Centerspace Q2 FY2021 Earnings Call

Good morning, and welcome to the Centerspace Second Quarter 2021 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Mark Decker, Chief Executive Officer. Please go ahead.

Thanks. Good morning, everyone. Centerspace's Form 10-Q for the quarter ending June 30, 2021 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. During the course of today's call, it's important to note that our remarks will include our business outlook and other forward-looking statements that are based on management's current views and assumptions. As a result, we cannot guarantee that any forward-looking statement 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. With me this morning is Anne Olson, our Chief Operating Officer; and John Kirchmann, our Chief Financial Officer. We're fortunate today to be in the housing business, reporting these results that were unimaginable 12 months ago. I want to start by extending my thanks and appreciation to our community and support teams that have displayed incredible resilience, creativity, and thoughtfulness since 2020 began. In addition to being in a housing market that turned on a dime, our teams have been hard at work as we make considerable investments in our business, starting late last year with the renaming and more heavily this year as we move from our legacy property management system to a far more enabling and modernized system that will allow us to get to the last phase of our Rise By 5 campaign. So in every respect, the company that's reporting today is measurably better than the one that reported a year ago or even in June. The second quarter exceeded our own expectations as the recovery outstripped our forecast, leading to better rent growth, same-store NOI, and core FFO. The trends are continuing into the third quarter, and we are significantly raising our outlook for the balance of the year from the previous midpoint of $3.60 of core FFO to $3.86, a 7% increase. Careful readers will note that the bottom of our range is now $3.78, which was our 2020 core FFO. We now believe we can grow core FFO per share for the year. If we can deliver, we will grow our same-store NOI and core FFO in each of 2020 and '21, which is a strong validation of the quality of our business. And of course, the rental growth that we've captured and the loss to lease that's embedded in our portfolio sets us up well for 2022. On the investment side, we're nearing our closing with KMS Management. This is the 19 asset 2,700 unit portfolio we announced in June, which is planned to occur on September 1. KMS allows us to efficiently scale our business and double our portfolio in the Twin Cities, in particular, in the B or attainable price point where we have enjoyed a lot of success as we upgrade the customer experience through more efficient operations and disciplined capital allocation, which leads to a housing product that residents will pay more for. The fact is this is an exceptional opportunity for our shareholders and the KMS partners who will become shareholders through their OP stake. As capital continues to flow into the sector at a torrid pace, pushing pricing and lowering returns, we found ourselves close but no cigar on numerous asset purchases over the past 12 months in Nashville and elsewhere. That being said, assuming the close of KMS, we will have added over $0.5 billion of apartment homes, $225 million in Denver and $375 million in the Twin Cities over the past year. We'll also have grown our permanent equity base by 25%, all while continuing to improve operations, quality of earnings, and the all-important per-share outcomes. And with that, I'd like Anne to please give us an update on the quarter from an ops perspective.

