AvalonBay Communities, Inc. (AVB) Earnings Call Transcript & Summary

Welcome, everyone, to the 9:55 a.m. session at Citi's 2023 Global Property CEO Conference. I'm Eric Wolfe with Citi Research, and we are pleased to have with us, Ben Schall, CEO of AvalonBay Communities. This session is for Citi clients only. If media or other individuals are on the line, please disconnect now. Disclosures are available on the webcast and the AV desk. And as a reminder, the questions I will ask today during this session will not reflect or imply my views or opinions from myself or Citi Research and are being asked for information purposes only. For those in the room or on the webcast, you can go to liveqa.com and enter code CITI2023 to submit any questions, if you don't want to raise your hand. Ben Schall, I'll turn it over to you to introduce your team and give some opening remarks.

All right. Thanks, Eric, and thanks, everybody, for joining us. I am joined by Kevin O'Shea, our CFO; and Sean Breslin, our COO. I'll start with just some brief opening comments, and then I'll turn it back to Eric for questions or questions from the wider audience. So most of you know us, but if you don't, AvalonBay, one of the largest multifamily companies in the space. We own and operate roughly 90,000 apartment units, enterprise value in the range of $35 billion. I'll give some updates in a couple of arenas and also touch on some themes that are top of mind. On the operating side, 2022 was an exceptional year for us. We posted 18.5% core FFO growth, one of the top years in the company's history. Our guidance for the year has moderated from those figures, but still healthy growth. So our guidance assumes 5.3% core FFO growth, 5% revenue growth. We put out an operating update on Friday, highlighting our occupancy was at 96.2%, our like-term effective rent change was at 4.2%. Both of those were up slightly from our January figures. As we look forward, one of the areas I want to highlight is we believe our portfolio's Suburban Coastal Orientation, which is where we have 2/3 of our portfolio today, And should serve us well. And there's both the demand and the supply side there. We're continuing to see relatively consistent demand for our portfolio. And supply, in particular, relative to many other markets and relative to our peers, is very, very muted. So we've highlighted a number that we look at how much competing stock is coming online in our markets in 2023, and that figure is only 1.2% this year. So an environment potentially softening economic situations later this year, that relatively level muted supply, we think, will serve us well. Our balance sheet, it really is an industry-leading balance sheet. It's as strong as it's ever has been. You'll see that in our A- credit rating. From a credit spread perspective, while our cost of borrowing has gone up with the broader market, our credit spreads continue to trade at some of the tightest levels not only within the multifamily space, but in broader REIT land. Of the last area I'll hit on is we've identified a number of strategic focus areas. We've been making significant progress there this year, one which I'll call out is we've been going through a fairly substantial transformation of our operating model. And in the investor presentation, which we also posted on Friday, we provided another level of detail there and provided an operating deep dive, part of which we'll hit on today. Some of our other strategic focus areas include growth in our expansion markets, generating new earnings through -- generating earnings from new earnings streams, such as our developer funding program and our structured investment program. And the last one I'll hit on is our continued leadership around ESG. AvalonBay has been a recognized leader here again, both within multifamily and the wider REIT space in the ESG arena. With that, Eric, I'll turn it back to you for questions.

Perfect. So we've been starting out each session with the same question, which is what are the top 3 reasons that investors should buy your stock.

Yes. So first one I hit on is our suburban coastal orientation. We think that will serve us well ahead on the supply-demand dynamics. I'd also call out just, generally, renting economics today versus owning a home. That is particularly accentuated in our suburban coastal markets. So that's one. Second one is the progress we're making around our operating model. We've identified $50 million of NOI uplift opportunity from the digitization of substantial parts of our operating model offering. Of that $50 million, we garnered $11 million in 2022. We've identified another $11 million for 2023, and the remaining amount that come over in the next couple of years. And then the third piece is we've identified a goal of shifting our portfolio, and this is in the broader theme, of optimizing our portfolio as we grow, shifting about 25% of our portfolio that we refer to as our expansion markets, which is down here in Florida, Denver and then more recently leasing in Texas and North Carolina. We're making good inroads there. We were at 7% at the end of 2022 and expect to be at 10% at the end of 2023. Those will be the 3 that I highlighted for you.

Great. Then you released an operating update. Looks like blended rent is about 4.2% in February, about where you expected to be. But maybe you could just help us think through what March and April can look like. It sounds like about 7% maybe on renewals. But do you have any information on sort of where you think new leases or blended spreads are going to come out? And then maybe on a little bit more forward basis, what are the forward indicators telling you about the strength of demand today?

