Good day, and welcome to the Equity Residential Second Quarter 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Marty McKenna. Please go ahead.
Thank you, Eduardo. Good morning, and thanks for joining us to discuss Equity Residential's Q2 2019 results. To our speakers today are Mark Perel, our President and CEO Michael Manelis, our Chief Operating Officer and Bob Gerachana, our Chief Financial Officer.
To Mr. President. Please be advised
that certain matters discussed during this conference call may constitute forward looking statements within the meaning of the federal securities laws. To Mr. Mark Perrell. These forward looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events.
Now to Mark Perrell.
Thank you, Marty. Good morning and thanks for joining us today. It is a good time to be in the apartment business. To Very strong demand for our product has continued to drive absorption and new supply, and our turnover continues to be at all time lows,
to you, resulting in same store revenue growth that is
exceeding our expectations and leading us to increase our same store revenue, net operating income and normalized FFO per to your guidance. The midpoints of all these new guidance ranges now exceed the top end of our original guidance expectations. To you. After I discuss our investment activity in the quarter, I'll turn the call over to Michael Manelis, our Chief Operating Officer, to give you color on our operating performance and then to Bob Gerichana, our Chief Financial Officer, to give you some detail on our normalized FFO and same store expense guidance changes and our balance sheet, and after that, we'll open it up to your questions. On the investment front, asset prices have remained generally stable in our markets, to But there are more assets for sale than earlier this year, just giving us the opportunity to trade in assets that we believe have more desirable long term return prospects.
We continue to see good demand for the assets that we wish to sell. This is often coming from buyers with a value add thought process. To you. As a result, we have increased our transaction guidance for the year to $1,000,000,000 of both dispositions and acquisitions. To you.
During the Q2, we acquired 3 apartment properties. 1 was the 366 Unit property in Rockville, Maryland to Built in 2016 that we discussed on the last call. And the second is a 312 unit property built in 2017 located in Castle Rock, to which is a suburb of Denver that we bought at a price of approximately $92,000,000 and a stabilized cap rate of 5% and a current cap rate of 4.7%. To We are creating a property portfolio in Denver that has both suburban and urban exposure, but we expect that most of the portfolio will consist of assets in the urban to Kare Denver. The 3rd asset acquired is a 387 Unit Property in San Jose, California that was built in 2017, to which was acquired for approximately $180,500,000 at a 4.5% cap rate.
It is located in South San Jose, across the street from the Caltrain station and within an easy commute of Downtown San Jose and most Silicon Valley employers. To you. During the Q2, we sold 2 of our wholly owned assets as well as 2 assets that were in joint ventures. 1 of the wholly owned assets we sold was our 800 to Sixth Avenue property in New York, which we discussed on our Q1 call. As a reminder, 800 and Sixth Avenue was a rent stabilized property to Matt as part of the New York 421a program, we had substantial property tax step ups for the next several years.
To the operator. The second wholly owned asset we sold was a 2 95 Unit property in the Longwood Medical Area, Boston. We sold this property for approximately 100 to $65,300,000 at a disposition yield of 4.3%. The Longwood asset is a 1970 asset with gated floor plans and amenities. These sales generated an unlevered IRR of approximately 8.6%.
To you. We also sold 2 properties that we held in a joint venture with an institutional partner. 1 was in South Florida and 1 in San Jose, California.
To you. These totaled 945 apartment
units for an aggregate sales price of approximately 394,500,000 to the operator and a weighted average disposition yield of 4.7%. We received net proceeds of approximately $78,300,000 to Salyes, and the joint venture generated a levered IRR to us, up 24%. After the end of the quarter, we sold an additional property, Park at to Pentagon Row. It's a 298 unit asset built in 1990. The sale price was approximately 117,000,000 and we sold it at a disposition yield of 4.5%.
The property is located 1 block from the new Amazon HQ2 location. We took the opportunity to capture the excitement around the HQ2 process to lower our concentration in the area with the sale of this 30 year old asset.
To Michael.
Pardon me. Now before I hand the call over to Michael, I want to make a comment on rent control. We agree that there is a shortage of workforce and affordable housing in many places in our country, but we disagree that the actions taken in New York and being considered in other states will help solve this problem. The new housing law in New York did to create any incentives to build new affordable housing. In fact, the recent legislation has created disincentives to build new supply at all.
To. We also think that over time, it will lead to the deterioration of the existing affordable housing stock. In a moment, Michael Manelis will share our current estimate to the impact of New York's new law on our operating results. While we continue to work through the details of the New York legislation and its impact on our New York portfolio, to you. At this point, we see the impact limited to caps on renewals for the approximately 3,200 rent stabilized units in our portfolio, to you as
well as new limits on fees.
Through our trade associations, we will continue to encourage policymakers in California to other states to embrace actions like zoning reform and the removal of other regulatory barriers to new housing construction, to as well as programs that create incentives for private market developers to build the affordable housing units our cities so badly need. To Michael Manelis. Michael?
Thanks, Mark. I am pleased to report results from a strong leasing season with continued strength in demand for our product to have resulted in acceleration of pricing power, reduced turnover and higher occupancy. All of our markets are doing well, but the East Coast to markets in Seattle continue to outperform our expectations. Sitting here today, our portfolio is 96.7% occupied to 96.5% the same week last year. Base rents are up 3.7% as compared to 3.1% the same week last year.
To you. Renewal performance continues to be very stable with achieved renewal increases ranging between 5% and 5.2% for the last several months, and we expect this trend to continue. Let me provide you some context around the underlying assumptions of our revised guidance range of 3.1% to 3.5%. The new guidance same store revenue midpoint of 3.3%, which is just above the high end of our original range, to assumes that we maintain strong renewal performance around 5% and that we continue to enjoy good new lease rate growth and high occupancy, to you. But both of these moderate as we transition into the seasonally slower part of the year.
The 3.3% midpoint of our same store revenue range to assumes occupancy of 96.3 percent for the back half of the year. This is slightly below our current occupancy due to the seasonal decline I just described, to you, but it's still 10 basis points above what is a difficult comp period from the prior year. To the operator. The 3.5% high end of the range is achievable if we do not experience the usual seasonal decline in occupancy later in the year, to you, which is certainly possible given the strong demand that we are seeing, but not typical. The bottom end of our range is achieved if occupancy underperforms.