Of course. Thank you, Mark, and good morning. The trends that we saw in Q1 accelerated in the second quarter, providing us with great operating results and strong tailwinds heading into Q3. Our same-store portfolio realized a 1.2% increase in NOI over the second quarter of 2020 driven by a 3.2% increase in revenue over the same period. Our year-to-date revenues are up 1.9% over the same period in 2020, driving a 1.7% increase in year-to-date NOI. Our revenue performance is all about our lease rates as our weighted average occupancy in the second quarter was 94.9% and has stayed consistently between 94.4% and 95.3% for the past 6 quarters. Our revenue per unit, which is the result of occupied rent times occupancy, continues to climb. Q2 saw rise to $1,175, which is $50 more than this time last year, and $77 more than this time in 2019, representing a 7% increase over 2 years. Effective move-in rents for the second quarter in our same-store portfolio were 10% higher than prior lease, and renewal rates increased 5.6% for a blended rate increase in Q2 of 7.5%. Our leaders have been in our secondary markets. Our Other Mountain West portfolio, consisting of Rapid City, South Dakota and Billings, Montana, realized a 14% increase in revenues over Q2 2020, while also achieving a decrease in expenses for a 26% increase in NOI when comparing the second quarter with the same period last year. While our secondary markets have seen significant gains, there are some lingering negative effects of the pandemic in our portfolio, specifically across Minnesota, where the eviction moratorium is still in place with limited exceptions. While other markets and states have returned to pre-pandemic collections levels, Minnesota is an outlier. Our forecast does anticipate this improving as policymakers work through the phase-out of the moratorium and rental assistance programs gain traction in providing relief to residents with past-due accounts. Overall, our portfolio collections were 98% in the second quarter. Our Minneapolis and Denver markets, while turning the corner on new and renewal lease rates, are lagging our secondary markets in the recovery as these areas are still experiencing supply pressures. With respect to our urban assets, demand has been stunted by the slow return to office for downtown office workers. In the whole of our Denver portfolio, Q2 replacement rents increased 7.9% and renewal saw increases of 3.7%. Across the Minneapolis market, replacement rents increased 3.6% and renewals increased 5.1% in Q2. Our strong year-to-date results have set the stage for success in 2021. We are 46% through our lease expirations with great rental increases, and we renewed 52% of our residents in Q2. We have 41% of our portfolio rolling in Q3, so the trends here give us a lot of optimism. The strong Q2 trend continued in our same-store portfolio into July with 13% average increases in replacement rents and 6.5% average renewal increases for a blended increase of 8%. Our target markets of Minneapolis and Denver are accelerating, with the Denver portfolio realizing 14% new lease growth and renewal growth of 5.4% in July. In the Minneapolis portfolio, July replacement rents increased 7.7% and renewals increased 4.8%. Both Denver and Minneapolis returned to historic traffic levels and patterns in July. COVID has not slowed our progress on our Rise By 5 initiatives. Year-to-date through June 30, our gross margin is 74.9% and our NOI margin is 59.1%. One component of these results is our value-add renovations. Through our value-add program, we seek to enhance our customer experience through common area and unit renovations that drive strong lease-over-lease growth. In the second quarter, we delivered 217 renovated units, spending approximately $3 million and averaging $196 per unit premium, achieving an approximate ROI of 17%. As Mark mentioned, we're also underway on the implementation of our new property management software system. We are live with our pilot communities and expect to be fully rolled out by year-end. The nonrecurring expense related to this implementation in Q2 was $448,000, and we are expecting $740,000 in additional nonrecurring expense by year-end to finish the transition. These investments set the stage for further efficiency enhancements across the portfolio. The market acceleration we have seen in traffic, new lease rates, and continuing high retention are creating a busy summer for our teams. They're working hard to keep our customer experience top of mind and leverage our commitment to making great homes and vibrant communities into positive results. I'm grateful every day for their efforts. And now, I'll ask John to discuss our overall financial results.

Thank you, Anne. Last night, we reported core FFO for the quarter ending June 30, 2021, of $0.98 per share, an increase of $0.07 or 7.7% from the second quarter of 2020. The increase is attributed primarily to higher NOI, offset by increased interest expense and a higher share count. Looking at our general and administrative expenses, for the 6 months ended June 30, 2021, G&A expenses increased $1.1 million or 16% to $7.7 million from the same period of the prior year. The increase is primarily attributed to increases of $500,000 in long-term performance-based compensation and $500,000 in nonrecurring technology implementation initiatives. The increase in long-term incentive compensation is driven by the timing of the performance grants from the prior year occurring in May of 2020 versus January 2021 for the current year as well as the 2020 plan utilizing stock options for performance-based compensation, which reduced the accounting cost of the 2020 grants by approximately 30%. Property management expenses of $3.9 million increased 34% or $1 million compared to $2.9 million for the same period in the prior year. The increase comes from $200,000 of recurring technology costs related to newly implemented initiatives and $300,000 of compensation costs as a result of filling positions that had been left open since 2020 as well as higher health care costs in 2021. In addition, year-to-date property management expense includes nonrecurring tech implementation costs of $400,000. Moving to capital expenditures, full year same-store CapEx spend is expected to be $875 to $925 per unit. Our same-store CapEx forecast has been reduced from earlier guidance due to the impact of dispositions. During the second quarter, we fully utilized our ATM, issuing 731,000 common shares for net proceeds of $55 million. These proceeds were used to fund a portion of the Union Pointe acquisition and draws under our mezzanine lending program as well as anticipated transaction costs, prepayment fees, and capital related to the KMS transaction. In the course of normal business, we will file for a new ATM later this month. In conjunction with our earnings release, we revised our financial outlook for 2021, which is presented in S-16 of the supplemental report. With strong quarterly results fueled by accelerated rent growth, we increased our full year core FFO per share midpoint by 7% to $3.86. We have also increased our full year guidance on same-store revenues and NOI growth. Same-store expense growth has increased from prior guidance due to the impact of dispositions. The year has been positive with strong year-to-date results, improving fundamentals, and an improved financial outlook for the rest of the year. I would like to thank our dedicated team for their work to make better every day for our residents. And with that, I will turn it back over to the operator for questions.

