AvalonBay Communities, Inc. (NYSE:AVB) Q1 2024 Earnings Call Transcript

AvalonBay Communities, Inc. (NYSE:AVB) Q1 2024 Earnings Call Transcript April 26, 2024

AvalonBay Communities, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, ladies and gentlemen, and welcome to AvalonBay Communities First Quarter 2024 Earnings Conference Call. [Operator Instructions]. Your host for today’s conference call is Mr. Jason Reilley, Vice President of Investor Relations. Mr. Reilly, you may begin your conference call.

Jason Reilley: Thank you, Diego, and welcome to AvalonBay Communities First Quarter 2024 Earnings Conference Call. Before we begin, please note that forward-looking statements may be made during this discussion. There are a variety of risks and uncertainties associated with forward-looking statements, and actual results may differ materially. There is a discussion of these risks and uncertainties in yesterday afternoon’s press release as well as in the company’s Form 10-K and Form 10-Q filed with the SEC. As usual, the press release does include an attachment with definitions and reconciliations of non-GAAP financial measures and other terms, which may be used in today’s discussion. The attachment is also available on our website at www.avalonbay.com/earnings.

And we encourage you to refer to this information during the review of our operating results and financial performance. And with that, I will turn the call over to Ben Schall, CEO and President of AvalonBay Communities, for his remarks. Ben?

Benjamin Schall: Thanks, Jason, and good morning, everyone. I’m joined by Sean Breslin, our Chief Operating Officer; Matt Birenbaum, our Chief Investment Officer; and Kevin O’Shea, our Chief Financial Officer. Sean will speak to our operating outperformance year-to-date and our positive momentum as we enter the prime leasing season. Matt will discuss the continued outperformance of our developments and lease-up and how we are strategically deploying capital to generate value. And Kevin is here for questions and is more than happy to speak to our preeminent balance sheet and liquidity profile. Utilizing our earnings presentation. Slide 4 provides the highlights for the quarter and identify these key themes as we look ahead. First and foremost, we are off to a strong start to 2024 with first quarter results outpacing expectations.

We were able to build occupancy earlier than expected, and we also experienced meaningful improvements in bad debt in February and March. Second, we feel well positioned as we enter the peak leasing season, given low turnover, solid occupancy and positive rental rate momentum. We also expect our suburban coastal footprint to continue to outperform, given steady and improved demand drivers and [indiscernible] delivering in our markets versus the rest of the country. Given our first quarter outperformance, applications for Q2 and improvement in underlying trends, we have increased our full year guidance. We also remain laser-focused on executing on our strategic initiatives, including our operating model transformation. We remain on track here to deliver $80 million incremental annual NOI uplift from our operating [indiscernible], a target we raised from $55 million at our Investor Day in November.

And finally, with one of the strongest balance sheets in the sector, we are focused on growth opportunities in which we can tap our strategic capabilities from our operating prowess to our development strength to drive outsized returns for shareholders. With that summary, let me go a layer deeper on our results, the wider supply and demand backdrop and our increase to guidance. For the quarter, as shown on Slide 5, we produced core FFO growth of 5.1%, which was 350 basis points above our prior outlook. Same-store revenue growth increased 4.2% and 90 basis points better than our prior outlook. And our developments and lease-up are seeing strong absorption and achieving rents and returns above pro forma. Slide 6 shows the components of the Q1 core FFO outperformance with the bulk of the increase coming from higher same-store NOI.

Revenues exceeded our prior outlook by $0.04. Expenses in the first quarter were $0.03 better than expected, while we note that $0.02 of this $0.03 is estimated to be timing related or in other words, expenses we still expect to incur just later in the year than we had originally forecast. Turning to Slide 7. Demand for our portfolio is benefiting from more job growth than originally forecasted. For our job growth estimates, we look to the National Association of Business Economics, or NABE, which has now increased its estimate to 1.6 million new jobs in 2024, up from the prior estimate of 700,000 jobs. This better job outlook provides an incremental list of demand, not necessarily on the same trajectory as it may have in the past, given that a disproportionate share of these additional jobs may be part-time and seem to be more concentrated in lower-paying sectors of the economy.

As shown on the right-hand side of Slide 7, demand for [indiscernible] also continues to benefit from the differential in the cost of owning a home versus renting. This is true across most of the country but particularly pronounced in our markets, given the level of home prices, resulting in it being more than $2,000 per month more expensive to own versus rent a home. And this differential translates into record low numbers of residents leaving us to buy a home. Turning to supply on Slide 8. As we emphasized at our Investor Day, our suburban coastal portfolio, 71% suburban today and headed towards 80% suburban, faces significantly less new supply than many of our peers. In our established regions, deliveries will be 1.5% of stock this year and in line with historical averages.