To switching gears, let me provide you some color by market. Boston clearly benefited from a pause in competitive new supply. We experienced a strong leasing season that delivered 3.25 percent revenue growth with growth in both occupancy and rate. To our full year revenue growth guidance for this market has increased to 3.5% from 2.8%. To the operator.
The pause in supply is only temporary. Competition will heat back up by the end of the year as a number of large buildings bring their first units to the market to in the urban submarkets of Boston and Cambridge, where we have almost 70% of our NOI. To the operator. The good news is that demand is very strong in this market, which will continue to aid the absorption of these deliveries. To the operator.
The New York market continues to demonstrate strength and overall fundamentals with a very strong leasing season. Foot traffic, to you. A proxy for demand is up 5.5% versus the same quarter last year and new lease change is up 70 basis points. To the operator. The last time we posted a Q2 positive new lease change in New York was 2015.
To our new lease occupancy and renewal growth were all better than expected. We have revised our full year same store revenue growth projection for New York to to 2.5% from 1.8%. This reflects the overall strong performance of the market, but also includes the impact from to changes associated with the rent regulation law that went into effect in the middle of June. Let me start here by reminding everybody that we have approximately 9,000 to 600 units in the New York Metro area, 1 third of which are not in New York City. Of the approximate 6,500 units to the operator.
That are in New York City, about 3,300 are full market rate and not impacted and about half or 3,200 units are rent stabilized to and thus impacted by the changes to the regulation. We estimate that these changes will reduce to our overall second half renewal rate increased by about 50 basis points, which will equate to about a 30 basis point impact to the full year renewal results in New York. The changes in law also impact our ability to charge certain fees at all of our New York properties. To you. We expect an $800,000 annual reduction in fees associated with new restrictions on application and late fees, to you, of which $400,000 will impact 2019.
Combined, these changes to the regulations to Will reduce our expected New York Metro market revenue performance by approximately 20 basis points in 2019. We will continue to monitor the impact to our portfolio and we will likely find opportunities for savings on the expense side as we look to manage these units under the new laws. Overall, there is good economic activity and strong demand for our products in New York. To the company. Companies continue to enter and expand their footprint in the market in order to attract top tier talent.
This top tier talent wants to Liv at our high quality and well located properties. Washington, D. C. Is producing better results than we anticipated. We have increased our full year revenue growth expectation for this market to 2.6% from our original guidance of 1.4%.
To. Elevated deliveries in the district continue to impact pricing power at our DC assets, but overall Class A absorption remains robust. To the recent news of what looks to be an agreement on a 2 year federal budget that will raise spending over current spending limits will support the continued strength in this market. To you. Most of the better than anticipated year to date performance is coming from Northern Virginia, where we have about 57% of our market NOI.
The strength in this submarket is mainly attributable to the fact that the overwhelming majority of economic growth in the region is occurring in Northern Virginia as opposed to Maryland and D. C. 94% of all of the jobs created in the Washington region during the to the Tintin region during the 1st 6 months of the year we're located in Northern Virginia. To share some perspective on the spread between submarkets, to the district delivered about a 1% growth in the quarter as compared to just under 4% growth in Northern Virginia. To the West Coast, Seattle continues to see well established companies entering the market as well as existing companies expanding within the market.
To the market's critical mass of knowledge workers attract these employers and drive strong demand for our products. To. Foot traffic was up 8.1% on a year over year basis, which fueled this market's ability to outperform with stronger occupancy and a marked improvement in new lease change. We now expect our full year same store revenue growth to be to 3.2% versus our original expectation of 2%, which given our current year to date performance of 2.5% to demonstrates the current strength and trajectory for the balance of the year. On the supply front, we're getting a break in the CBD and we clearly have pricing power in that to the submarket.
We have some exposure on the East side where the new deliveries are concentrated right now, but to date, we've seen good leasing velocity to the company and are maintaining both rate and occupancy there. Moving down to San Francisco. San Francisco continues to demonstrate tech driven economic strength and job growth. At the end of May, the Bay Area reached an all time record high of 835,000 technology related jobs. We expect the full year same store revenue growth to be 4%, which is 60 basis points higher than our original expectations and consistent with our year to date performance.
We are seeing the strongest results in San Francisco and the Peninsula to with some supply pressure in the East Bay and South Bay submarkets. At present, this market is projected to deliver the strongest to full year same store revenue results in our portfolio. Moving down to Los Angeles. Our performance year to date to you. It includes new lease change and renewal results, which were lower than expected, being offset by strength in occupancy and growth in other income categories like parking.
To San Fernando Valley continues to be the submarket that is experiencing the most pressure and is running a little bit behind our original expectations. To the operator. The rest of the submarkets continue to perform in line or slightly ahead of our expectations. Our updated full year same store revenue growth to the operator. The projection of 3.9 percent is basically unchanged from the beginning of the year.
Our full year guidance continues to assume a deceleration due to anticipated pressure from new supply that is back half loaded. Additionally, the occupancy comp from the second half of twenty eighteen to LA is challenging, which means we don't expect as much lift from occupancy for the balance of the year. To you. Orange County delivered 2nd quarter results in line with our expectations. Our full year revenue growth guidance is now 3.6%, to which was increased based on the lift we received in the Q1 gains and a slight outperformance on occupancy and renewals during this quarter.
We have a few properties that are experiencing a lack of pricing power due to deliveries in Irvine and Newport Beach. But overall, our Irvine portfolio to Mark. It's a diverse set
of properties and not all of it is
going to compete head to head with the 2019 supply. San Diego is having a good leasing season, but just to the operator. We expect our full year revenue growth to be 3.4%. This is down from our initial forecast. To.
Overall demand is still good in the market. Occupancy is on track, but we're experiencing a little less pricing power due to the newer product downtown. To you. On the initiative front, we've had a really busy quarter. We're making great progress towards the sales and service roadmap that we shared in our June investor update.
To you. On the sales front, by the end of August, we'll have about 50 communities on our artificial intelligence ELEAD platform. To. We'll have deployed self guided tours at over 45 communities. On the service side of the business, we began testing our new mobility platform for our service teams and we expect to be fully deployed by the end of the year.
We also remain on track to have approximately 2,500 units enabled with Smart Home Technology within the next 90 days. Let me close with a huge shout out to the employees of Equity Residential. To their focus on delivering remarkable experiences to our prospects and residents is greatly appreciated. They have worked really hard to deliver strong results to what has been a very good leasing season. I will now turn the call over to Bob Garechana, our Chief Financial Officer.