Our first question comes from John Kim with BMO Capital Markets.

Anne, in your prepared remarks, you mentioned, I think a 13% increase in new lease rates in July and Denver will be leading the charge. But I was wondering what other markets are either outperforming or underperforming that average for you?

Yes. So that was just the Denver rate, which is, I'd say, right in the kind of main of what the average is for July overall for our new lease rates. We continue to see pretty dramatic outperformance in the Billings market and Rapid City market. But overall, our new lease rates in July really came in right in line with Denver.

And how do you see occupancy trending in the third quarter? I think you mentioned 41% of your portfolio has leases expiring, and you had, I think, flat occupancy in the second quarter. How do you see that changing over the next couple of months?

Yes. In line with our historical performance, we think that occupancy will dip a little bit as we push those new lease rates and try to optimize the revenue. 41% is a pretty big chunk of lease expirations in this quarter. But as I noted, we have been able to keep that occupancy within a really tight range with our low end being 94.3%, 94.4 over the last 6 quarters. So we're optimistic that occupancy is going to stay strong. And really, our goal is to optimize the revenue and take advantage of those growing new lease rates.

Okay. My final question is, Mark, I think you mentioned that you missed some acquisition opportunities in certain markets. With your cost of capital improving and your stock price rising by 21% over the last month, do you have more capacity to pursue or be more aggressive with acquisitions? Should we expect to see increased activity in the second half of the year?

Certainly, this recent run has improved the cost of capital, making us more competitive. I would say we are very competitive. However, our limits are reached when it ceases to contribute positively to the overall situation. These factors will definitely help, and we will remain disciplined about it.

The next question is from Gaurav Mehta with National Securities.

I was hoping if you could provide some more color on your TMS acquisition, how that came about. And what did you like about that acquisition? And maybe provide some color on the pricing and the valuation of that acquisition?

The acquisition resulted from about two years of discussions. We're continuously engaged in dialogues like this, and as I mentioned to our Board, we tend to lose more often than we win. In this case, we had a potential partner rather than a traditional seller who was looking for liquidity and tax protection. He had specific requests that we were able to meet. Typically, sellers prefer straightforward cash offers, as they are easy to understand. Therefore, having a meaningful conversation that led us to a closing required a discerning seller willing to engage in a genuine two-way discussion about value. He accepted our equity, and after agreeing on his price, we had to settle on our price, which took place in December when our views differed significantly from his. We reached a price through a relative discussion about the overall worth of our company compared to what we believed his company and the tax protection were worth. Various factors were considered to reach that conclusion. Additionally, it was essential for him to ensure a good environment for his team. This individual has dedicated 40 years to this business, and it was crucial for him to find someone who would take care of it and provide continuity for his team, many of whom have been around for multiple generations. Ultimately, this reflected a commitment to the people involved and to accommodating his partners, including some third-generation partners. There's a lot of complexity and sophistication from the seller's side in any transaction, and our approach has been to ensure that we can take over operations while allowing them to benefit from future growth. I’ll leave it there unless you have further questions, but I'm pleased we’re nearing the finish line on this one; it's a significant achievement for us and the KMS team and its partners.

Great. No, that's very helpful color. Second question on your secondary and tertiary market. I was hoping if you could provide some color on what you're seeing in the transaction market there, maybe some handle on the cap rates that you're seeing in those markets?

Yes. I mean, the issue with those markets is there's just not a ton of transactions. And when there are, they may not be relevant. So if a 5 collection in Bismarck sells, I wouldn't say that sets market. But we haven't seen much. I mean, what we have seen is quite aggressive. So as we often talk about, if the government is your staple and they lend on a dollar of cash flow equally no matter where, that's quite powerful. I mean the most recent real data point we saw for a secondary market, outside of anecdotal, what was our Rochester sale, where we sold sub-5 on our trailing 12 sub-5 cap rate for reasonably old assets.

The next question is from Rob Stevenson with Janney.

Yes. Mark, what will the Minneapolis NOI exposure be after the KMS transaction closes, and do you plan to sell some assets in Minnesota or Minneapolis to address that?

