CSR - NYSE

Hello, everyone, and welcome to the Centerspace Q3 2024 Earnings Call. My name is Ezra, and I will be your coordinator today. [Operator Instructions] I will now hand you over to your host, Josh Klaetsch at Centerspace to begin. Josh, please go ahead.

Good morning. Centerspace's Form 10-Q for the quarter ended September 30, 2024, was filed with the SEC yesterday after the market-closed. Additionally, our earnings release and supplemental disclosure package have been posted to our website at centerspacehomes.com and filed on Form 8-K. It is important to note that today's remarks will include statements about our business outlook and other forward-looking statements that are based on management's current views and assumptions. These statements are subject to risks and uncertainties discussed in our filings under the section titled Risk Factors and in our other filings with the SEC. We cannot guarantee that any forward-looking statements will materialize, and you are cautioned not to place undue reliance on these forward-looking statements. Please refer to our earnings release for reconciliations of any non-GAAP information, which may be discussed on today's call. I'll now turn it over to Centerspace's President and CEO, Anne Olson, for the company's prepared remarks.

Good morning, everyone, and thank you for joining Centerspace's third quarter earnings call. With me this morning are Bhairav Patel, our Chief Financial Officer; and Grant Campbell, our Senior Vice President of Investments and Capital Markets. Before taking your questions, we will briefly cover our results and discuss our outlook for the remainder of 2024. We have a lot of good news to share, starting with earnings of $1.18 per share of core FFO for the third quarter driven by stable revenue growth and expense control initiatives. We continue to improve and simplify our balance sheet. And subsequent to quarter end, we expanded our presence in the Denver market with the purchase of Lydian, which we acquired with a combination of attractive long-term assumed mortgage debt and the issuance of OP units at a premium to our stock price. Grant will share more about that transaction momentarily. Bhairav will discuss our quarterly results, but I want to provide some details on leasing trends. For the third quarter, same-store revenue increased 3% over the same period in 2023. We are proud of this growth on top of the 2023 growth we achieved, which was at the high end of the multifamily public peer group. Same-store new lease trade-outs are seasonally slowing down 1.2% and while renewal leases increased by 3.2%, resulting in 1.5% blended lease increases for the quarter. Importantly, we achieved these results while also increasing occupancy to 95.3%, which is a 70 basis point improvement over the same period last year. Maintaining occupancy above 95% has been an objective for us, and that focus does have a trade-off relative to new lease pricing. I'll caution against extrapolating our quarter-over-quarter leasing results given both the seasonality and our prioritization of occupancy. Much of our portfolio footprint has experienced lower supply than national averages, and our results benefited from that during the quarter. North Dakota communities continued to lead the portfolio with blended spreads of 5.4%, while our Nebraska communities also saw strong blended growth at 3.3%. I'd like to highlight our largest market in Minneapolis, where we recognized 1.2% blended rent increases. Minneapolis, once again ranked among the strongest absorption markets nationally in the quarter. After several years of outside supply here, the recent absorption and lower anticipated future deliveries should act as a tailwind for our portfolio. Resident retention remains elevated at over 58% for the quarter, which has helped drive occupancy and bolsters our blended leasing spreads during the seasonally slower months. Resident Health remained strong, though up slightly from last year, bad debt year-to-date is trending similar to historical norms, and rent to income levels remain sustainable at 23%. Renting compared to the increased cost of homeownership remains a compelling value for our residents across our markets. As a reflection of our operating results and our capital markets activity, we are raising the midpoint of our full year core FFO guidance by $0.01 to $4.86 per share. While our revenue results have trended to the low end of our initial guidance expectations for 2024, there are assets on the expense side that results in positive NOI growth, and we are getting that to the bottom-line. These include items directly related to revenues, such as lower utility expense and turnover costs as well as savings from leveraging technology and centralizing certain property management functions. In the third quarter, we issued approximately 1.5 million shares on our ATM, raising $105 million. Proceeds were used to redeem the entirety of our Series C preferred shares. The opportunity to both simplify our capital structure and improve our balance sheet while improving cash flow and share liquidity was attractive, but we are mindful of our valuation and intend to remain disciplined about our capital markets activities. As we sit today, we feel very well positioned to advance our vision to be a premier provider of apartment homes and vibrant communities and drive consistent earnings growth for our investors. Part of that vision includes a new community, the Lydian, and I'll turn things over to Grant to discuss that acquisition and the transaction market more broadly. Grant?