Thanks, Michael, and good morning. Michael just discussed our markets and the upward revision to same store revenue guidance. So let me take a moment to address our same store expense revisions, to normalize FFO guidance and touch briefly upon our recent capital markets activity. As you saw in the release, we've reduced the to the top end of our forecasted full year same store expense growth range. We now expect same store expense growth between 3.5% 4% to the 3.5% to 4.5% range we previously forecasted for the full year.
This improvement is driven by better than expected performance in all major to the expense category, but most notably in real estate taxes. Real estate tax expense, which makes up a little over 40% of overall same store expenses, grew 3 point to 3% through the 1st 6 months of the year. This was significantly lower than our original guidance back in January and is driven by lower than to the anticipated rates in Seattle, which we mentioned in our Q1 earnings release, as well as the sale of the 421a assets during the Q2. To you. This, along with continued success in actual and anticipated appeals, has reduced our real estate tax expense growth expectation to between 3% and 3.5% for the full year.
This improvement is approximately 100 basis points better than original guidance. To On-site payroll, our 2nd largest category, also has performed better year to date than we originally anticipated. In order to maintain high levels of customer service, we've increased compensation and benefits to our field personnel in the face of significant competition for their services. To the job. While this job market has remained competitive, we believe we have adjusted fully to this new compensation marketplace and now expect modestly lower payroll growth to the operator's prior expectations.
Like in prior years, we also continue to benefit from fewer losses related to medical claims, driven in part by our continued focus on employee wellness. We now expect full year payroll growth of between 3.25% to 3.75% for 2019, also about 100 basis points better than originally anticipated. Finally, our last two major expense categories are utilities and repairs and maintenance, to which each make up around 13% of total same store expense. Growth in utility expense is expected to remain contained in the mid-two percent range for the full year. To.
Repairs and maintenance, which was negatively impacted by storms and other weather related items during the Q1, has normalized during the Q2. To. We are not forecasting any additional outsized growth in repairs and maintenance for the remainder of the year and therefore expect a mid-four percent range growth rate for the full year 2019. To George. Turning to normalized FFO.
As noted in the release, we have meaningfully raised our guidance range for normalized FFO for the full year. To our new guidance range of $3.43 per share to $3.49 per share is up $0.07 at the midpoint, driven by the following items. A $0.04 contribution from same store NOI based on the strong performance in our core business is highlighted by the new revenue and expense assumptions that Michael and I just outlined. A $0.03 contribution from the timing of our acquisition and disposition activity to In both 2018 2019 and the minimal to non existent cap rate dilution from this activity, a $0.01 contribution from lower interest to expense due to lower than anticipated floating rate along with more favorable refinancing rates, offset by $0.01 in other items, including corporate overhead. To Mr.
Chairman. Turning to capital markets. As you saw in our release, we accessed the unsecured markets in June for a very successful issuance of to $600,000,000 in 10 year note. The rate of 3% was one of the lowest 10 year coupons in both EQR and the REIT sector's history. To you.
After quarter end, we used the proceeds from the issuance to repay a portion of $950,000,000 in secured and unsecured debt that was maturing in 2019 2020. To you. With these payoffs, we have effectively addressed all of our 2019 maturities and about half of 2020. To you. Finally, this new debt was financed at an effective P and L rate that was nearly 75 basis points better than that of the debt that was paid off.
To our balance sheet remains incredibly well positioned for the future given our strong credit metrics and limited near to medium term maturities. With that, I'll turn it over to the operator for questions.
To
the
to the operator. I'll now take our first question from Nicholas Joseph from Citi. Please go ahead.
Thanks. Mark, appreciate your comments on New York rent control and Michael's comments on the impact to operating results. I'm wondering if you can talk about what you expect to what you're seeing in the market in terms of the asset pricing, maybe both for market rate and rent control assets in New York City specific. I'm sorry, Nick. Could you speak up just a bit?
I think your question was on New York rent control and then what we're seeing in other markets, but I'm sorry I didn't Asset to Yes. So it's on asset pricing specifically. So I'm wondering if you've seen any changes to asset pricing in New York City, both market to controlled and regulated and then what you expect to happen going forward given the new rent regulations. Yes. Thank you for the question and for repeating it.
It's just been 6 weeks since the new rules have gone into force. So there really hasn't been a lot of activity that we really any activity That we've seen that's priced assets of the size that we deal with. There was in the paper a reference to a deal that was priced before the rules. I think the buyer was trying to get out of the transaction, but that's a different kind of discussion. So we have not seen any activity yet either direction.
Thanks. And then what is your expectation for what this could do to asset prices to New York City. Sure. I think it's going to take a little time for the market to just understand the rules. I mean, we've got a great team here in Chicago and in New York I really poured over that and we really feel like we've got a pretty good handle on it, but even we're still learning.
So I'd say it's going to take the market a little while to understand the rules and apply it to what they think the pro form a cash flows are going to be going forward. My expectation rent control in New York has always been there. It's The comments gone, it was more acute in the 80s and it's been less acute lately and now it's going to be a little bit more. So I think this market is used to having some manner of rent to Joel in their calculation of future cash flows. I think there's going to be a lot less supply built in this market, which is bad for the city to In general, but probably good for cap rates and values for especially for the 3,000 plus market rate units we own.
So my expectation is that this will take a little while to sort out, that there'll be changes in people's perception, not just of revenues, but of expenses. And we Michael sort of alluded to that. I think we'll be spending less money on turnover costs because our turnover will be lower, less money on leasing and advertising Because again, there'll be less need to fill the buildings, they'll be occupied more even more highly than they are right now. So my expectation is not to see big changes in cap rates. You could potentially see cap rates on market rate deals go down.
Thanks. And then just on updated guidance, specific to the $0.03 relating to the 2019 2018 transaction activity. Can you give more color on what's driving it? Is it the performance of the 2018 deals or is it timing of 2019? And I know you changed the spread for guidance for this year, but that seems to only have a minimal impact on guidance.
Yes. I want to clarify a little bit more on to prior question as well. My answer is limited to the kind of product we own. So these rent stabilized properties are relatively new. Some of the older rent stabilized product might be more significantly impacted.