Sure. I'll let Sean comment on that.

Yes. So in terms of the operating update, as Ben mentioned, we talked about where like-term effective rent change came out in January or came out in February. Seasonally, you would expect to see a little bit of a lift in that as you move through into March and April. And I think as we described on our last earnings call, in terms of the pace of revenue growth and what we would see in rent change is at the strongest period based on the macroeconomic assumptions that we made would occur in the first and second quarter of 2023, and then we would see some deceleration, particularly in the back half of the year just based on a year-over-year comp issue. So again, the strongest period should be in Q1 and Q2, and then depending on what happens in the macroeconomic environment, and we saw a significant shift to the upside, certainly, things could change, but expect the deceleration in the second half compared to the first half.

And is that deceleration just sort of a product of being conservative? Or is it something that you're coming up against tough comps? Just trying to understand if there's anything actually on the ground you're seeing today that would actually drive the view that things should decelerate that.

Yes. So in terms of the first question, it's really a year-over-year comp issue. Obviously, even leases that are expiring today, the comp is the first quarter of 2022. Rents moved a lot throughout 2022 and most significantly in the first half of 2022. So again, the first half of '23 should be quite good compared to the second half. In terms of what we're seeing on the ground today, it's about what we expected when we provided guidance essentially at the first week of February. So there's not been a significant shift in our expectations based on the last 4 or 5 weeks of data. Things are healthy, but I wouldn't necessarily call them robust, but they're certainly not weaker than our expectations either.

What would make it robust?

There's nothing beyond what we had expected, again, at the first part of February when we provided the guidance. So rent change, occupancy, all the sort of key dashboard indicators that we look at are relatively consistent with our expectations. We're not seeing, all of a sudden, a significant acceleration or deceleration relative to what we expected.

And I know it's early, but just anything in terms of markets that are sitting out on the upside or downside? I saw that Charlotte had a sort of big jump, maybe that's because you have a smaller portfolio there and a few assets driving it. But just anything on the market in terms of things that are standing out as you go into the peak leasing season?

Sure. What I'd say in terms of some of the stronger markets, suburban Boston is quite strong, finished the year quite healthy and remains that way. On the other side of the coin, parts of the Mid-Atlantic remains soft, particularly in the district. And I would say in Northern California, it also remains somewhat soft. On the West Coast, Southern California continues to be a bright light, is performing well. Reported revenue growth in Southern California will be a little bit distorted this year just because of the reduction in rent relief that we recognized in 2022 as compared to what we expect to recognize in 2023, but underlying market fundamentals across Southern California are quite healthy. So suburban Boston, Southern Cal, again, the suburban market is quite strong, not quite as strong in Northern California and across parts of the Mid-Atlantic.

Got you. And we just received a question from the audience, and it's going to relate to the question I have as well. But with layoffs going on, especially in tech and banking as well as future economic concerns, have you started to see demand slow down a bit in some of your coastal markets? And then I guess maybe I'd specify whether in Northern California, that certainly seems to be a market that people are concerned about. Is there anything sort of instructionally different about that market going forward just given the ability to remote work and people don't necessarily have to be so close to where they're working?

Yes. Good question. So to date, we have not seen any significant movement in terms of residents coming in to leave our communities in any of the major tech markets citing layoffs and potential relocations as a significant or material reason. It was interesting because during COVID, people had the opportunity to go work wherever they wanted. So anecdotally, from our on-site staff, we would hear a lot about lease breaks and various set of things for people to leave. We are not hearing that today. So I think it's a combination of 2 things, really. One is people are either being readily reemployed, probably more in the corporate sector than in the tech sector because there's still plenty of demand for that type of talent across sort of major corporates out there. Secondly is that I think that workforce is more broadly distributed than historical norms. So if you go back to the tech rec, as an example, you certainly felt a more acute pain in Northern California's result of the layoffs. We're not hearing that. We're not seeing that yet in Northern California and certainly not seeing it quite yet in Seattle. Seattle, which is one of the leading tech markets as well, one of the fundamental issues sort of in the urban environment is just too much supply, a lot of supply in 2022, a lot of supply in 2023 in those urban core submarkets. In the suburban markets where we're located, not as much of that impact in terms of supply. So all else being equal, we think Seattle probably will hold up reasonably well across our portfolio. And even in Northern California, we're not as much in San Francisco. We're more in San Jose and the East Bay. On a relative basis, we should hold up pretty well there also.