I'll go to about 35% for the Twin Cities, and I think we'll be around 50% for Minnesota as a whole when you include St. Cloud and Rochester. As for the question of whether we'll consider capital portfolio sales, we'll always keep that in mind. However, we really like the portfolio we have in the Twin Cities, and we believe it offers a strong opportunity for cash flow growth. So, for now, you shouldn't expect us to actively sell assets in Minneapolis unless someone comes to us with a very appealing offer, in which case we have to set a buy-it-now price for everything.

Okay. And then the $40 million of rehabs on the KMS stuff implies something like $15,000 a unit. What is your typical kitchen and bath remodel running you these days given current construction costs trying to get a feel for how much beyond the sort of normal redevelopment scope these properties either need or warrant at this point?

Yes. I would describe that amount as not contributing additional value. Instead, I would refer to it as deferred capital or general property improvement. We believe we can reach the highest market value for those specific types of homes by ensuring everything is in excellent condition, but enhancing value would go beyond that, which we haven't discussed yet. There is significant potential for value enhancement within that portfolio, but you should consider that $40 million as necessary capital to stay competitive.

Is there a reason why you wouldn't do it at the same time that you'd come back and do that stuff later on versus just knocking it out now, especially given the capital position you have, unless you do another big acquisition?

Yes. Short answer is we may. I mean, we've given ourselves 3 years to put that capital out. So I mean there's nothing critical fire life safety. I mean, these properties are well run. They've been run by a private owner who probably refinances every 7 years, and that's kind of when they've gotten capital. So there is some opportunity, I think, just to bring capital up to now. But Anne do you want to...

Yes. So the way we're going to approach the value add and the spend, which I'd say typically, we're looking at $10,000 to $12,000 a unit on a full unit renovation here in Minneapolis. But the way we'll approach that is we really want to take over operations, get their communities onto our platform, and then really see where the rents are. And then we would start kind of looking to underwrite. But if we take their in-place rents today and try to underwrite value add, we may not be considering the true value of what the market rent is for those once it's on our platform, and we've kind of exhausted all the other revenue opportunities. And that does take some time to get us through the lease roll. And during that time, we'll be looking at those value-add renovations. And as Mark indicated, because we have a few years to deploy that $40 million, some of it may happen concurrently. But the things that will happen in the first year will be really just setting the stage for the potential of value add in the future.

Yes. Rob, I mean, just to expand briefly, we really look at this as like IRT circa 2016. And that's the real opportunity is just to kind of bring everything forward. So in that sense, it feels very familiar to us and being able to buy something that makes sense on day 1 and not have to push a bunch of initiatives that may or may not be the best thing given a little bit of time in the saddle feels really good to us.

Is there anything quirky here, given some of the age of the communities in terms of the expenses, either in terms of heat being included or the inability to submeter for water, et cetera, or use rubs, et cetera, in the locations that they're in?

No.

No.

Okay. And then last one for me. Anne, when was the depth of new leasing for you last year? In other words, max concessions, lowest effective rent. So curious as to what your year-over-year comps are easier this year, what month are easier this year, and then when they start to get more difficult for you?

Yes. We don’t have the exact numbers right now, but July was likely our toughest month last year in terms of concessions. We kept our renewals flat, and we experienced very low traffic alongside significant declines in some of our new lease rates. So, July was particularly challenging. It improved a bit in August as we began to push renewals and noticed some stabilization in rents by September.

Next question is from Daniel Santos with Piper Sandler.

So my first question is for you, Anne. It's about the Delta variant, which is a concern for many. While your situation may not be as impacted as others, are you noticing any effects on your properties or the local economies? Looking at the bigger picture, are state governments responding differently this year compared to the last? Last year, they were somewhat slow to act, so I'm interested in whether that trend continues.

Yes. We just updated our team this morning about the Delta variant, so the timing is good. We haven't seen any response from our state or local governments. However, we are reiterating the new CDC guidance on wearing masks in public places where transmission rates are high. Currently, we do not operate in any areas with high transmission rates or a significant number of Delta variant cases. We're monitoring the situation closely. One thing we've learned from last year is that we're ready to be flexible. We can reinstate any protocols or procedures necessary at our properties. As of now, we are still operating in regions where governments have not yet responded, and we have not observed high transmission rates.

That's helpful. You mentioned the remaining eviction moratoriums in Minnesota and that they haven't been lifted yet. Do you think once they are lifted, the few tenants who are behind on rent will try to catch up and remain in the portfolio? I'm asking because in coastal markets, it can be much more challenging to make up for a few months of missed rent when the rent is $3,000 or $4,000 compared to the $1,400 in your average portfolio.