In the Sunbelt, by contrast, deliveries will be 3.8% of stock in 2024, significantly above historical averages. And with the lease-up of a typical project taking an additional 12 to 18 months, the pressure on rents and occupancy in the Sunbelt will last, at least, through the end of 2025, if not into 2026. This weaker operating performance in the Sunbelt is, in turn, starting to weigh on asset values there, which provides a more attractive opportunity for us to acquire assets below replacement costs as we continue on our journey of growing our expansion market portfolio from 8% today to our 25% target. With the supply demand backdrop and our outperformance year-to-date, we are increasing our full year core FFO guidance estimate to $10.91 per share for a 2.6% increase relative to 2023.

With the detail on Slides 9 and 10, the bulk of the increase is in higher NOI driven mainly by higher revenue with same-store revenue growth now projected to be 3.1%, up from 2.6% in our original outlook. Before turning it to Sean, I’d also like to take a moment to thank the team and the wider AvalonBay associate base, who continue to execute at a high level and above plan. It is energizing to see the organization executing on the priorities that we detailed at our Investor Day, a collective set of initiatives that we are confident will deliver superior growth in the near term and in the years ahead. And with that, I’ll turn it to Sean to go deeper and provide his perspectives.

Sean Breslin: All right. Thanks, Ben. Turning to Slide 11. The primary drivers of our 90 basis points of revenue growth outperformance in Q1 were economic occupancy, which accounted for roughly 1/3 of the total outperformance for the quarter; and underlying bad debt, which represented another roughly 20%. Occupancy was about 30 basis points higher than expected, an increase from the mid-95% range at the end of last year to the high 95s for the quarter. While we expected occupancy to grow during Q1, it increased more quickly than we anticipated, reflecting strength in the underlying demand for our primarily coastal suburban portfolio and very limited new supply. In terms of underlying bad debt from residents. We ended up about 25 basis points favorable to our original expectations for the quarter, with all the improvement being realized in February and March.

January was in line with budget at roughly 2.2% [indiscernible] declined materially to 1.8% in February and again to 1.6% in March, which is roughly 60 basis points below our original budget. We experienced a similar dip in May of last year. The bad debt has been reverted to higher levels in June. Therefore, while we’re encouraged by results in February and March, we need to see a few more months at these lower levels to feel confident that we’ll experience consistently better performance moving forward. From a geographic perspective, the favorable variance to our initial expectations was more material in New England, New York, New Jersey, Seattle and, to a lesser degree, in Northern and Southern California. Moving to Slide 12. Key portfolio indicators are very healthy during Q1, and our portfolio is well positioned for the prime leasing season.

In Chart 1, turnover remains well below historical norms, in part due to a very low level of move-outs to purchase a home. During Q1, only 7% of our residents moved out of one of our communities to purchase a home. It wasn’t that long ago that we highlighted 12% to 13% of move-outs, purchasing a home as being low. 7% is extremely low relative to the long-term average of 16% to 17% and certainly reflects the favorable rent versus own economics in our established regions as Ben referenced earlier. Given the low level of turnover, availability has been relatively stable and supportive of above-average asking rent growth recently, which is reflected in Chart 3 and accelerating rent change, which is reflected in Chart 4. As expected, our East Coast regions delivered the strongest rent change in Q1 at 2.7% with the East Coast established regions trending at 3% range, while Florida was sub-1%.

We experienced positive momentum in rent change throughout the quarter across the East Coast markets, which was particularly notable in Mid-Atlantic, while performance in the District of Columbia has been soft and volatile due to a number of issues, including the impact of new supply. The Northern Virginia and Maryland suburbs have demonstrated continued positive momentum. Rent change for the West Coast regions was 1.3% during the quarter, with the Seattle market leading at 2.8%, which further increased into the mid-4% range for April. While urban Seattle is still soft due to a significant amount of new supply and weaker demand, performance across our primary suburban portfolio improved meaningfully during the quarter. In Northern California, while the underpinnings of better performance are starting to appear, it’s not yet having a meaningful impact on current performance.