The market rate and rent stabilized stuff that's relatively new and vintage is going through 421a That's where I was focusing my comment. So Bob, Gerichan and I are going to answer your question on that $0.03 difference. I mean, part of that is to Timing. We bought a lot, a lot earlier in the year, and that created this advantage where we have these disposition assets that will create NOI for us through most of the year. So as it relates to 2019, which is most of what's going on here, it's really driven by timing And then of course the fact that we have almost no dilution.
So a few years ago, we indicated you a lot more of our trading would be done to Flat or with very, very little dilution, and you're seeing that evidence this year. Anything you'd add, Bob?
No. I think that sums it up. You'll see that The corresponding or offsetting component of that is the slight increase in weighted average debt that you see in our guidance adjustments, and that's really just funding it related to that change in to Timing, but I think Mark hit it on the head.
Thanks. Thank you. To you.
All right. We'll take our next question from Nick Yulico from Scotiabank. Please go ahead.
Hi, good morning. This is Trent Trujillo on with Nick. So just to go back to rate growth, if you're seeing such strong demand across your markets, How much are you looking to push rates given occupancy is better than expected and turnover is at an all time low?
Yes. So I mean, I think we actually moved rate a lot through this leasing season. The fact that the rents are up, to call it 60 basis points more than where they were this time last year at 3.7% sitting here. That's actually pretty good growth. My guess is that we're going to see that kind of continue for the tail end of the leasing season.
And then I would expect that While we will moderate for the balance of the year, we just may not moderate quite as much as we have done in the past. So I don't to. It's hard to understand exactly how much this gap is going to close between the renewal and new lease. But clearly, I think we're pretty pleased with the results that we to you posted for the Q2 and like the momentum that we have in place for the Q3 as well on the new lease side.
Okay. I guess Just a quick follow-up on that. Is it still fair to think about your confidence in the ability for new lease rate growth to narrow to about 150, to 200 basis point spread to renewals?
I'm just over a period of time. Yes. I don't believe that that's going to take place this year. I to The gap was just too wide when we entered the year to express the to expect them to compress that quickly. But I think over time, as you see to Strong demand and good pricing power, you will see that spread start to narrow back to that range, call it, between 150 basis points and 200 basis points.
To Are there any particular markets that you're most enthusiastic about when you look forward?
Yes, I mean, to I like New York right now of what's happening. I like D. C. Momentum that we have and Seattle. So really, I mean, the only market that I would say is to China that we're putting out there is the pause or cautionary, really points to Southern California right now, where we're just trying to get the pricing power in check to understand for the balance of the year, but I don't think that that spread is going to narrow down in Southern California right now.
The other markets, I think, still have potential to narrow.
Okay. One more quick one, I'm sorry. But you've spoken the team has spoken about the possibility of taking leverage up a little bit in the past. So how much consideration did you give to recasting guidance showing Equity Residential as a net acquirer this year?
To Mark. So it's Mark. I think that depends on what more opportunities the team sees. To If the investment team, if we see on the ground, there are more deals for sale right now, Trent, we see more we like. We certainly are capable either with to that $300,000,000 of net cash flow that we've spoken of after payment of our dividend and CapEx every year we have.
We can use to a good portion of that to buy additional assets. We could certainly borrow more. So we're open to that possibility. We haven't seen enough good stuff yet to justify taking leverage up, but we're certainly open to it.
Okay. Thanks for the time. I appreciate the comments.
Thank you.
To you. We'll now take our next question from Rich Hightower from Evercore ISI. Please go ahead.
Hi, good morning everybody.
Good morning. Good morning.
I guess, related to the first half performance, could you guys to pin down maybe an estimate of what supply is shifting from the first half to the second half or beyond, how that impacted your ability to push rents during the first half of the year.
Yes. So this is Michael. So we really, this quarter, I mean we're tracking supply in a couple of different ways from completions versus 1st units hitting the market. We really did not see in this quarter any to variation from what we expected to have take place in the Q2 from first units hitting the market. To I think what we could see as we get into the balance of the year, you could see some of the typical markets start to show the delays in deliveries and to start shifting from 1 year to another.
But for at least for the Q2, we kind of hit the mark as to exactly what we thought was going to happen to us from a new to delivery in the market. So I don't think we benefited from any kind of delays, more than what we already anticipated.
Okay. That's helpful, Michael.
And then maybe going back to the comment earlier about the impact to overall New York revenue to performance of, I think you said 20 basis points for 2019. I mean, given what you said about still notwithstanding to people that have worked on it up until now, but kind of still working your way through the law and the implications. I mean, how much variability around that 20 Do you think it could be possible whether for the remainder of this year or even into 2020?
We have a pretty high degree of confidence for the to the balance of this year that is not going to be materially different than that 20 basis points. We're benefiting a little bit because the law went into effect in the middle of the year. So it's half of the impact and you did a lot of your transactions before the law as well on some of the fee impact. But if this was a January 1, it would be a 40 basis point impact to this market for this year. As we think about next year, to.
The difficulties is really trying to project where are renewal where are renewals going to be because then you can figure in, okay, what are these restrictions going to to Tim's going to mean to you the fact that you can achieve what would have been otherwise possible. So we still have a little bit more modeling to do And it's early to try to start thinking about 2020, but it's pretty clear when you look for the balance of this year what the impact is going to be to us. To you.
Got it. Thank you.
Thank you.
All right. We'll take our next question from John Pawlowski from Green Street Advisors. Please go ahead.
Thanks. Michael or Mark, just following up on that question. I'm less concerned about to 2020, but call the next 3 years as you adjust your expense playbook as market demand supply factors adjust. Do you see the new rules as a net negative to EQR's NOI? Is it neutral?
Is it a modest positive? To. How do you think longer term about your operating cash flow in New York?
Yes, thanks for that question, John. I think I'll start by saying we definitively see it as a net negative for New York to Ed for housing production in New York and for addressing the affordable housing issues that New York has. As it relates to us specifically, because we tend not to own to some of this older post World War II rent stabilized heavily regulated product that got hit the hardest. The impact on us is less. I think it also creates uncertainty in the development and lending communities that may evidence itself in there being considerably less to supply in New York than the already low numbers that market has.
I think I can make an argument that New York has just become the most supply constrained market that we operate in. So I would suggest to you that we may do modestly better on our market rate assets than we would have expected on revenue. And I think on expenses. We're going to have an opportunity as we figure out what our new turnover numbers are with these lower renewal increases. We contract to for a lot of turnover costs and we're going to have lower turnover, so those expenses will go down.