Thanks, Anne and good morning. Earlier this month, we completed the acquisition of the Lydian in Denver. This 129 home community also features 23,000 square feet of fully leased commercial and street-level retail space with front door access to a light rail station. The 2018 built property is located within 1.5 miles of three other Centerspace communities, providing opportunity to leverage our geographically proximate operating platform and broader Denver portfolio scale. We are excited to add the Lydian to our portfolio and introduce our operating platform with implementation of best practices. After execution of our business plan, we expect the community to generate an NOI yield in the mid- to high 5% range. The Lydian also provided us a financial structure that advanced external growth at attractive terms. Specifically, our purchase was funded via the assumption of attractive long-term mortgage debt with a balance of $35 million at a 3.72% interest rate maturing in 2037, along with the issuance of common operating partnership units at $76.42 per unit. Additionally, the community is part of a tax increment financing district where we anticipate receiving over $6 million of principal and interest payments, funded by the real estate taxes we pay on the property over the duration of the TIF agreement. Looking at the transaction market more broadly, we continue to see thawing in the market with both a smaller gap between buyer and seller expectations and higher levels of conviction from buyers, leading to increased liquidity and investor demand. Our belief this transaction volume will continue increasing and more actionable opportunities will present themselves to the market as we move into 2025. And we want to take advantage of growth opportunities when they align with our strategic initiatives. On the pricing side, well located higher quality communities in markets such as Denver, have recently been trading at 4.75% to 5% cap rates. With 23% of our NOI coming from this market, this highlights the attractive relative valuation at which our stock currently trades. Demand for apartments remain strong. And on the supply side, we are past the peak of new deliveries in each of our largest markets and construction starts have declined materially. As all our markets move into the net absorption phase with deliveries tapering, we are excited for our future growth potential. And with that, I'll turn it over to Bhairav to discuss our overall financial results and outlook for the remainder of 2024.

Thanks, Grant, and good morning, everyone. Last night, we reported core FFO of $1.18 per diluted share for the third quarter, driven by a 2.8% year-over-year increase in same-store NOI. Revenues from same-store communities increased by 3% compared to the third quarter of 2023, driven by a 2.2% increase in revenue per occupied home and a 70 basis point year-over-year increase in weighted average occupancy, which stood at 95.3% for the quarter. Same-store expenses were up by 3.2% year-over-year, driven by higher non-controllable expenses with non-reimbursable losses and insurance premiums as the primary drivers of year-over-year growth. Controllable expenses growth remain muted up only 80 basis points compared to Q3 last year, as savings in repairs and maintenance and on-site compensation were offset by increased administrative and marketing spend. Turning to guidance. We updated our 2024 expectations in last night's press release. We now expect core FFO of $4.86 at the midpoint, which is an increase of $0.01 compared to our prior expectations and an increase of $0.06 versus our initial guidance released in February. We are maintaining the midpoint of year-over-year same-store NOI growth guidance at 3.5% while lowering our expectations for both revenue growth and expense growth. With market rent softening more than expected, same-store revenues are now projected to increase 3% to 3.5% for the year. The decline in revenue is projected to be offset by lower growth in same-store expenses, which are now projected to increase by 2.5% to 3.25%. Moving on to other components of guidance. We now expect G&A and property management expenses for the year to range between $26.5 million to $27 million and interest expense to range between $37.3 million to $37.6 million. Increased interest expense is primarily driven by the debt assumed in conjunction with the Lydian acquisition. Our expectations regarding value-add spend and same-store recurring CapEx per unit are unchanged. After the Lydian, no additional acquisitions, dispositions, issuances or borrowings are factored into our guidance. On the capital front, as Anne noted, we have taken a series of steps to further strengthen our balance sheet. We've sold nearly 1.6 million shares year-to-date under our ATM program, raising gross proceeds of nearly $114 million. These proceeds were used to both retire the series C preferred and decrease the balance on our line of credit. While we will always be mindful of the impact of equity issuance, the coupon and interest rate, respectively on these were both in the mid-to-high 6% range. Issuing equity in a manner that improved both our cash flow per share and our leverage profile was a logical choice. The redemption of the Series C preferred alone is expected to increase our cash flow per year by roughly $2.3 million based on the implied dividend yield of approximately 4.2% and on our common stock relative to the 6.6% coupon on the preferred stock we redeemed. Combined with the recast of our line of credit, which we announced last quarter, we have a well-laddered debt maturity schedule that pro forma for the Lydian acquisition has a weighted average cost of 3.61% and a weighted average time to maturity of 5.9 years. To conclude, it was a very active and productive quarter across the board. We achieved strong operating results, strengthened our balance sheet, simplified our capital structure and expanded our portfolio in one of our desired markets. We look forward to sustaining this momentum as we close out 2024. And with that, I will turn the line back to the operator for your questions.