Rent change was flat for the quarter with a positive rent change in San Jose being offset by negative rent change in San Francisco and the East Bay. Transitioning to Slide 13 to address our updated revenue outlook for the year. We now expect same-store revenue growth of 3.1% for 2024, an increase of 50 basis points from our original guidance. The increased outlook is primarily driven by stronger lease rates as higher occupancy at the start of the year has allowed us to begin to achieve higher rental rates than we originally anticipated as we move into the prime leasing season. We now expect like-term effective rent change in the mid-2% range, about a 50 basis point increase from our original outlook. The second quarter should trend up into the low 3% range before decelerating in the back half of the year, consistent with seasonal norms.

We expect renewals in the low to mid-4% range for the balance of the year, while new move-ins average roughly 50 basis points, which reflects the low 2% range for Q2 move-ins before experiencing the normal seasonal decline in Q3 and Q4. In addition, we’re projecting a greater contribution from the improvement in underlying bad debt with a full year rate of 1.7%, down from 2.4% last year and slightly more rent relief. And finally, moving to Slide 14, you can see where we’re projecting stronger revenue performance relative to our original outlook. We’re expecting the most significant improvement in Seattle and New England, which outperformed our expectations in Q1 and accelerated further into April, with both regions delivering greater than 4% rent change followed by Metro New York.

The Mid-Atlantic is expected to modestly outperform our original expectations, supported by stronger performance in Northern Virginia and suburban Maryland. Southern California is also expected to perform modestly better than our original outlook, and we haven’t changed our forecast for Northern California. So I’ll turn it over to Matt to address recent lease-up performance and our capital allocation plan for 2024. Matt?

Matthew Birenbaum: All right. Thank you, Sean. Turning to our development communities. Slide 15 details the continued impressive results being generated by our lease-ups. The 6 development communities that had active leasing in Q1 are delivering rents $295 per month or 10% above our initial underwriting, which is translating into a 40 basis point increase in yield. And this performance is being supported by strong traffic and leasing velocity with these assets averaging 30 net leases per month in the seasonally slow first quarter, which grew throughout the quarter to nearly 40 per month in March. This outperformance is driven by 2 primary factors. First, since we conservatively don’t trend rents and report our development economics based on projected NOI at the time of construction start until the communities enter lease-up, there’s usually rent growth during the construction period, which provides some incremental lift to our development yields by the time of their completion.

And second, while we are pretty good at predicting how the market will respond to our latest state-of-the-art product offerings and new development, we do still frequently see some additional premium as the market responds to the unit and community features we incorporate into our designs. Turning to Slide 16. While it was a quiet quarter for investment activity with no closed transactions or development starts, our investment plans for the year are still very much on track. We brought 4 assets in our established regions to the market in Q1, looking to take advantage of a potential lull in the investment sales market as many owners were waiting for interest rate cuts before getting going with their disposition plans. All 4 are now under agreement at pricing, consistent with our initial expectations with a weighted average cap rate of 5.1%.

We expect to redeploy some of the proceeds from these pending sales into acquisitions in our expansion regions in the coming months as we continue to make progress on our portfolio optimization objectives to increase our expansion market allocation to 25% over time. Planning for development starts is also proceeding as expected with our start activity this year concentrated in Q2 and Q3. We are seeing some helpful construction buyout savings in certain regions, which will allow us to preserve our targeted spread of 100 to 150 basis points between development yields and prevailing cap rates. And in our SIP book, we continue to be conservative but do expect to grow that business line modestly through the course of the year. Fortunately, the $200 million in commitments in the program today were all originated in the last 2 years, are geographically dispersed across our markets, concentrated in submarkets with less new supply pressure and have initial maturity dates that are still 2-plus years out.

So we do not have any legacy overhang burdening our loan book. It’s also been interesting to see some larger portfolio transactions start to gain traction just in the past few weeks. This illustrates the continued attractiveness of our sector to private the capital and perhaps marks a shift in sentiment that might bring increased deal flow as the year progresses. We continue to preserve dry powder on our balance sheet so that we will be in a position to take advantage of future opportunities that may emerge, if they are aligned with our strategic priorities and our unique capabilities. And with that, I’ll turn it over to Ben to wrap things up.

Benjamin Schall: Thanks, Matt. Our results to date have exceeded our expectations, and we’re excited for the momentum we have heading into the peak leasing season. Demand is stronger than originally expected, and our suburban coastal portfolio faces meaningfully less supply than elsewhere in the country. And we’re confident that we will find opportunities to put our balance sheet and strategic capabilities to work to generate shareholder value. I’ll end our prepared remarks there and turn it to the operator to open the line for questions.

See also 15 Best Cuisines in the World and 17 Best Insurance Dividend Stocks To Invest In Right Now.