So from like a structural demand perspective, nothing has really changed from your point of view in terms of that market on a long-term basis, meaning like you're still willing to invest there? Do you still think it's going to be a good market compared to your others in the next...

Yes. I mean Ben mentioned that we're diversifying the portfolio to some degree to account for some of the employment shifts that we have seen, but that's something we've been working at now for 4 or 5 years. So it's not a recent shift for us. It was an expectation that some of that talent would be more broadly distributed. But certainly, places like Seattle, places like Northern California, there are compelling reasons to invest there. But on a percentage basis, it certainly will be lower than maybe historical norms for us given our redistribution of some capital to some of the expansion markets that Ben referenced.

And you mentioned in your opening remarks that supply is pretty manageable, around 1.4% of stock. I mean what do you think that's going to look like one to 2 years from now? Obviously, there's a lot of expectation that the amount of starts is going to come down just given higher capital costs, more difficult to buy land, labor is expensive. But we're not really yet seen in the numbers, right? The starts are still pretty high. So what do you think sort of supply is going to look like when you look out to 2024 and 2025?

My expectation is going to come down substantially. We're seeing -- and we spend a lot of time with the merchant build world who have been very productive developers over this last cycle. A lot of their equity capital is on the sidelines, and attaining construction financing is much more challenging. We think that presents an opportunity for us, and we're starting to see that in the marketplace, high-quality land that was under contract, falling out of contract. We're able to step in. We're not buying the land, but step into new land contracts to be able to control that land. And in the past, I mean, these are some of the times where we've stepped into some of our most attractive development opportunities. More specifically to your question, I'd say aspirationally, the merchant build world would like to start half of what they started in 2022. My expectation is we'll be below that number given the capital market conditions that I referenced.

So sort of around less than 1%. Do you see if it's 1.4% today, It will be about half of that is just...

So my comments there was sort of broadly within the marketplace. Our markets and our suburban coastal markets already have relatively limited supply. It's just places that are hard to get new permits. So kind of broad comments and then specific to us, I think we'll be positioned this year and over the next couple of years with relatively muted supply.

And then elevated starts we're seeing today just in the numbers, that's just basically based off old sort of economics people that bought land 2 years ago, have already locked up construction financing. Just curious why it hasn't come down yet, like what...

Yes. It's your last comment there was sort of capital that was already committed both on the equity and the debt side.

And you talked about being sort of in a sell mode first before going out and [ climb ] more. Just curious if you could give us a sense for the amount of properties you have in the market, how that process is going and whether the bid-ask spread that people have talked about that's been so wide, is it starting to narrow a bit? Just sort of color on how you feel that process is going so far.

Yes. Definitely. Overall, the transaction market is pretty muted right now. Volumes -- if you look at volumes at the end of 2021 versus the end of 2022 and volumes at the beginning of this year, we're talking transaction volumes down in multifamily sales, 60%, 70%, 75%. So there is not a lot that is transacting. There is a bid-ask spread that's out there. I generally describe it sort of sellers in the kind of mid-4 type of range and buyers in the low 5 type of range looking to eke out a little bit of positive leverage for transactions that are trading. It seems like it's generally in kind of the [ 4.7% ], [ 4.8% ] type of range right now, but not a lot is transacting. We are testing the market with a couple of assets, one in the Mid-Atlantic and one in Boston. It is our kind of sell-first mentality potentially is the capital that we would redeploy in acquisitions in our expansion regions. But it's also really we want to make sure we get a better sense of what the market is who's showing up, what's the depth of those buying pools that will better inform how we think about capital allocation decisions in 2023.

And you've talked about your goal of getting to 25% NOI in these expansion markets. Just curious sort of how you came up with that number. Is it a fixed number? Could it go up to 30%, 35%? And then just sort of your time line to achieve that.

So the time line that we put out is over the next 6 years or so. This year, 7% going to 10%. It obviously will fluctuate in any particular year, depending on what's going on with our cost of capital, what's going on in the transaction market. There could be opportunities that present themselves this year over the next couple of years where we're able to move quicker on that front. Our hope is that in times of dislocation or even just in times where capital is less abundant, that will run to our benefit, and we potentially could step into some interesting situations. The other part I would say is the places we've been looking to grow and our expansion regions have been really white hot, particularly over the last couple of years. And so some moderation there. We really focus on the relative trade, the trade of what we're selling out of and what we're trading into. And we feel that relative trade could be more beneficial to us this year than it has been over the last couple of years.