Thank you very much. [Operator Instructions] Our first Question comes from Brad Heffern with RBC Capital Markets. Brad, your line is now open. Please go ahead.

Yes. Thank you. Good morning everyone. You mentioned market rent softening more than expected. Is that also a greater softening than the normal seasonal trend? And what would you attribute that to?

Good morning Brad, thanks. I think we -- it is more than we expected, more than the seasonal expectation that we had just slightly more. As you know, we always expect that they soften at this time of the year. They happened a little bit earlier. We talked about that last quarter, we really saw the peak leasing in May. And I think, we attribute it mostly to the supply/demand, and this is just against our expectations. But I think as we look across our markets, we believe that the rents we are getting are at market, we are using not very many concessions. So we feel good about where they are. I think our expectations for the year were just a little bit higher.

Okay. Got it. And then maybe for Bhairav, just looking at the new revenue growth guidance, it implies a pretty substantial drop 3Q to 4Q, something like going from 3% to 1.6%, plus or minus. The year-over-year comps actually look a little easier. And I assume you don't have many leases expiring anyway. So I'm just curious what would lead to that large of a drop.

Yes. Good morning Brad. So with respect to revenue guidance, at the midpoint we would expect to report about 1.5% to 3% for revenue growth at the midpoint, our blended assumption is really flat for the quarter. On a year-over-year basis, we do expect some rubs favorability as we have baked in a slightly higher utilities cost in our Q4 numbers. And additionally, we also have less concessions we expect to utilize in this quarter as we bolstered occupancy going into it. So overall the 1.3%, 1.5% NOI growth at the midpoint is really driven by expenses mainly on the noncontrollable side with insurance premiums and losses expected to be pretty high compared to last year.

Okay. And then last for me. Do you have any preliminary read on the October leasing stats?

Yes. We – it is very early in the month. We are cut off. We usually allow some time after a date. So there I think reflected in the guidance. As Bhairav said, we did bring the revenue down. We do believe that the blended will be flat. So new leases have remained slightly negative and renewals have remained slightly positive.

Okay. Thank you.

Thank you. Our next question is from John Kim with BMO. John, your line is now open. Please go ahead.

Thank you. So for your third quarter lease results, just trying to isolate September, it looks like new lease rates were down 3%, renewals below 3% blended of roughly plus 80 basis points. And now you're saying that it's going to go flat or expected to go flat in the fourth quarter. So what components between new lease and renewals are driving that number lower.

Hi, John. So with respect to fourth quarter's expectations, we expect renewals to average somewhere in the mid-2s and we expect new leases to average a negative mid to rate on the trade-outs. So that's why it's balancing our expectation with respect to renewables is 50%. That's what's driving our base case expectations.

And do you have a view on what your earnings is going to be for next year? Or is it too early to determine?

It's -- we are working through it at this point. The earn-in for this year is close to 2.4% with respect to next year it's going to be less than 1% at this point, but we are working through our estimates, and that can change as leasing trends evolve.

Just really quickly on the Denver acquisition, you guys mentioned a mid-to-high 5% yield once you stabilize the asset under your new platform. How long will it take to get to that level? And if you can comment on the going-in cap rate.

Yes. Good morning John, this is Grant. From a going in perspective, NOI yield there is a blended 5. We think the operational best practices and operating initiatives that we alluded to in the prepared remarks, some of those are first 90-day to 120-day items in terms of the service that we provide to the residents on a day-to-day basis. And then there's other items related to things like potential property tax savings, mark-to-market rents as you roll through the lease expiration schedule that we'll take 12 to 18 months. So kind of two different buckets, but really looking at kind of 18 months for holistic implementation.

Okay, great. Thanks everyone.

Our next question is from Connor Mitchell with Piper Sandler. Connor your line is open. Please go ahead.