Q&A Session

Operator: [Operator Instructions]. And our first question comes from Eric Wolfe with Citi.

Nicholas Joseph: It’s Nick here with Eric. Maybe just on the capital allocation and then rotation into the Sunbelt. You made a comment in the prepared remarks about seeing opportunities below replacement costs. And so I was just curious if you can quantify kind of that. Obviously, it’s probably range, but kind of how far below replacement costs you’re seeing on average then also the size of the opportunity you’re seeing in terms of product, I mean, on the market in those expansion markets.

Matthew Birenbaum: Yes. Sure. Nick, it’s Matt. I would say the discount replacement cost is obviously going to vary to some extent based on the age of the asset. I mean, in theory, assets that are 10, 20 years old should be trading below replacement cost because there is some depreciation there. But we are — I’d say we are seeing assets that are 10 years old. It might be trading 15% to 20% below current replacement cost. We haven’t seen kind of brand-new assets coming out of lease-up come to market yet at compelling prices. I think people are getting extensions on their construction loans, and there’s a pretty active bridge lending space. So we would look at those as well. So younger assets, I would expect the discount to be a little bit less than that, but we haven’t seen as much of that yet.

The volume has been . And that’s one reason that supported cap rates honestly being lower than I would have thought they would have been, but there is a little bit of a scarcity premium. And on the one hand, we’re taking advantage of that as a seller, and that’s one reason we brought some assets to market early because we anticipated that might happen. But as a buyer, that’s a little bit frustrating.

Nicholas Joseph: Would you expect some of that product to start to come to market? Or do you think it’s more — owners right now will be more of a wait and hold? I’m just trying to understand how kind of the current supply and the rate uncertainty may impact kind of your acquisition strategy and maybe urgency into moving into these, if we fast forward a year or 2, and the supply picture has started to improve.

Matthew Birenbaum: Yes. I mean, who knows? I would say that there is more volume coming. And if you talk to the brokers, they’ll say they’re pretty busy with . This is the seasonal time of the year when you start to see an uptick in transaction volume. Q1 volumes were down over — below Q1 ’23, which was down a lot from Q1 ’22. And transaction volumes are now below where they were kind of in ’17, ’18, ’19. So I think you will start to see some pickup in what might be available. And certainly, from our point of view, we’re staying disciplined about it. But we are hopeful that we might move into an environment where we’ll be able to start to accelerate our asset trading activity a little bit. We haven’t done that much in the last, say, 4 or 5 quarters.

Benjamin Schall: Nick, I’ll add a couple of comments, guess it’s well put by Matt. I generally see as our window of opportunity being open for a decent period of time and 2 primary reasons: one, the supply dynamics that exist in the Sunbelt. Per my prepared remarks, we expect to be with us for a period of time. So that softness on rate and occupancy and a weight on asset values is we think, we’ll be here. And then the second part is on kind of the capital world, which we’re really just at the front part of the wave of maturities of deals done 2, 3, 4 years ago. So I agree with Matt, not seeing a ton today would — also not seeing a ton of dislocation, but it is still early. And we think we’re well prepared to take advantage of it for the right types of opportunities.

Operator: And our next question comes from Jamie Feldman with Wells Fargo.

James Feldman: Great. So I want to go back to a comment you made on — I think you said rents and occupancy in the Sunbelt could last, at least, through ’25. The pressure on rents and occupancy in the Sunbelt could last, at least, through ’25 and possibly into ’26. So first, I want to make sure I heard that correctly. And secondly, can you just talk more about what gives you the confidence in saying that? And if you think about we’ve got spring leasing this year, then it slows down at the end of the year, then you’ve got spring leasing next year. I think a lot of people think things will get cleaned up by then. But your comments kind of indicate they probably won’t. So just want to hear based on data you’re seeing or what you’re seeing on the ground of how you think that trajectory plays out.

Benjamin Schall: Yes, Jamie, I’ll start with a couple of comments. So one is just the sort of the facts and the known dynamics that exist. Supply in the Sunbelt, yes, it is going to be peaking later this year, but it is going to remain elevated into 2025. Second known dynamic is we know when projects are — we know which projects are under construction, you know when those projects are completing, and you know the period of time associated with lease-up. So that inherently takes you out another 12 to 15 months depending on the size of the project and the velocity of that lease-up. And then the third dynamic, and this gets into the impact on NOI is the rolling through of rent rolls over that period of time. And so when you then think about sort of the last dynamic and the last effective NOI impact, that gets you into that early 2026 type of time frame.