Yes. I think we're going to see a mixed outcome as things develop. We're starting to see some progress with the rent assistance programs in Minnesota. The ideal scenario for us is that the residents who are behind can secure assistance, remain in their homes, and continue paying rent as long as their income stabilizes and allows for it. I believe that will be the case for some residents. However, I think it's about a 50-50 split, and the other half may eventually find other housing that suits their income or use the back rent they saved to pursue other options. We're optimistic about the rent assistance programs in Minnesota and in some of our other markets where similar initiatives have been launched. The best solution for us as an operator is to collect the rent and support residents in staying in their homes, provided they can handle rent payments moving forward.

Okay. That's helpful. One last one for me, if I can. When you think about potential acquisitions going forward, is your sense that you're going to target maybe B or B- assets that you'll kind of improve to a B+, or are you seeing opportunities to maybe buy, we'll call them, sort of aging product that just might pencil better for the second owner?

Yes. The honest answer is that we are looking for the best relative return for assets that we believe have sustainable pricing power in specific submarkets. There are several of these submarkets. It's been interesting because there has been significant compression, and funds focused on value-add opportunities have substantial capital and more options to adjust their financial models. Historically, we have found that the best relative value lies in pre-stabilized or newly stabilized deals. Union Pointe is a good example of a newly stabilized deal. We generally miss the value-add by about 4% to 8% in our underwriting because we prefer to engage with the asset for a while before developing a solid business plan. The successful bidders, however, tend to create their business plan ahead of time and act immediately. While I don't criticize their approach, it's simply a level of risk that we are not willing to take at this time, and I don't foresee our risk appetite changing significantly.

The next question is from Buck Horne with Raymond James.

I appreciate the discussion. Curious just on the thoughts around Nashville at this point, just given the capital surging into that market area and the compression we've seen in cap rates? And is anything penciling as potentially feasible in that market near term? And do you start to shift your focus into other geographies or other types of price points that might be cash flow accretive?

Yes, I would say that on the positive side, there has been an increase in product availability in Nashville over the past 3 to 4 months. The beginning of the year was quite slow for a variety of reasons related to tax and uncertainties about future tax implications. We have been close on several opportunities, and while some shareholders advise caution, others encourage us to push ahead. Ultimately, this was a strategic decision, and we typically do not alter our strategy based on just a few months of data. Additionally, we've observed that yields across different markets are not uniformly good; Nashville is not uniquely strong while we overlook great opportunities elsewhere. There is a considerable amount of capital targeting multifamily properties, leading to significant competition and price adjustments. The last deal we were enthusiastic about sold at a sub-4 cap rate with 10-year internal rates of return comparable to what we're seeing in Nashville. The going-in cap rate is just one factor, and it's clear that the market tends to price growth effectively. We take this into account when evaluating assets in various markets and submarkets. In summary, we are eager to pursue opportunities in Nashville, and if we can identify something that aligns with our return expectations, we will proceed.

Okay. But speaking of kind of long-term growth, certainly, the back-to-office shift seems to have slowed a little bit recently, but also just a lot of survey work seems to indicate a lot of workers enjoy remote working, and there's certainly been a huge population shift into the secondary markets. You're seeing that, I think, obviously, in Billings at the moment and a few other places. Does that shift in that secular change in how people want to live give you some pause around maybe reallocating capital to your secondary markets or finding assets in Billings as an example to kind of change your portfolio mix?

Yes. I mean listen, if something comes up in one of our secondary markets, we generally look at it. So you should know that we're looking at anything that kind of comes up where we're active. The thing that we love about Billings and Rapid City and I'll say the whole Mountain West portfolio, which is now about 30% of our NOI, is that like the Southeast, they're catching a lot of migration. And obviously, Rapid City and Billings are much smaller metros. So a little bit of in-migration goes a long way. What we haven't seen with the same amount of robustness as Denver is housing pricing move and new job creation, and that's really what is the long-term driver in our judgment of being in a great multifamily market or apartment market. So we have to balance all those things together.

The next question is from Amanda Sweitzer with Baird.

I had a few questions on some of the moving pieces within your guidance. Kind of to start, can you provide an update on what you're assuming for the KMS acquisition and guidance in terms of both pricing and timing? I assume that cap rate assumption has increased today just given the broader fundamental strength you've seen.