Got you. And I guess along those lines, I mean, during COVID, you saw Sunbelt cap rates kind of go on top of coastal cap rates, which is, I think, something that most coastal peers would not have expected as of 5 or 10 years ago, at least that's -- they would say when they said they were not going into Sunbelt markets. Do you think that's going to widen back out to a more normal historical level? Or has COVID changed sort of investors' willingness to want to be in those markets and you're going to see a tighter than historical cap rate?.

Yes, it's a good question. I wouldn't say we're making the call that there's going to be sort of a rewidening. But what I would say is when we're selling, you think about kind of a micro level for AvalonBay, we've generally been selling older assets with higher CapEx profiles out of our established regions and then using that capital to acquire in the expansion regions, which inherently has had a little bit of dilution associated with it, right? So to my comments on sort of the relative trade narrowing, we think that dilution will be -- [indiscernible] we're transacting this year, that dilution will be more muted this year than it has been over the last couple.

This is from the audience, but curious whether you're broadening of the footprint will have an impact on your margins going forward.

Yes. It's a good comment. I mean, Kevin, do you want to talk a little bit about kind of margin by margin.

Yes. I mean I guess there is certainly -- the biggest variable when you look at sort of operating margins across geographic footprints relates to property taxes, which are typically, at least in our portfolio, about 1/3 of our total OpEx profile, I'll call it, were 11%, 10% of our total revenue. Sunbelt jurisdictions have higher mill rates and higher property tax burden. So that's certainly something to take into account when we think about our overall portfolio exposure to some of those markets as well as how we time the trade, if you will, relative to what we think the macroeconomic might be in terms of whether there might be more exposure to a lower operating margin kind of Sunbelt asset at an opportune time. But overall, we have looked at this more broadly. And if you look at sort of our business, it is largely a revenue business with very robust operating margins. In our case, our operating margins -- NOI margins are around 70%. They're obviously a touch lower in many of the some markets, and it varies a little bit based on property taxes. But as we've learned in the last decade or so, there have been a lot of changes in those Sunbelt markets that have made them inherently more attractive to our type of [ residue ], which is a knowledge-based worker. And so as we think about positioning our portfolio for the next 20 to 30 years, we do think it makes sense to increase our exposure in a measured way in many of these Sunbelt markets, the ones we've identified in particular, and just being very thoughtful about how we leg in to that exposure over the next 5 to 6 years.

Got you. So your view would be that COVID actually permanently changed some of the moving patterns and the way -- obviously, the way people work. I mean I asked the question partly because I moved to Florida and then decided to move back So I was one of those people that moved from New York to Florida but decided to leave for whatever reason. So I guess my question is really around how in an environment we've had so many distortions and moving patterns , do you come up with an investment philosophy about the right markets and submarkets to be in when there's just been so much change that's sort of driven all these unusual patterns of moving?

Yes. It's a good place to dig in, Eric. I would emphasize to you that our -- the longer-term targets that we've set, we really target, as we said, pre-COVID, and there obviously have been certain dynamics that have been accentuated through COVID. But to Kevin's emphasis around our knowledge-based worker, pre-COVID, we were seeing more and more of Avalon's based customers dispersed in other markets. And so it was an opportunity for us to export what we do well to that customer in other places. It also expands our playing field, right? You think about from a development opportunity, effectively expands the playing field on which we can deploy those resources and that capital accretively.

Maybe switching to development. You said that it could vary significantly this year in terms of starts depending on rates, depending on the asset values, construction costs. I mean as you sit here today, do you feel like $900 million is about the right amount, or if rates stay around 4%, construction costs stay elevated, you don't see some of the impacts that you're expecting that there's some potential revisions to the downside there?

Yes. So it's -- we've guided to $875 million in starts this year. That is a -- that's a low number, low year for AvalonBay and particularly relative to -- on a normal year where we'd like to be. A couple of areas I'd emphasize to you as we think about kind of the how and the when of it, one is we are very focused on making sure we maintain 100 to 150 basis points of spread between our development yields and underlying cap rates, right? So you were getting at kind of rents in the numerator, construction costs on the denominator. We'll be able to monitor that as the year progresses. We'll have a better sense of where the underlying transaction market progresses. And to the extent that we need to wean down a little bit or we think that there's more opportunity there, we'll adjust as we get a better sense of how the environment is adjusting.

And if you think about how much rents are up in your markets since pre COVID call it late 2019, early 2020 versus how much construction costs are up. Maybe you could just compare the 2 sort of -- and then also just curious whether you think rents just need to come up or construction costs need to come down to -- obviously, you need both that to happen and but which one do you think will happen?