Hey good morning. Thanks for taking my question. So it sounds like retention rates might be a little bit higher in the quarter than they had previously. Can you just kind of give us some more color on why you might think that the retention rates are higher, what might be driving them this year or the quarter? And then finally, just do you guys plan on disclosing turnover or retention in the supplemental in the future?

That's a good question, Connor. We are always looking for ways to enhance our supplemental, so we'll not that down and consider that for future publications. With respect to the retention rates being higher, we're in month '18 of seeing higher retention rates across last year, they were slightly higher and year-to-date, they've been higher. We've also seen the traffic pattern. It's showing that people are looking earlier than they had been in the past. And so I think some of that is more choice than the market, right supply as people out looking and making decisions a little bit earlier. And then also, we have seen a pretty dramatic drop across the industry and people leaving to buy homes. And with the high cost of housing, renting as a necessity is affecting more -- a larger percentage of the population. And we have a lot of renters in that category. Our average rent are right around $1,600 just below $1,600. So most of our residents were two or three years ago are pre-COVID may have been looking to move out to buy a house, that percentage was about 25%. That's fallen to 12% to 15% post-COVID. So I think that is impacting our retention rates.

Okay. And then just kind of along the same lines, as you kind of think about the retention rates and balanced renewals with new leases. Could you guys just give us some color on kind of how you think about pricing renewals, whether that's all the way up to market or maybe partially just to offset any leasing costs for new leases instead. Just any color you might have there would be helpful.

Yes. Sure, Connor. We take the approach to lease renewal pricing goes out 75 days before the renewal actually happens. And during that time, we want to make that price competitive, but it really depends property by property and lease by lease. How far that individual resident is away from market. So if they're only 5% away from market, we might take that renewal all the way to market. If they're 20% away for market, they might go up 10%. If they're above market, they might be coming down slightly. So we want to make that renewal pricing attractive both because it offsets turn costs, but also because having those renewals committed to having people that are committing to staying there helps us that the new lease pricing in order to maximize total overall revenue. So if we really push hard on renewals, we risk that less people renew and then new lease pricing softens more. So we really take the approach that we're trying to maximize overall revenue. We do factor in that there are costs associated with turning the residents and -- so we're really focused on giving the best resident experience to make them want to stay with us and also providing the best value when we approach pricing.

Okay. Very helpful. And then maybe just one quick one for Bhairav as well. You guys talked about like forecasting utilities, which drives expenses and revenue for RUBS. Just kind of a big picture, wondering when you guys are looking at the forecasted utilities, does is essentially net out for earnings or how impactful might we think about it for earnings in terms of revenue and expenses to the bottom-line?

Sure. So with respect to utilities, we passed through 80% of gas utilities and most of the other utilities costs. So for the most part, we feel like we are hedged, although when you look at our P&L, you'll see revenues coming through in the form of RUBS and the expenses going up in the form of utilities expenses. So there's a gross up on the income statement, but for the most part, given the amount we charge through, we feel like we're pretty well hedged, especially on the gas RUB side, which we rolled out about a year, 1.5 years ago, where we passed 80% of the cost.

Okay. Thank you very much.

Our next question comes from Cooper Clark with Wells Fargo. Cooper your line is now open. Please go ahead.

Thank you for taking the question. Just wanted to ask about some of the moving pieces as it relates to your insurance renewal coming up in mid- to late November. Wondering what type of growth you're expecting and how much wildfire concerns in Denver may have an impact?

Yes, we are in the final stages of our renewal. We don't really have any definitive color to provide. Initially, we had expected a pretty favorable renewal cycle. However, some of the recent activity, especially the storms in Florida may have an impact as carriers are kind of estimating their exposure there. We haven't heard anything specific about the wildfires in Denver yet, although we are waiting with greater breadth to find out what the renewal looks like. Early indications were, again as I said, very favorable, but the recent activity may have some impact. But hopefully, we'll be able to report something on that front soon. We do renew in the next month or so. So we are in the final stages of that.

Awesome. Thank you. And then just as one follow-up. Wondering if you could provide an update on where bad debt was for the quarter? And any color on certain markets where you may have more elevated levels of bad debt?

Certainly, for the third quarter, we were about 45 to 50 basis points in terms of bad debt. From a year-to-date perspective, that puts us towards the high end of our expected range of 30 to 40 basis points, and we are expecting the same levels to continue, as we look across markets, there aren't really any broader trends to glean from any of our markets. I think it's just kind of relatively spread out across our markets and nothing specific with respect to a market or two, that's worth noting.