Yes. I mean the cap rates that we've generally talked about for KMS is plus or minus 5% kind of going in 5% and after capital. I mean, candidly, the NOI we underwrote and agreed to was in February. They are ahead of their budgets, their budgets and our underwriting aren't the same thing. But I would say one of the things we believe was embedded in that portfolio was a reasonable loss to lease, that's grown. I mean, we haven't gotten that scientific about it. We're really focused on integrating the team. We'll be picking up about 130 team members as part of that. And so our focus really has been on getting that team or getting ourselves prepared to onboard that team. We have a pretty significant integration of Yardi that has to go right alongside that, which is a lot of complexity that they don't let me in those meetings because they're very detailed. But there's a lot of work going on with that. I mean what we know is it's no worse than we expected. It's probably better. And frankly, for now, that's all we need to know.

Got it. So in terms of timing assumed in your guidance for that deal, though, is it fair to assume midway through the third quarter or what's embedded in it?

September 1 is our scheduled close date. At this point, there's a lot involved with that, but we're on track for that date.

Okay. That's helpful. And then, what blended lease rates are you assuming in the second half of the year in guidance? And where are your renewal rates going out today?

Anne, can you talk about that?

Yes. Our renewal rates today in July were 5.1%. So that's where our renewals are going out today. And then, John, on the forecast side for guidance, what are we assuming there? A little bit less than that, I think.

Well, Amanda, the way we forecast our rents is we actually use our rent roll and the loss to lease that's embedded in that rent roll. That's 8%, I think, Anne, right? Correct me if I'm wrong here.

Right. So last lease declined.

8% in July. So what we would have done the way we forecasted is we load those market rents in by every unit. And then the rent growth goals we're using into the future vary by region. But they're not substantial. The real driver of the forecast is that loss to lease. So it's the 10% to 13% new lease rates that we've been getting over the last few months.

Okay. That's helpful. And then, last one on guidance. What was the impact of those Rochester distributions on your same-store NOI growth range? I heard your commentary, John, on the expense growth impact.

Yes. So the way I would look at the Rochester guidance, we actually present in our guidance the amount of the sold NOI, the $1.2 million represented basically 4.5 months of 2021 NOI that we had in our books before we sold it. So extrapolating that out, that would be a fair representation of what came out of the NOI. We don't know exactly what came out of the NOI at the point of time because that's not how we measure it, right? So the forecast has been updated. But that would be a reasonable assumption to use. Is that helpful, Amanda?

I can extrapolate from the $1.2 million. And then final question for me. Just first in cloud during the quarter, you did see a larger occupancy decline in that market. Was that in response to you strategically pushing rates, or were there other dynamics at play in the market that impacted occupancy?

Yes. There's some value-add activity happening in the St. Cloud market. We have a small amount of value-add vacancies as we begin some projects. Additionally, we are increasing the rates in that market, which is a common trend we observe as we enter the third quarter.

The next question is from Barry Oxford with Colliers.

Mark, when you think, not necessarily about your portfolio, but when you think about the markets in relation to the moratorium and that burning off, do vacancy rates have to kind of creep up or not necessarily because you think the rent help programs will come in to that? But if vacancy rates are going to be climbing in the future because of this, how are you guys figuring that out into your software system as far as rental increases, maybe 2, 3 months from now?

Yes, we have been closely monitoring that situation. One way we are addressing it is by keeping track of individuals who haven't paid for 18 months and are on month-to-month leases. We are confident in our percentage of these leases compared to the overall total. This helps us manage and monitor the situation effectively. Our collections rates have remained strong. Although there are a few residents at each site we would like to move along if the eviction moratorium ends, I don’t believe it will significantly affect our overall rates. However, it remains to be seen how much the rent assistance will support those residents in staying in their homes. Currently, all of those residents are on month-to-month leases, and we are closely monitoring that percentage of the total while ensuring proper management. Anyone on a month-to-month lease could vacate at the end of the month, and we take that into account when assessing our exposure.

Yes. I'll just make a macro comment, Barry, I mean, we're not over housed. So I mean, I think it's hard to imagine, vacancy materially moving down, especially at our price point, which we're plus or minus $1,200, $1,300. I mean, the most amount of supply is $400 to $600 north of that in most markets.

This concludes our question-and-answer session. I would like to turn the conference back over to Mark Decker for any closing remarks.

Thanks, Gary, and thanks, everybody, for your time and interest in Centerspace, and we look forward to talking to you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.