I'd say we are starting to see a softening on construction costs, which is a positive for us. Part of what we've been doing on our development rights pipeline is restructuring deals to provide us with more time and hopefully more time for the construction market to more fully calibrate. I'd say today, construction costs in most of our markets, we're seeing kind of down in the 5% to 10% range. If you look at the single-family builders as just another proxy, they're talking more like 15% to 20%. So we're not there yet, but we're hopeful and makes sense given the commentary earlier about where starts are headed.

And you have about 40 development rights today. I guess just given your view that supply is going to be down meaningfully at least in certain markets, how aggressive are you going to be about sort of backfilling that? And then I had another question along with that, which is why -- what's in it for the sort of the developer to engage in these types of things, why wouldn't they just want to sell you their land? What do they get from going option route versus just a pure sale?

So the second piece in terms of developers option is land, I mean that's been our traditional approach, right? We generally are not buying land until we're ready to start construction. In a super competitive market that we've seen over the last couple of years, that's been harder to do, but we've been very restrained. And you look at it today, and we only have $240 million effectively committed to our set of 40 projects. So in the context of overall AvalonBay, well positioned there. In terms of the pipeline, what I would describe to you is there's our -- there's the existing land that we control. There, we're very much focused on restructuring those deals to our benefit, right? So going to land sellers and saying, listen, the world has changed, right? And if we're going to continue here, we need our land deal to reflect that. And then the second piece is the land opportunity. And then we do -- in my commentary earlier, we are expecting to be able to uncover some attractive opportunities in an environment like this. I mean we've had a couple of places where merchant build developers, good quality real estate, stuff we pursued hard, that's fallen out of contract. And we're stepping back in with land values that are down, you have 25%, 30% and beyond Now we can now control those over the next couple of years. And more broadly, just in the context of AvalonBay, you look back at our history, obviously been productive developers. Some of our best development opportunities have presented themselves in times like this.

One thing I'd add, Eric, is if you're thinking about our capacity and willingness to start development versus third-party developers in the market is that we have a very different funding model and cost of capital for most of that which we start from a development standpoint. So just to step back, we are set up to start about $1 billion to $1.25 billion, maybe $1.5 billion worth of investment activity start -- development starts each year without needing to go to the equity market. And it's really the sum of our free cash flow, which this year we think is about $350 million. Leveraged EBITDA growth, which is substantial in a normal year, usually adds another $400 million to $500 million. And our ability on top of that as a third source of funds to sell assets and essentially recycle equity. And so for that piece, we do need to know what the transaction market is in terms of cap rates. But when you put that all together, if you look back at where we stood at the end of 2022 where we had $600 million of unrestricted cash and unutilized equity forward of about $0.5 billion, we were and free cash flow of another $350 million. We essentially have nearly all of this capital plan for this year put in place, call it, 75%. And so that capital that we've sourced is roughly at an initial cost that's in the low 4% range. So fundamentally different than what private market developers are seeing today. And as we go forward, there's a certain -- obviously, a certain amount of uncertainty about where asset cap rates may be, but our debt -- 10-year cost of debt is somewhere around 5%, 5.1%, and then we've got free cash flow. So a much lower level of cost of capital for us than the private market where if you look at the cost of capital on the debt side for most private developers, they're looking at maybe construction loan 50% loan to cost, silver-plus 300 to 400 basis points that somewhere maps out into the mid-7% range, mid-8% range when you load in all the fees and the hedging costs. And then if they want mezzanine financing on top of that, that takes them to sort of 75% loan to cost. That mezz piece is probably going to be around 12%. So when you blend that together, that's a high single-digit initial cost of capital for the private market where we're looking at sort of low 4% on the activity that we're going to start this year, maybe it's in the low 5% on a forward basis, depending on what happens to the transaction market. So we can -- that's the beauty of AvalonBay is we can do about $1 billion or so of developments every year at a much lower cost of capital while enhancing the portfolio from a recycling perspective.

Got it. And I mean based on what you just said in the high single-digit sort of cost of capital for private developers, merchant builders, I mean, effectively, their returns need to be above that, right, to be able to -- so I don't know if there's -- I mean I guess the question is how much would rents have to rise or what would have to happen for that -- to get to that level?

Well, I think our view is that likely as you go forward and look at new starts that are funded in the private market, start activity is likely to be a lot lower because the rents are not likely to be viewed as rising enough in the interim to do that. So you should see a drop off in new start activity at least in our markets.

