So, that space, the lease was terminated associated with Rite Aid, but we have re-leased it. So, we have an active lease with a very high credit quality tenant. We’re in the process of putting TI dollars into that. And once those TI dollars are completed, which should happen later this year, at that point, we’ll turn the space over and we can begin revenue recognition on that lease specifically. And that’s the update on Rite Aid. But otherwise, there’s nothing — there’s no relationship with Rite Aid at this point.
Haendel St. Juste: That was helpful. Thank you. And then on — a question on the second quarter guide here. Yes, a quick one on the second quarter guide. It seems a bit low versus what we and I guess the Street was expecting, especially in consideration with the rental dynamics you’re enjoying. So, curious if there’s any one-timers impacting that. Anything in there from a dispositions perspective, anything moving the needle? Or is that a clean guide? Thank you.
Robert Garechana: Yes. Good question. So, as you saw from our full year guidance, we didn’t adjust our full year guidance, but we did give — provide for the first time NFFO guidance for the second quarter, and continue to maintain what is probably a little bit of a cautious outlook still. But there are a couple of callouts that I would say that are inherent in the Q2 NFFO guidance, that range that we provided, that are a little bit different than what you would have normally seen sequentially between Q1 and Q2, which I think is what you’re getting at, Haendel. The core business continues to do what we would expect it to do as Michael just outlined. So, the core kind of residential NOI business is growing the way that it would normally grow, but we won’t have that sequential benefit from the straight-line receivable that I just described.
So, that’s a little bit of drag on the sequential component. Overhead is also not declining as quickly sequentially as what it has done in historical periods for a few puts and takes. And finally, there is a little bit of transaction noise because we are front-end loaded on the disposition side. Oftentimes, when we do dispositions, we put those proceeds into 1031 accounts, which are interest-bearing cash accounts, but they don’t earn as much interest as the NOI loss. That’s a temporary dilution that we incur. And so that’s putting a bit of a drag on the sequential Q1 to Q2 numbers.
Mark Parrell: Just to elaborate, it’s Mark. We don’t expect overheads to be higher or different than our guidance range. It’s just the cadence of it is a little different where, for a variety of reasons, the first and second quarter are more similar than usual. And you should expect a real decline in quarters three and four. So, we’ll update that all in July, but we don’t have any expectation that overhead is net higher. It’s just the drop between the quarters is occurring between quarters three and two, not between quarters one and two as has often been the case.
Haendel St. Juste: Very helpful. Thank you guys.
Operator: And we have a question from Jamie Feldman with Wells Fargo.
Jamie Feldman: Great. Thank you and good morning. I guess just a follow-up to the 2Q number or 2Q guidance. So, can you — since it sounds like there’s a lot of moving pieces, can you talk about just the core numbers? I mean what are you expecting for rents, blends, occupancy, same-store revenue in 2Q, just to maybe level set?
Robert Garechana: We typically don’t provide that degree of guidance. But I would tell you in terms of the actual same-store kind of revenue piece, what I would tell you is that, sequentially, what you normally see between — in same-store revenue is call it $0.02 to $0.03 — or NOI, sorry, is call it $0.02 to $0.03 of sequential improvement in NOI between Q1 and Q2. And that’s pretty much where we are on the residential side. But we’re losing, call it, about $0.01 from the non-residential piece. We’re also losing about $0.01 from the overhead kind of sequential piece along with a handful of other things in the transaction activity that we mentioned. And that’s why you’re only seeing $0.01 improvement sequentially. Keep in mind that the leasing activity that you execute in the second quarter typically has a bigger effect on revenue in the third quarter because those leases are ratably reset during the second quarter. So hopefully, that helps from a color perspective.
Jamie Feldman: Okay. Yes, that’s very helpful. And then maybe thinking about your debt maturities in 2025. You’ve got $250 million expiring, you’re sitting on pretty low leverage at 4 times debt-to-EBITDAre. You’ve got 8.25 preferreds out there. It sounds like you’re slowing down the disposition pipeline. I mean what are your thoughts on just other investments, other uses of capital here? What do you think on the balance sheet side — you probably just let things ride through year-end without any kind of meaningful changes of — or debt pay downs or pay downs of any sort?
Robert Garechana: Yes. As you mentioned, Jamie, the balance sheet is in phenomenal shape. I mean from an absolute leverage standpoint, it’s very low. But you’re also highlighting something that I think is worth noting, which is we have very little interest rate exposure because we don’t have a maturity or any refinancing needs until the middle of 2025. And even when you look further out, there is a modest kind of maturity piece. So, I think when you look at use of proceeds, probably in the menu of choices, debt paydown is the last one, to be frank. And we’d be more interested on the capital allocation front, whether it’s acquiring assets or otherwise, even buying back shares just from a standpoint of whatever presents a better value proposition because we don’t have any maturity issues and we have very limited exposure to rates.
Jamie Feldman: Okay, all right. Thank you for that.
Operator: And we’ll take a question from John Kim with BMO Capital Markets.