In terms of capital, we've got to be very thoughtful about where we're putting our capital as well and We will adjust to that. So, when you talk about a longer term impact, that's yet to be fully determined. But I think there are to modest positives as well as especially to an operator of the kind of assets we own, including the fact that there's just not going to be much built in New York because of this for quite a while. And if you own market rate product and every year, we're going to get 200 or 300 units more of market rate product to As our 421a rent stabilized assets will transition as the burn off period concludes into being market rate assets. I think that's going to be, to us, an incremental positive.
Okay. But operating income for you, when you put it all together, the pros to Hans. Is the event of the new regulation a net, mass net negative, mass net positive?
I'd say either even or it could be a modest net to Just because of the shift from rent stabilized to market rate for us over time to any impact on supply in the market. But I can't emphasize enough how awful this is for the New York and as a housing policy matter. Sure.
Okay. And then a question, I know it's just one disposition, but a question about your broader exposure to DC. I mean, It finally does seem like an improving market and there's job growth drivers to like more than we liked 2 years ago. So I guess why prune to In DC.
Well, we've got some assets that are a little bit older in DC and we've got a big concentration in Crystal City around the to Q2 property. So that for us, this was simply an opportunity to get rid of some older assets. I'll say that D. C, what's most exciting us It isn't just HQ2, it's Virginia Tech's new technology kind of hub or technology campus they're building And the kind of jobs you're going to get in the district and in and around the area. So they won't be just sort of government dependent, but they'll also be a big technology private to market technology aspect there.
So that's exciting to us. The supply, the continuation of relatively high to supply numbers in DC, which we do expect will go on, is a net negative to the market. So for us, as we look at DC having a modestly lower Exposure to that supply makes sense to us. We will continue to buy and build assets in that market, try and freshen the portfolio, But seeing modestly less exposure to that market given the supply considerations I just discussed and the fact that this is the first time I think we've talked positively about DC in to 4 plus years. For us, it seems like a sensible approach.
Okay. Thank you. Thank you.
All right. We'll now take our next question from Shirley Wu from Bank of America. Please go ahead.
Good morning and thanks for taking the question. So Michael, I did want to follow-up with your earlier remarks on LA. So new leases year to date are trending at, call it, around 0.4 versus your initial guidance of 1.4. And you mentioned that that to accelerating to the back half on supply and occupancy would get more challenging as well. So I'm just curious as to to the color around you maintaining your revenue guidance for that market.
Is that coming from, let's say, other income?
Yes. So and I think I said in the prepared remarks, we outperformed a little bit in the first half of the year with occupancy. So that was a boost to the number and we definitely had other income, primarily parking that contributed to a little bit on the outperformance or mitigated to the downside from the underperformance on new lease change and renewal. There is something on the new lease change that I guess I can call out, which is to The one you drew the comparison of the 0.4 to our full year new lease change, but you got to remember, there's a lot of seasonality to that metric by quarter. So you need to understand where was that relative to last year.
So last year, we were running at a 2.3% new lease change in LA to you. Compared to the 40 basis points positive, a lot of that impact had to do with the fact that there's some anti gouging proclamations that were put in place And those proclamations really restricted our ability to obtain short term lease premiums in the market during the Q2. So last year, we sold about 15% of all of our leases as short term leases and those leases typically add premiums, Call it anywhere between 15% 30% higher than a standard 12 month lease. With the proclamation that was put in place to That limits your ability to have growth greater than 10%. We chose not to sell short term premiums because the premium wasn't going to be enough for us to have those leases in place.
So that's a lot of the dilution that you're seeing in the quarter numbers right now.
Got it. That's good color. So I had a second question for you guys on Y Hotel. Could you talk to experience with Y Hotel at 100 ks in DC? To maybe some of the things that you have learned from that experience and if you would consider using their platform with any of your projects currently under development.
Sure. It's Mark. Yes, we had a very good experience with Viotal. We know that we were sort of first out of the gate working with them of the to bigger public companies and I know others are considering or planning to do things with them. So we had a good experience.
I think it's a great way to mitigate to that lack of income on the lease up of a project and we'd consider using them again.
All right. Thank you.
To you.
All right. We'll take our next question from John Kim from BMO Capital Markets. Please go ahead.
Thank you. From recollection of
a couple of years ago when
the market was softer, you guys are signing more 2 year leases with the 2nd year essentially to Matt. And I'm wondering what that dynamic is now. How many 2 year leases are you signing? And what's the embedded growth in that second year?
To So I don't have that with me. I will tell you, we looked at that specifically in New York, to where we did do a lot of 2 year leases several years ago. It's something that's common in the marketplace. We actually had increased turnover in New York to this quarter and on a year to date basis. And a lot of that increase was due to the fact that we had 2 year leases to Expiring and we were not selling quite as many 2 year leases today going forward.
So we're seeing it drop Down, but I just don't have the stats in front of me to quantify. Yes.
It's not terribly material. I mean, you have to offer 2 year leases in New York statutorily, We don't have a lot of 2 year leases, not frankly non-twelve month leases on the portfolio.
To Outside of New York, that dynamic doesn't exist.
No. It's uncommon.
Michael, in your prepared remarks, you discussed the bifurcation between Northern Virginia and the rest of D. C. Metro. Do you see this as a longer term trend given HQ2 and the other tech companies growing in the market? Or do these submarkets tend to revert back to the norm?
Well, I think a lot of that too is just the pressure on supply in the district, to mitigate some of that future revenue growth. No, I think Northern Virginia has got a lot of good things working in its favor to demonstrate strong revenue growth for the future. To And I think there will be some spillover into the district in the other areas, but probably not at the same pace.
To Great. Thank you.
Thank you.
We'll now take our next question from Drew Babin from to Baird. Please go ahead.
Hey, good morning.
I was hoping to hit on the Good morning.
Good morning. The moving parts of the expense to guidance change kind of what's implied for the second half of this year. I was hoping you could talk a little bit, just based on the visibility you have on the cadence of expense growth in the Q3 versus to Q4 from an ease of comps perspective and also anything that might kind of be lumpy that's in there.
Yes. It's Bob Gary Chan. So I'll take that real quick. So for the for year to date, we produced 3.9% growth And we're guiding at the midpoint to 3.75%. I caution on all expense growth that $750,000 Equals 10 basis points, so it can be volatile.
