to. A lot of that land that we built on, we acquired during the last basically downturn was very low basis. So we feel really good about our basis and our portfolio and we'd like to continue growing that.

Speaker 7

Okay. Where would you put cap rates in Dublin or I guess in multifamily particularly right now, I a better sense for the U. S, but it's hard to tell there.

Speaker 5

Yes. I mean, in Dublin, we've seen some recent trades in the low four cap rate range. It really just depends because there's a mixed bag of stock. You have some that's older and you can't compare our portfolio The older stock that's trading, you also have some assets that have 0 amenities. We have assets that have parks and gyms and dog parks and Nurseries for kids and restaurants and so I would really as you know obviously I'm I'm biased, but I would say that our portfolio is the best in class multifamily portfolio in Ireland, and that will just continue with the roughly 1,000 So if you think about our portfolio, there's really no comp, long winded answer, but I would say Low for cap rate range.

Speaker 7

Okay, that's helpful. And then just, I guess, last one on the debt Platform, I think most of what you've done with that thus far has either been you've originated or participated in originations. But Is there an appetite to also just buy existing debt? And also just and if so, just how you're thinking about that? And I ask probably in the context I think, Bill, your historical strong suit you had for a long time was just the relationships with banks And working through some of the issues they had and here we are in this environment.

Speaker 4

Yes, Tony. So actually a handful of the assets Under the debt platform have been purchases and a number of those discounted. But you're correct. I If you look historically at where we've participated in the debt space, the majority of it has been heavy discounted No purchases. So we're very well equipped to handle that.

Speaker 4

We have obviously the teams that understand the assets and the teams that understand the debt. And so we think that will be a big opportunity that may be coming here in the next several quarters out of the banking So we're monitoring everything, we're watching what's happening and we've got the capital ready to the extent those opportunities present

Speaker 2

Yes, I think 22, this is Bill. The only thing I would add to that is that it was a very good point you made As I think about it, over the years, we've probably transacted with over 100 different banks around the world. We're viewed as a very trustworthy counterparty. I mean, I think I can remember, Mary, during the Last Great Recession, we probably transacted with 30 individual banks In Europe. And so this is something we've always really made sure we cultivated were these types of relationships, because as I said in my remarks, the most important thing To us is to try to find transactions that are directly negotiated with somebody that we're buying And so we'll see how this all unfolds here over the next 12 to 18 months, But that's a very important part of our Strengths, I would say, and I think as I've said a number of times, the other part of this is that the Team of people here at Kennedy Wilson are basically the same people that have been together for pretty much Couple of decades.

Speaker 2

And so those relationships are maintained. We've all worked through one session in 'eight and 'nine. And of course, we've all come through this period of 3 years where we've worked through Any of the challenges that any of us have related to the pandemic. And so you've got a time tested group People with all these existing relationships and I would say the last thing is that the biggest difference between 'eight and 'nine For us is that we have a very significant stable base of recurring cash flow And maybe just as important, in 2008 and 2009 there was a dearth of there wasn't capital available Around the world at the beginning and today unlike them for us we have big capital Partners that we're already doing business with who in themselves are very well capitalized. And so As opportunities present themselves, all of these factors are going to play into what we do.

Speaker 7

Great. Thank you for that.

Operator

The next question comes from Josh Dennerlein with Bank of America. Please go ahead.

Speaker 8

Yes. Good morning, everyone. Thanks for the time. Just wanted to touch base on the Vintage Housing platform. Pretty unique platform you guys have.

Speaker 8

Just kind of thoughts on your expectations of future growth within it?

Speaker 4

Yes. So Vintage is definitely a unique platform and we've been an owner in the business now since 2015 and certainly has exceeded our expectations from when we made the investment. In terms of kind of growth And adding units to the platform, we've been building ground up using tax exempt bond financing and tax credits Primarily to fund those developments. And yes, we've got a handful of those assets coming online here in the next year. And we continue to look for opportunities in that space to find new investments.

Speaker 4

Historically, we've been doing these more one offs, finding one Investment and building it. We're always out there looking for other entities that may have more scale, but it's a very fragmented industry. And so we've been able to grow at a very good pace, but certainly would be out there looking and always trying to find bigger opportunities. But for the time being, We're generally adding 3 to 4 new assets per year to the platform, which adds great recurring cash flow. And then in terms of just growth within the portfolio itself like NOI growth, it's all tied to area median income In terms of how you can grow the rents and so with the inflation we've seen over the past couple of years in wages, We've been able to raise rents in that platform at a higher growth rate than we thought initially.

Speaker 8

Appreciate that color. One thing that's come up on it came up on another earnings call on the broader housing starts Herman's data was that there might have been an elevated level of affordable housing coming online through that. Is that something you guys are seeing and does that impact your platform at all?

Speaker 4

Yes. I mean in the markets we're in, we haven't seen An oversupply of affordable housing. In fact, I mean, we're running at 97% occupancy. Most of the assets we're building, we generally are 50% to 60% pre leased before we even open. And there's a couple of instances where we actually have a wait list of people to get in.

Speaker 4

And Certainly in the markets that we operate in, we haven't seen any of that. In fact, in certain states, it's becoming more challenging to get tax credits and bond allocations. And so if anything, there's certainly we're seeing more of an undersupply of affordable housing in our markets than an oversupply right now.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Bill McMorrow for any closing remarks.

Speaker 2

Well, listen, thank you everybody for taking the time to listen to our story today. And as I always say, we're always available offline if

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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