John Kim: Thank you. Mark, you mentioned $200 billion of dry powder, a lot of that focused in multifamily. At the same time, we have the Blackstone-AIR transaction. How do you think that’s impacted pricing or will impact pricing on sales of either assets or portfolios in the market? Could pricing be more aggressive despite the recent rise in interest rates?
Mark Parrell: Yes, that’s — I’m going to pull a little bit. It’s Mark, on the comment Alex just made. I think when people saw the AIRC print, there was enthusiasm. I think when people felt like that, combined with the thought that maybe rates were going to go down in the relative near-term and you had some certainty on sort of the financial markets and such, that that was a positive thing for stability and for kind of closing that bid/ask spread that’s existed for a while that Alex talked about for several quarters. And I think when the treasury sold off, when you saw rates really, that inflation print was high, and you have a 460-plus tenure, all of a sudden that threw that all back into play again. So, I would say right now, we continue to struggle to see a great deal of product offered.
I think the obvious evident enthusiasm for apartments in the private space, and we hope soon in the public space more so, is powerful. But I think there’s still a bit of — a pretty big difference between seller and buyer expectations, that I think was the gap was closing a little and now I think the gap remains. And Alex, how would you expound?
Alexander Brackenridge: Yes, John, this is Alex. One thing that hasn’t changed, although the rate environment is confusing to many investors, is the amount of product that’s delivering, particularly in the expansion markets that we’re excited about. And a lot of that just isn’t capitalized to be owned for the long-term. I mean it was merchant built in many cases. And we’re eager to pursue that. We just need to come up with pricing that makes sense in the current rate environment. And there’s some other owners of more stable properties that also were seeing some debt challenges, and we just expect more opportunities where, as Bob has mentioned, really well poised to take advantage of them. We just need the right price given the rate environment.
John Kim: On the rebalancing strategy, it sounds like you mentioned that pricing has slowed down those efforts a little bit. At the same time, you seem very encouraged by the political environment improving in San Francisco, Seattle, and New York. Do those policy changes or anything new in data as far as net migration or any other items potentially reconsider your views on either the timing or the strategy of redeploying capital into the Sunbelt?
Mark Parrell: Yes, that’s really an outstanding question. I think the really good news here is that both sides, whether it’s Governor DeSantis in Florida, whether it’s Governor Newsom in California or in New York or Governor Healey up in Massachusetts, everyone’s thinking about supply as a solution. Where in 2018 when all the tumult happened started on rent control with the California Ballot Initiative, it was all about price controls, which obviously are not going to improve supply. So, I think it’s really a positive that everyone is trying to address supply in different ways, with different levels of effectiveness. I think the industry has done a good job. I give a lot of credit to Barry Altshuler who is our lead regulatory guy on that and many other people in the industry who pushed that supply argument, and we’re seeing the results of that, and you’re right to recognize it.
But I also would say that places like New York, California, continue to need to work on being an attractive place to live and for businesses to locate. They need to be able to more effectively compete against places like Texas that are more attractive than they used to be in terms of amenities to our residents, our demographic, as well as to business leaders who just want to expand their operations in places where it’s less complex and less expensive to do business. So, I do say we remain open. I think New York is something we’ll continue to think on. Right now, our opinion is you need to have some regulatory reforms away from housing just to make public safety better in some of those places and both to sort of encourage employers to relocate or to stay located in those markets.
But I definitely see this as progress for sure.
John Kim: Very interesting. Thank you.
Operator: And we have a question from Nick Yulico with Scotiabank.
Unidentified Analyst: Morning. This is Dennis [indiscernible] Nick. On your expansion markets, could you share the lease rates and concessionary activity for Atlanta, Austin and Dallas in 1Q and April?
Michael Manelis: Yes, hey Dennis, this is Michael. So, in my prepared remarks, I kind of gave you some clustering around the expansion markets concession use. Right now, for us, I would kind of cluster Denver, Atlanta and Dallas together with about 25% to 30% of our applications receiving right around anywhere between four to six weeks. Austin is a little bit of the outlier and it’s running about 60% of our applications with almost six weeks of concessions. But again, we only have three assets in Austin, so I don’t think it’s kind of overly indicative of what may be happening in the broader market. I’ll tell you, we’ve been watching the new lease-ups and the concessions that we see. And right now, they really seem to be in line with what you would expect.
There’s nothing like out of the norm that’s running anywhere between four and eight weeks across all of those markets. And that’s kind of one of those positive signs for us. Relative to the first quarter, I’ll tell you, we’ve ticked down a little bit of our concession use. Most all of these markets have occupancies above 95% right now. So, as soon as we get to that threshold, we kind of pulled back a little bit of the concessions and see what does that velocity look like. And we’ve had a couple of strong leasing weeks. So, I think the teams are dialing it back. But we do expect concessions will remain in place in those expansion markets throughout the year because the levels of supply is going to continue to increase, which means we’re most likely going to see these concessions stay.
As long as they stay within the realm of reasonableness in this four to eight-week range on the new lease-ups, I think we’re okay. That’s kind of how we’ve modeled it.
