Eric Wolfe: Hey. Good morning. You mentioned that part of your guidance upside was due to the new secured facilities. Can you just talk about what you were assuming in guidance before versus now in terms of timing of debt paydowns, the average rate you were expecting to achieve versus what you actually ended achieving? Just trying to understand how you got to the upside in that guidance. Thanks.
Mahbod Nia: Good morning, Eric. Good question. So, we had or have a significant amount of debt that’s either maturing this year or facing a rate reset or that we want to now in the case of Front Street refinance to simplify and consolidate our debt. And so, the original guidance really reflected the considerable uncertainty in the credit markets, which remain challenged and volatile. And the raise is really a consequence of de-risking that maturity profile for this year, but also actually for next year. And the uncertainty that came with these refinancings through securing these facilities and in addition securing another $28 million of non-strategic asset sales, which if you think about that from an earnings standpoint given just the earning potential from that capital, that’s worth about $0.02 a year.
And the expectation is that we close — of core FFO. And the expectation is that we close those sales around midyear. So that equates to about $0.01 of the upside. So, you’re selling more assets, another $20 million of assets. Most likely that will be used to paydown debt, paydown the RCF. That saves you the cost on that. That’s worth another $0.01 as well.
Eric Wolfe: That’s helpful. And then, assuming you were trying to sell the properties underlying the debt facilities, I guess, would that debt and any of the associate swaps that you put on it be assumable, or is there a process for substituting other properties into the facilities? I’m just wondering if this limits your ability to monetize those properties because you talked about increasing your optionality. So, try and understand if you’ll still be able to, say, sell some of those properties or substitute ones in and out and be able to — or alternatively the buyer can assume that debt?
Mahbod Nia: Yeah. I wouldn’t say it’s assumable. This is — to raise $500 million for a company of our size, this is very much — it’s not easy today and it’s very much relationship-based lending, but it is freely prepayable. And so, it doesn’t come with the friction costs that would have come with a more rigid financing structure.
Amanda Lombard: I just would add one thing here, we’re going to use caps to hedge and not swaps. So, there’ll be no termination costs with those.
Eric Wolfe: Got it. So, if someone wanted to buy, they would just effectively put their own mortgage on it and that debt would get…
Mahbod Nia: Correct. And then, the caps at that point are just an asset and just have a value.
Eric Wolfe: Understood. Thank you.
Mahbod Nia: Thank you.
Operator: Thank you. Our next questions come from the line of Josh Dennerlein with Bank of America. Please proceed with your questions.
Josh Dennerlein: Yeah. Good morning, everyone. Mahbod, I wanted to come back to a comment you made in your opening remarks. You mentioned there was an earnings benefit from some company initiatives in 1Q results. I guess, could you elaborate further on that? And then, is there anything else baked into guidance for the year from initiatives hitting, or if not, is there anything that could be a potential source of upside?
Mahbod Nia: Yeah, the comment was really that we’ve begun to implement a number of initiatives. I mentioned last quarter that the operational optimization captured broadly three areas, revenue maximization, expense mitigation and capital investment in certain properties based on a return on invested capital-focused approach. The most recent initiative that we’ve announced there is Liberty Towers, which is just kicking off. So, as I mentioned, we’ve started to see some of the benefits of those initiatives. I mentioned our new AI-based leasing assistant, for example, that is saving us considerable hours. It was 1,200 hours, it’s even more than that now, of human capital time freeing up our leasing agents to be able to focus on higher-value tasks.
We’re working with a provider to actually extend the utilization of technology and specifically AI to also deal with existing resident requests. That’s one area. We haven’t put — and I’m not putting any specific numbers around each initiative and how much it can contribute in earnings over a specific timeframe, because this is really about gradual optimization of the platform over time. And so, you’ve seen that and our ability to be able to really mitigate expenses at a time when inflation has been running at particularly elevated levels, that is largely reflective of the efforts of the team to offset those upward inflationary pressures with both processes, with technology, with changes in organizational structure, how we go about doing things that offset those expenses and allow us to be able to control expenses in a more robust way.
So, it is a holistic approach to maximizing revenue, mitigating the expense side and then investing in our properties.
Josh Dennerlein: Got it. Appreciate that. And then, sorry if I missed it, but did you mention what leasing spreads or how leasing spreads are trending in April or where you’re sending out renewals today?
Mahbod Nia: Yes. On a blended basis, we’re in the mid-single digit ballpark and we’re sending out renewals a touch higher than that. It’s early, but as we’re entering the spring leasing season, you are seeing new leases climb a little bit, a touch above that. But on a blended basis, I’d say around the mid-single digit, maybe a touch higher.
Josh Dennerlein: Got it. Thanks for the time.
Mahbod Nia: Thank you.
Operator: Thank you. Our next questions come from the line of Tom Catherwood with BTIG. Please proceed with your questions.