It’s the area where, in our minds, it’s sort of — it’s one of those known industry dynamics. And to the extent the economic scenario has gotten better, but in a, call it, a slower growth economic environment, overlaid on high supply in certain submarkets, we expect there to continue to be pressure.

James Feldman: Okay. And then are there specific markets? I mean I know we’ve heard Austin, and we were [indiscernible] as kind of the poster child of the weakness. But when you think about all the Sunbelt markets, I mean, you’re painting a pretty broad brush. Is there some that really stand out that will be in pain for longer?

Benjamin Schall: Yes. Austin would also be at the top of that list. Just look at percentage of stock coming online. That would be high up on the list. Generally, in the Sunbelt markets, the more urban-oriented submarkets are generally seeing the highest levels of supply coming online. And that’s one of the reasons we’ve been conscious as we’ve been growing our expansion market portfolio to really push ourselves out further into those marketplaces out of a submarket or 2 with lower density product, lower price point. That is competing less directly with new supply.

James Feldman: Okay. So it sounds like your Sunbelt expansion would still be mostly suburban, if you could find that.

Benjamin Schall: It is. Yes, that’s been a very conscious choice of ours. And we also think about it as complementing what we’re buying with what we’re going to be building. And so even to make the point further, what we’ve been buying tends to be slightly older product, lower price point, lower density products. Recognizing that our development, while it still will be suburban, will tend to be mid-rise and a little bit higher price point, once it comes to market. So we think about that as just our overall — we talk about at a portfolio level optimization, but we also very much focus on it in terms of a market and a submarket perspective.

Operator: And our next question comes from Austin Wurschmidt with KeyBanc Capital Markets.

Austin Wurschmidt: Great. Matt, I just want to go back to the dispositions. You kind of highlighted the scarcity premium, but I’m curious if there was any specific factors related to the assets you sold sort of idiosyncratic factors that maybe benefited valuations you achieved? Or if you think that is reflective of valuations today? And then can you just share how deep the buyer pool was and whether or not there is financing contingencies?

Matthew Birenbaum: Sure. Well, the first thing I’d say is none of them have closed yet. So be able to provide more detail at the end — on the second quarter call. But it’s a pretty good mix. Three of the 4 assets are AVAs, so a little bit more urban than what we’ve been selling in the past, one in Jersey, one in Seattle, one in Boston, one in Southern California. So a good mix of geographies. And it continues to be a little bit of a bifurcated market. So the ones — the smaller deals, kind of less than $100 million, tend to be either private buyers, buyers, syndicators, little bit less institutional. And then when you get into bigger assets, that’s where probably those buyers are using less leverage. And the cap rates are little bit lower if you can find — if that’s more of an institutional bid.

But there’s plenty of assets that are not getting that institutional bid. So it does really vary based on kind of where you are. And — but one of the things that was a pleasant surprise is that even — we have one larger urban asset, urban Boston, which is a relatively market. And the bid was probably deeper there than any of the others actually.

Austin Wurschmidt: That’s helpful detail. Just switching over to operations. Just wanted to hit on sort of the Bay Area commentary. You mentioned, I think, that the underpinnings of positive momentum were there. What’s it going to take for that to translate into outperformance and sort of a little bit better and maybe less volatile fundamental backdrop? The Bay Area and then any other West Coast submarkets as well?

Sean Breslin: Yes, so it’s Sean. Good question and the question, I think, on a lot of people’s minds. I think the way I describe it is, first, supply should not be an issue for an extended period of time. There are 1 or 2 assets in San Francisco as an example that are finishing lease-up. But given the nature of the product, economics, timelines, that won’t be an issue for a long period of time. It’s really more on the demand side and making sure that I think for the most part, what we’re hearing on the ground is that we really just do need business leaders to be more confident in bringing people back to their respective offices and opening offices in San Francisco. What’s underneath that is making sure that the associate population for all those various employers is comfortable being in that market, kind of living [indiscernible] life issues.

Certainly, the political dynamic has started to shift in a meaningful way. There seems to be some positive momentum there, but that takes time. So that’s why I’d say that, that is probably the most important thing. Obviously, job growth matters, and it’s been a little bit choppy. But we are seeing some good signs of life, particularly given the generative AI boom, so to speak. But it has not manifested itself into thousands of jobs showing up yet in these markets. And so I think the broad view around technology and that being the epicenter of sort of technology innovation is still present, more the confidence about bringing people back to work, particularly in San Francisco, I would say. We’re starting to see signs of life of that in San Jose.