But at the moment, we don't have anything. We expect the back half to be slightly better than the front half. A lot of that is due to expectations that in the Q4, we won't see any anomalies like we saw in the first to quarter related to repairs and maintenance. But otherwise, things are pretty much in line for the back half relative to the front half.
Okay. That's helpful. And one more question that's maybe a little more conceptual. A lot of our third party research that we've read suggests that to Cap rates in secondary locations, B Class properties have converged quite a bit on urban A cap rate. To some and there's still some spread, but it's historically very narrow.
Does EQR look at this and think that maybe it's time to double down to John or maybe even look at issuing common equity at some valuation to kind of double down on Urban A type properties to Whether it's better long term growth prospects or do you look at that data and say, maybe this is just irrational pricing on the B and secondary product. We'll just still continue to do what we've been doing.
Yes, I think we do think about continuing to do what we're doing. I mean, I think you've hit the nail on the head in terms of where the value is. The fact that there's been this convergence is mostly the result, in our opinion, to some of these secondary markets being overvalued because they're just a higher yield. They're just a slightly higher yield and more suitable for leverage to And there's just a lot of money chasing apartment product. And if there's any way you can talk yourself into something being a mid-five cap rate, you're going to do it.
And So you've got a lot of money hitting markets and doing things that we think are going to be difficult because a lot of these secondary markets aren't feeling the housing, single family housing pressure right now That they're probably going to feel at different points in the cycle, and we don't think we're going to feel that on the urban end. So we continue to look at the suburbs in our markets too, Drew, like the dense to parts of our suburbs like the Rockville deal you saw us do. So you'll see us buy suburban product where we see the customer base the same as our urban product. But to use the ATM to go to hit that really hard. At this point, it does not seem like that opportunity is as of yet so compelling, but we'll keep our eyes open.
Great. Appreciate the color. Thanks.
Thank you. I'll take our next question from Richard Hill from Morgan Stanley. Please go ahead.
Hey, you've got Ronald Kamdem on the line. Just two quick ones from me. The first is just on sort of to Chola Technology. Where are you guys on the in terms of getting maybe smart lock and smart home technology? To.
And in terms of just on the operating side, what sort of opportunity is there to sort of reduce either overhead to Manpower through Technology and curious if it's 1,000,000, tens of 1,000,000, how you guys think about that?
Yes. So this is Michael. So I opened in some of the prepared remarks just around some of the stats of the things that we were doing On the initiative front, so we're on track. We'll have about 2,500 units with smart home technology in the next 90 days. We've got about 50 of our properties up and running with both kind of the artificial intelligent eLEAP platform and self guided tours.
We've got mobility on the service side. Yes. I think I stated this last quarter and we talked a little bit about this at NAREIT, which is from our standpoint on these initiatives, to. The focus has really been around transparency, control, convenience and flexibility to our customers. To.
We've done a lot of decentralization and eliminated roles on-site in prior years. We're not saying that we're not done, but I know that we're going to need to see the technology platforms enabled through our portfolio just to see and understand what efficiencies and opportunities we're going to create. So we're excited about the momentum that we have in place. And I think as we get closer towards the end of the year, we'll be able to put some numbers to it. I mean, each one of these right now, we're in these initial pilot phases.
But I can point to on a standalone basis, we look at like the mobility platform. We have initial expectations that it's worth a couple of $1,000,000 to us, could be worth more from reduction in dependence on third party contractors And overtime and things like that. So but we want to see these up and running for a little bit. We want to make sure that to Todd. The results that we see are sustainable over a long period of time before we start putting numbers into the results for you guys.
And it will take a while in any event to evidence to Zelle. I mean, 'nineteen is about implementation and putting these things out there and 'twenty and thereafter is more about seeing results. And Some of the stuff will work great and some of the stuff won't, and we'll be very open both directions and we'll use the entire 80,000 unit platform to leverage any technology that we do like. To
you. Great. My second question, just I'd love to talk a little bit about affordability. Maybe as you think about your markets, East Coast, to Westcoast, sort of how that's trended and what you think the outlook of that is for the next 3 to 5 years?
To Sure. So you did ask about markets, but I want to talk about the company first a little bit on affordability. We have our residents, our average to household customer income is $155,000 a year. They're paying us $2,800 a month in rent, Which means they're giving us about 19% of their income in rent. So our customer, just specifically the equity customer is not terribly stressed.
They've done well. They've gotten raises. We see that in the statistics that we have. So when we talk about affordability of to the rent check, they're paying the equity now. We feel really good about that.
We do recognize the bigger affordable issue in our markets that I think on the workforce side is pretty common. We think that a lot of the things being done, for example, in Minneapolis and were done in part in Seattle that were done with the old 421a program in New York, to where you encourage and incentivize developers to create both market rate and affordable housing, where you reduce zoning barriers. I think this the answer is housing production to address this affordability issue you're bringing up. And for that to occur, the government's got to both I think encourage private industry to work as an actor to create these units. And I think to some extent, get out of the way, on some of the things that it does That create barriers to that.
So again, there's a great article on Minneapolis that came out just today, I think, talking about their new zoning system that effectively got rid of to single family housing zoning in Minneapolis and is likely to encourage a lot more production of housing.
Great. If I could just follow-up on that, if I may. Just trying to get a sense of, Obviously, you've been in the industry a long time. As these conversations are coming up over production of housing and sort of you mentioned, Do you feel like the conversation may be more productive today than they with regulators than maybe they were 3 or 5 years ago? Or do you still feel like There's still a little bit of education or help to climb.
Just trying to get a sense of the tea leaf. Thanks.
To There are still things we need to do with the policymakers. We're pretty active through our trade associations having these conversations. A lot of rent control is to us a bit of a well intentioned, but misguided attempt to just relieve these rent pressures on people. But it's not going to help in the long run. So to answer your question directly, I think the industry needs to continue to push on the education front, both with policymakers to.
And with the public and cities like Sydney, Australia and Toronto repealed rent control a few years ago And they're seeing in Toronto lower rent growth than they did before now that they've repealed it. In Sydney, Australia, they're seeing rents actually go down on high quality And workforce housing because they produce so much housing. So it isn't like the industry doesn't have facts to back up its position. There are very few, if any, commonists that think rent control is a good idea. So I think we just need to keep putting our message out there.
This stuff cycles and there'll be a time when They sort of stopped doing this and get rid of it like they did in the early 90s when all these preemption measures came across all the states that didn't allow localities to do rent control And when New York started to liberalize its rules.