Awesome. Thank you.

Our next question is from Rob Stevenson with Janney. Rob your line is now open. Please go ahead.

Good morning guys. Anne was the new lease growth of negative 1.2% in the third quarter, driven mainly by Minneapolis and Denver? Or was that fairly widespread across the portfolio? And any markets where new lease growth was still meaningfully positive for you guys?

Yes. Good morning Rob. I'd say we are still seeing a lot of strength in our North Dakota markets and across Nebraska, but generally all the markets slow down right now. So the drivers are we are seeing a bigger decline in Denver and Minneapolis. And then other Mountain West typically the markets that had -- that's a market that's Rapid City and billings where we saw tremendous lease growth during COVID. And so there has been some leveling out in that market that's led those to be a little more negative than others. But we are still seeing strong growth, really North Dakota, where we've had no supply and then also across the Nebraska market.

Okay. And then technology savings on the expense side are still left for you guys to realize and how much additional spend over the next 18 months are you anticipating for your various tech programs going forward?

Yes, that's a great question. We have really fully implemented all of the technology stack that we're currently looking at. So I'd say that from an expense side, that is behind us. The exception to that would be the smart rent implementation, which we really consider value add. About 70% of our portfolio has the smart rent implemented fully in it, and we plan to identify additional properties for 2025. So -- but with respect to efficiencies on the operating side, really, we're looking at adoption and then how our staffing models can change given the implementation and adoption of that technology. And like a lot of companies across the industry, we have centralized certain positions within our property teams. So rather than have an assistant community manager at every asset we now have those in regional remote positions. So we are really trying to look forward and say, what are the other impacts that the implementation that we did with technology, what do those have on staffing models, operations, data efficiencies and moving forward there. So we're still harnessing some of those. I think next year will be the -- we'll probably see a true full year of savings from staffing model implementations.

Okay. That's great. And then last one for me. Given your current NOI contribution from Denver post Lydian acquisition, how are you thinking about future acquisitions in that market? Are you going to be comfortable taking that up into the 30s, like Minneapolis and given your comments on cap rates in Denver, would you look to maybe sell an existing Denver asset in order to buy another one with more upside. And so how are you guys thinking about the optimal size and exposure of your Denver portfolio going forward?

Yes, this is something we think a lot about. We are seeing more and more opportunities in Denver. With operations like we have in Minneapolis and Denver come opportunities. And while we like that, we really need through external growth like the Lydian in other markets so that we could grow out of that. We are actively looking in markets across the Mountain West and seeking out opportunities. So ideally, we would like those market exposures to stay below 25%. But it's going to take us some time to work through that, both with external growth and how the portfolio has changed over time. So it might rise a little bit on its way to a stabilized maybe 20% to 25% of the portfolio.

Okay. Thanks guys, appreciate the time this morning.

Our next question is from Michael Gorman with BTIG. Michael, your line is now open. Please go ahead.

Yeah. Thanks good morning. Grant, if I could just go back to the Denver acquisition for a second. Is it possible to kind of break down as you talk about the improvement in the yield kind of how much of that is directly in control of Centerspace in terms of operating efficiencies, so how much is coming from the expense side versus that kind of mark-to-market piece that you spoke about and I guess, secondarily to that how do you think about market rent growth as you talk about that improved yield? Is that baked in there at all as well?

Yes, Mike, I appreciate the question. Things like mark-to-market rents and potential tax savings that we alluded to, I think, one they are in our control, if you will, in the sense that we appeal taxes in the normal course on all assets and communities that we own. We think there is a very logical path to achieve some of these savings. Obviously, there's a counterparty there that we have to solicit feedback from, but we think there is a very logical path to achieve those savings. Mark-to-market rents, we've been fairly conservative in our underwriting of this asset. So for instance, our year one pro forma here has 1.5% to 1.75% and kind of top-line scheduled rent growth, which we think is a very measured target and base case scenario that perhaps we could outperform. The reason we've taken that approach is we do understand that we do have to work through lease expiration curve initiatives to kind of reposition that to our operating standards and our operating practices, and we've tried to account for that in the underwriting. On the resident experience side, I think it is harder to put a metric on being present, providing high-touch service, having a smile on your face. It's harder to put a number on that from a yield perspective and say this is what it's going to achieve. But we do know and do believe that's going to lead to higher retention levels, higher satisfaction of our residents. And we've been able to bake in those assumptions into the base case. So different buckets, different initiatives that we're focused on. And we think in the aggregate, those are the things that take it from that blended 5 yield that I talked about pro forma year one to that mid-to-high 5s.