There’s more short-term demand than there has been for the last couple of years. That’s an initial indicator that’s positive. But it’s sort of a mixed bag as it relates to San Francisco and certain parts of the East Bay.

Austin Wurschmidt: And so just one quick follow-up there. I mean is that sort of sequential improvement, Seattle and Bay Area, are those — given we weren’t hearing you talk about this 3 to 6 months ago, I guess, is that year-to-date improvement in asking rents being driven by those West Coast markets specifically? Or is it just more broad and related to the lower turnover, et cetera, that you’re seeing?

Sean Breslin: Yes. I mean as it relates to this trend at asking rents, that’s primarily driven by the East Coast markets. And if you look at it on a year-over-year basis, the East Coast markets are up 2% to 3% versus the West Coast markets are up about 1% roughly. That’s being supported by markets like San Diego, Orange County, parts of L.A. Certainly, Seattle has had a nice recovery. We’ve been surprised, as I mentioned in my prepared remarks, about Seattle. The trends and the firming in Seattle certainly seems to have sort of a greater foundation to it than what we’ve seen in the Bay Area just yet. And part of what’s driving the effective rent change in Seattle in Q1 and into April is a pretty significant reduction in concessions.

Concession volume for us, as an example, from Q4 to Q1, it was down about 70%. We incurred almost 900,000 in concessions in Q4 versus in Q1 of ’24 versus in the Bay Area, it was down about 20%. So you’re seeing good trends, but I would say it’s not being broadly supported yet by Northern California, more so the Southern California markets in Seattle as it relates to the West Coast.

Operator: Our next question comes from Steve Sakwa with Evercore ISI.

Stephen Sakwa: Sorry. Sorry about that. Sorry. I guess on the Slide 13, the economic occupancy for 2024 is basically showing kind of no improvement. So I’m not sure what was in the initial outlook. But clearly, you had a 30 basis point pickup in the first quarter. And I think the actually get easier as time goes on. So I’m just curious, and given the top of funnel demand that you talked about being reasonably strong, I guess I’m just curious why you’re not assuming maybe improved occupancy? Or is there something you’re doing on the rate side that might keep occupancy growth at bay?

Sean Breslin: Yes, Steve, it’s Sean. It’s really 2 factors. One is what you described. We’ve seen sort of a faster improvement in occupancy. We experienced that in Q1. That is quickly translating to rate acceleration, which actually puts a little bit of pressure on occupancy. And the other thing, if you think about it from a revenue standpoint with higher rates, the dollar value of each vacant unit is actually higher. So it doesn’t contribute as much to revenue as you might think when you look at it from that perspective. Anything that is vacant is worth more, and so it does sort of weigh on the revenue side of it. But those are the 2 primary reasons. In terms of physical occupancy, we expect it to be roughly about a push by the time we get to year-end relative to our original guidance. And that’s why it shows up that way on the slide.

Stephen Sakwa: Okay. And maybe as a follow-up, I think I heard — I think you said that you were expecting about 4% on renewal growth, if I wasn’t mistaken, maybe for the balance of the year. I don’t know if I heard you say where you were sending out renewal notices for kind of the May, June, July period. But are those going out at substantially better than 4%, and you’re assuming some discounting? Or could there maybe be some upside to that 4% number?

Sean Breslin: Yes. You’re correct. I did not state renewal offers. But renewal offers for May and June are around the high 5% range. So expecting them to settle sort of in the low to mid 4s is reasonable based on historical norms.

Stephen Sakwa: Got it. And then just lastly on development, Matt. You guys are starting a couple of new projects here, I think, in the second quarter. Can just remind us, what are you targeting on new projects today? I know that there’s been some upside on the things you’re delivering, but what’s kind of the new hurdle in light of today’s new interest rate environment?

Matthew Birenbaum: Yes, Steve, I guess, we — there’s actually — it’s not one number. There are different target yields for different markets and even down to different submarkets and also based on the risk profile of the deal. But we’re generally looking for that 100 to 150 basis point spread to cap rates. What that’s translating into kind of on average is probably a mid- to high 6s target yield. And then it’s going to be lower in markets where deals that are less risky or markets where we expect stronger growth because ultimately, it’s about the full investment return, the IRR. And it’s going to be higher in markets that have the inverse of that. And so where you see where deals actually clearing those today, we expect to start a deal in suburban Boston in kind of the mid 6s, which maps well to where cap rates are in those markets.