Helpful. Thanks so much.
Thank you. To operator.
We'll now take our next question from John Guinee from Stifel. Please go ahead.
Great. Just a couple of balance sheet questions. You sold out your unconsolidated JVs, but you still have $52,900,000 of to On consolidated entities on the balance sheet, what does that refer to? And then second, and if this information is somewhere else, let me know. To your $281,000,000 of lease liabilities, are those ground lease obligations?
Yes. So it's Bob here, Ken. I'll take the second question first and then talk about the investment in unconsolidated. The ground the ROU or The liability and the ROU on the balance sheet are predominantly related to ground leases. So we have 14 ground leases, But there are also corporate leases, etcetera.
I think in the Q, we probably do a very specific job of kind of outlining that, but they are predominantly ground leases. On the investment in unconsolidated, there are some non there are some unconsolidated investments. There is a to. Predominant $40,000,000 of that $52 odd million is related to a unconsolidated condo kind of joint to investment structure related to one asset that we own that is there as well as our private equity to technology investments that we disclosed previously, and that makes up the balance of that $52,000,000 But there are no true operating assets That are unconsolidated anymore post the sale of the 2 that we mentioned in the release this quarter.
Okay. And then are you also are you to providing any information anymore on your consolidated joint venture. I think maybe you have a partner rather 20% interest in that.
Well, that those were the 2 that were sold this quarter. So that's gone away.
Yes.
Those are the unconsolidated. So the other piece that we have is which I think is also in the queue there to Tom. We do have some consolidated ventures that have minority interests in them. There's, I think, to 17 odd properties or so that have limited partnerships that we refer to as the groupie stuff. There is another asset that is in the D.
To Mark that is about a 25 percent minority interest. There is some disclosure in the Q and in the K related to that.
Great. Thank you.
Great. We'll now take our next question from Rich Anderson from SMBC. Please go ahead.
Hey, thanks. Good morning out there. So, Mark, is part of the education process with regard to New York Rent Control, to the ability for existing stabilized units to graduate to market. And is that to perhaps like a sort of an unintended impact to all this and could that actually help you again given that you have a lot of market rate to New
York. So I may not have followed your question exactly. Is it that we need to to educate policymakers or continue the conversation about the conversion of market rate, not the
Yes. I'm saying, will that process be impacted by all this
to Jim in a way that's not is not understood quite yet.
Yes, I think there are probably a significant number. To And in the prior question on this, I probably hit on it. There's a significant things we don't understand and unintended consequences the policymakers have triggered. To So, they're going to have to figure some of those things out. I think, again, they've created disincentives to certain types of to conduct like investing in some of this post World War II product that is, I think, the backbone of New York's workforce housing supply.
So I think there's this conversion part they may not fully understand and they may be very happy not to have had those rental rates go up. But what they've also done is discourage people from putting money into those deals. So that's going to have that impact on deterioration outside. There's probably more to come here, I would think over time to terms. Once they start to see this negative impact, hopefully the policymakers react to that and change some of the rules.
And how would you compare and contrast to what's going on in New York with what may or may not happen again in California, to Costa Hawkins, Part 2. I mean, would you say that that's a little bit more of a fluid situation from your perspective? To. Just curious how you're approaching that?
Yes. Thanks, Rich. I think the good news in California is that the dialogue is much more public. To both the activists of the industry have a seat at the table. They're talking to policymakers.
There's a lot of back and forth. We all know about the Assembly Bill AB 1482 that It's cleared the assembly and once the Senate comes back from recess in a couple of weeks, we'll be discussed there. And we think that that is again not the right direction to Nico, but at least we're involved in that conversation again as our activists and the public in general. What happened in New York seemed to happen in the dark of night and
to Tom.
I think it's going to have a lot more unintended consequences because it wasn't really carefully vetted and thought through. And so I can't to speculate as to how California will end up, but the quality of the conversation so far to us seems pretty good.
Okay. Last question, you mentioned to dense suburbs and looking in that direction. Do you feel like when a lot of talk about how the suburbs have outperformed the urban to Kare up to this point. Maybe you don't see it that way, but a lot of people have said that. Do you feel like EQR has left some money, at least temporarily on the table by virtue of the fact that you have this sort of urban centric
model? Coming out of the Great Recession, we We're leaders with the urban portfolio. The demand we see and the resiliency of that demand, we think what happened in the suburbs to the positive was mostly about just the dearth of supply. So and when you do see supply and Michael Manelis has spoken to this and for example the San Fernando Valley, Not a lot of employment drivers there. Now we've got a bunch of supply and we're having a tough time.
So whenever we see supply fall onto a suburban to Submarket, we see a lot more dire consequences where these urban submarkets just work through it because the more That's built in these urban submarkets, the more appealing those areas become. And so they draw in even more people and it's sort of this virtuous circle. And though it hurts us for a while in our numbers, in the long run, we're in a lot of these properties at a very low basis on a relative scale compared to what people bill to. And it's we feel like in the long run, our NAV growth and our IRR and our FFO growth will be better. So I think our emphasis on the dense suburbs is just to more a bit of a slight shift.
I mean, we're looking for the same kinds of customers. So the guys we usually the folks that usually are in our units in DC have 120,000 household income numbers per year and the folks in Rockville, they average about 110,000. These are the exact same customers. They just drive to work because of the nature of that location as opposed to take transit. So we want to find more people like that, Rich.
We think those areas are good investments. But just to be in far suburbs hoping there'll be no supply, The minute there is some supply, your product is obsolete and you struggle for a long time.
Okay, great color. Thanks very much.
Thank you.
All right.
We'll now take our next question from Hardik Goel from Zelman and Associates. Please go ahead.
Hey, guys. Thanks for taking my question. Not to beat a dead horse with this New York regulation thing, but I think I understand the moving pieces. Please correct me if I'm to Mr. Taken.
Of the assets that are currently stabilized, can you tell us how many of those are actually under the 421a development to Plannan will at some point become market rate units and maybe a little bit on the cadence of when you expect to see them become market rate units since I know The structure is going to be quite different.
Yes, I think it's effectively all of them. Thank you for that question. And it's one way to think about this is from now till 2028, so it's a long period of time, to Somewhere between 150300 units a year, and that's because this is chunky because it's properties. So we have a property that just in the last few weeks to move into this category. We'll leave the rent stabilized world and enter the market rate world.