Yes. I mean land -- or the land values need to be reset, right? And we're also expecting some normalization on construction costs.

Got it. You mentioned 12% kind of cost per mezz, also potentially an opportunity for you. Maybe you could talk about your goal around the structured investment program, how you arrived at sort of $400 million, whether your return requirements have changed. Obviously, debt costs are moving up and down quite volatilely right now and sort of where you're going to sit in the capital stack.

Yes. I'll provide some commentary, and Kevin can add on. So it's a new line of business for us. We refer to it as our structured investment program. So SIP. We're targeted up a book of business in the range of $500 million, and it's to provide preferred equity or mezz lending on new construction deals. So this is all new. And a couple of comments I'll make about it. One, of anybody who's out there in terms of the ability to underwrite development and construction in our markets, we're well positioned for it. Some of our peers have these programs. You look at senior lenders, they really value having us at the table, right? We're fully integrated. We self-perform construction, all of our established regions. We got a ton of intel, a ton of data. So we feel like it allows us to appropriately price risk. Kevin mentioned we have -- as the cost just -- generally the cost of borrowing, cost of borrowing has gone up. Seniors gone up. One, leverage levels have come down, right? So the senior, which may be used to be between 55% and 65%, has now come down to maybe around 50% to 55%. Our mezz piece is feeling maybe 55% to 65%. So we're coming down in the stack, and we're able to deploy that capital. Originally, we've been in sort of the 9% to 11% range, put out kind of a general target at 12%, and it could be north of there on certain deals. To be building our book of business today sort of in a clean way and not a book of business -- an existing book of business that's sort of yesterday's values we think is -- will be well onto our advantage over the next couple of years.

And a question from the audience, do you think that Amazon's mandate of 3 days per week could bring people back to the market just basically because they have to be in the office more often and is going to bring people back to the markets where they had left?

Sean, do you want to comment on that?

Yes. I mean, at the margin, the answer is yes. I mean it's hard to perfectly understand the distribution of that population and how many might be coming back to a market as opposed to already there just working from home. But at the margin, yes, it should be a net positive.

And then we've been asking this in each session, but your top ESG priority for this year?

It is to reduce our greenhouse gas emissions. We remain one of the few REITs that have put out science-based targets, both reducing Scope 1, 2 and 3. And we're actually making tangible progress. So we reduce Scope 1 and 2 emissions at this point by about 30% and Scope 3 emissions by about 25%. I couldn't quite hear your question.

[indiscernible]

I don't know about in '24 and '25. I'd say for '23, I think the merchant build community is targeting roughly half the starts ahead in 2022. And I would consider that at least right now, based on where the equity and debt capital markets are, I would consider that somewhat aspirational.

[indiscernible]

Yes, it's probably the math is...

It's been more significant in '25. I mean a lot of the '24 deliveries, depending on the product type, are under construction today. So you probably would see a step down in '24, but a more meaningful deceleration in 2025 just based on the lack of start activity in 2023. It depends on where those starts actually come in for 2023. But if you said less than half, then it would be less than half in terms of start activity translating to deliveries during that time period. And the sorry -- go ahead.

[indiscernible]

Yes. I mean there's the balance, and I think it's true also just to think about this year from a revenue forecast perspective, right, where customer seems relatively healthy, right, which is good for sort of '23 revenue projection as we head into kind of prime leasing season, but at the same time, it may lead the Fed to take a kind of stronger stance and kind of pumping down the economy. So it does run both ways. It's a supply side. I think we're relatively well positioned because things that we are starting this year given Kevin's capital comments will deliver into a very light environment, right? So those projects, when they do deliver, there shouldn't be a lot of competing supply around and should outperform.

I mean one thing I'd add to that is to keep in mind for what we do here, we build these communities once we buy out the jobs, once we basically release them every year. So to the extent there's dislocation and we get really strong buys on the construction side, on the land side, as Ben mentioned, those are some of the best deals that we have done. The macroeconomic environment is going to shift over time. But to the extent that we can build something at a 25% lower base -- this is an example, that's a good starting point for us relative to where we have been.

Rapid fire very quickly. What will same-store NOI growth be for the apartment sector overall next year in 2024 -- for -- yes, 2024?

5%.

What's the best real estate decision today, buy, sell, build, redevelop or hold?

Develop.

And finally, will the apartment sector have more or fewer or the same number of public companies a year from now?

Same.

Thank you very much.

Thanks, everyone, for joining us.