Okay. Thanks for the detail there. And then maybe, Anne, I'm just trying to square some of the commentary here. It sounds like your markets are generally past the kind of a peak impact or at least the peak supply. So I'm just trying to understand as we think about the revenue picture here, are we seeing any signs of stress out of the tenants? I know you talked about relatively strong renter base, but bad debt back half of the year is going to be higher. Definitely, the revenue expectations are down. I mean are there any other demand metrics or tenant health metrics that you're seeing maybe a little bit of additional stress beyond just any impact from supply?

Thanks, Mike. I don't -- we don't believe so that we're seeing additional stress. So the rent to income levels have remained healthy. Our bad debt, well, it's picked up slightly. I mean, we're still talking about 40 to 50 basis points. This is really stable level that we could expect almost in any portfolio, I think relatively to other public peers, much lower bad debt. And I do want to call your attention to, while we're past the peak of supply there's still quite a bit of absorption to go. So we still do see some softening in the rents and not only just seasonality, but it has been a little softer as markets continue to absorb. As I mentioned, Minneapolis has been one of the leaders in absorption, but we're not all the way through it in that market either. So there still is a lot of vacancy in these markets, new projects that are still in lease-up. But as we work through that into next year and then with the lack of deliveries, that really should be a tailwind for us. But overall, I think the -- we aren't seeing any other demand drivers and/or evidence in the data of any stress to the consumer and our residents.

Great. Thank so much for the time.

Thank you. [Operator Instructions] Our next question comes from Mason Guell with [Baird] (ph). Mason, your line is now open. Please go ahead.

Hi, good morning everyone. Can you talk more about what you're seeing in Denver, maybe on the new versus renewal rates and then the supply and demand outlook in your submarket?

Yes. Like Grant, why don't you go ahead and start with the supply picture with respect to the submarkets, and then I can address what we are seeing on new and renewal in Denver.

Good morning, Mason. I'll start real quick by top side kind of framing where we are in Denver. That is our target market with the highest levels of supply currently, about 4.8% of existing stock under construction that represents about 15,000 apartment homes. That percentage is down notably from 11% in 2023. And when we look at next 12-month deliveries, those are forecasted at 8,400 apartment homes, which is below ‘22 and ‘23 delivery levels in that market, which averaged about 11,000 and certainly below the past 12 months. When we look at our submarkets continue to see higher levels of recent deliveries in certain urban pockets, along with higher levels of recent deliveries in 2024 in certain suburban to probably the East Metro, the Aurora area, has had a lot of recent deliveries. We do not own communities there. Our submarkets deal relatively insulated compared to some of the other locations that have experienced large influx of product. If I think about the tech center, southern part of the metro, where we own a community, a lot of that land is built out, northern part of the metro, it's really isolated to a couple of communities in a lot of situations where we own products. So feeling relatively insulated in the suburban markets and have seen that influx in the urban core in certain pockets.

And Mason, as we look at the Denver data as an individual market, our occupancy there is about 95%, we also have retention a little bit over 50% there. Our renewal rates, the trade-outs kind of most recent full month would be slightly over 1, 1.2, 1.3. And the new lease trade-outs are just slightly over 2. So some differential there, but more renewals than new leases. And again, going into these quarters, it's a very small sample size, given our lease expiration profile.

Thank you. And on expenses, are there any onetime items this quarter that helped the moderation? Or are there any expected for the rest of the year.

Good morning Mason. So I'll take that one. So within OpEx, we had benefit from adjusting our health insurance reserve in the third quarter. So that kind of did provide some positive variance. Now that's typical. We reassess our reserves throughout the year. But typically, any adjustments are made in the third quarter or the fourth quarter. So although there is an impact there, it's also something that is typically expected around this time of the year when we adjust our reserves.

Thank you.

Thank you very much. That concludes the Q&A session. I will now hand back to Anne for any closing remarks.

I'd like to thank our teams for their outstanding efforts year-to-date, and I look forward to meeting with many of you in Las Vegas at the upcoming REIT World Convention. Thank you all for joining this morning, and have a great Tuesday.