There are transitional rules. It doesn't all happen in a day in terms of to the change in our ability to grow revenue at that property, but it happens. And so I think that's again a built in advantage of the kind of owning the kind of assets we own in these markets that these sort of properties are in a market that's going to have even less supply, we're going to have more market rate units to created with no incremental development risk every year for the next 9 or so years.
Got it. Thank you. That's really helpful.
Thank you. To operator.
We'll take our next question from Alexander Goldfarb from Sandler O'Neill. Please go ahead.
Hey, good morning. Good morning in Chicago. To. Just two questions. First, just continuing on the 421a theme.
What are your thoughts on keeping? Yes. For a while, you guys have been selling your 421a, especially to avoid the increased real estate taxes that abatement burns off. And saw a local publication, you guys are marketing 1023, which I think is a 421A. But what are your thoughts on retaining the remaining to 421a Assets and accept the higher real estate burn off pressure on OpEx for the advantage of owning to those market rate units longer term, which Mark, I agree with you, they're going to be vastly more valuable given that housing stock in New York is going to go down And those units are going to be more in demand.
So what are your thoughts on keeping remaining 421A versus the selling that you've been doing?
Yes. Thanks for that question, Alex. So I'm not going to comment on any specific asset, but I think you'll see us continue to sell a few of these 421a assets that have to just begun their burn off period that are 6, 8, 10 years from entering and sometimes even longer. It isn't always true At the end of the tax abatement period is the end of the affordable housing period. So that's an important thing to keep in mind.
For us, everything I I told you it's the case, but assets we've sold lately, some of them had the abatement end and the requirements to stay affordable go another 10 years or more. So we're going to be thoughtful about this. When we have assets where we think cash flow growth over the next 6 to 10 years is almost certainly negative, It's going to be very hard for us to hang on to those assets thinking that 10 plus years from now there's a payday. But assets that are anywhere near their to Braidate. I agree with you.
Those assets have probably a special and different value and those are probably assets we're even more interested in holding on to than we had been to Ford.
Okay. And have you guys I mean, I know it's early on, but given that asset values are going to be negatively impacted by the regulated units, to presumably your tax assessment pushback is going to grow. Do you see this as a potential Yes, significant savings of reduced real estate taxes because the value of the buildings has gone down?
Yes. Well, I'm not sure the values of the buildings have gone down Or not. Like I said earlier, we're just not sure about that, but we intend to be more aggressive. And absolutely, I mean, you show your income and to Sensus to the assessor. You have these discussions.
Michael is a pro at this. There's a team that works in the investment group that does this for us and we're all over it. So You can be assured that we'll be on top of any appeal opportunities this presents.
Okay. And then just finally, bigger picture on the back half of this year. It almost sounded like where you're talking about more supply coming in Boston, the negative headwinds on lower New York revenue growth. And it sounded like there were a few other markets in there which may have some supply. It sounds like there's some increasing pressure in the back half, to your guidance increase obviously suggests that things are pretty healthy.
So did I miss here or are there a few markets that are going to be some headwinds in the second half of this year.
No, I think that's absolutely correct. I mean, I'll just point to LA. LA is very pronounced back half loaded kind of on the delivery side. But I think what you got to remember, as that pressure starts to come in towards to the later part of Q3 and Q4. The volume of transactions left, the impact on the full year revenue numbers is left Because you're only being impacted for that stub period for the balance of the year.
But supply definitely in several of the markets is back half loaded. And we're just going to see if demand stays strong, it's going to be absorbed and we'll be just fine. And if demand softens a little bit, It's just going to basically play into our next year's forecast and what's going to happen to our embedded growth next year.
Yes. And that's an important point. The embedded growth, as Michael and I have been talking over the last to a few weeks. What you're going to roll into 2020 and we're not giving guidance on the call, but we it is important because your question is forward looking. I We're going to have much better embedded growth likely going into next year, but tougher occupancy comps.
Some of the supply pictures in some of these markets like New York and LA will be better in 2020 that it is even in 2019 and a lot of the others will be about constant. So we feel terrific about the back half of the year. The usual seasonal Variability is going to occur, but there isn't some like particular risk that's coming in. I mean, you're going to like we could easily end up at the top end of the range if Occupancy just doesn't moderate. And that's happened as recently as last year.
Okay. Thank you.
Thank you.
All right. We'll now take our last question from Nicholas Joseph from Citi. Please go ahead.
Hey, Mark, it's Michael Bilerman here with Nick. I recognize John was when he was asking about the operating income relative to New York and whether it was a modest net positive, negative or even
to you. And you sort
of came out and said, it's probably even to a modest net positive. So I guess I step back from that. If that's the case, why are you spending so much time, money and effort in fighting all these regulations? Is it more altruistic about the impact it could have to housing in your core markets. I'm just trying to put those two things together.
Well, we're certainly charitable folks here at Equity Residential, but I'm not sure we're motivated to interact with politicians through altruism. To I think we don't know what they'll do and what they won't do. And so when we enter into these conversations, I think on to our own behalf and on behalf of we think the greater good. We want these cities to thrive. We think this policy, even though it didn't hurt us, is bad for the city as a whole.
And in the long run, as citizens of New York City, because we're enormous investors in that market and we have employees that live in that market and residents, we think Good policy is better for us. So listen, they could easily do some things that would be bad for us and we just need to stay in front of them and keep to that education process going. So I guess for us, having more political interaction is probably the way it's going to be from now on, At least until all of this pressure kind of moderates across the country.
So you're saying the long term potential detrimental effects to a city in terms of rent control and what that may do in terms of people wanting to live here and do things that ultimately will drive And Thrive for people that own multifamily assets. And if assets go into disrepair, it has impacts on the quality of life and
the quality of Citi. To
And so even though it may not have a direct, a large negative impact to your values or income, you rather the city be more prosperous?
Yes. And I think just as citizens, we should hope that these big, great cities like New York and San Francisco are creating all these great jobs. They don't have places for people to live. And so you're unable I mean, a lot of the job growth that may be slowing at places like San Francisco is just because there's no one else to employ because they have nowhere to live. So I mean there's a lot of studies that GDP growth in the United States and average earnings per family would all be higher if we were able to house people more effectively in all these cities.
So I think you've hit it precisely.
Thank you.
Thank you.
To Mr. Mark Perro. Please go ahead.
Well, thank you all for your time on the call. Hope everyone has a safe summer, and we'll see everyone around the conference circuit in September.
To