Centerspace (CSR) Q1 2017 Earnings Report, Transcript and Summary

Good morning, and welcome to the Investors Real Estate Trust First Quarter 2017 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Steve Swett. Please go ahead.

Thank you, and good morning. IRET's Form 10-Q was filed with the Securities and Exchange Commission yesterday after the close. Additionally, our earnings release and supplemental disclosure package have been posted on our website at www.iret.com and filed yesterday on Form 8-K. Before we begin our remarks this morning, I want to remind you that during the call, we will be making forward-looking statements about future events, based on current expectations and assumptions. These statements are subject to risks and uncertainties due to factors discussed in yesterday's Form 10-Q during this conference call and in the Risk Factors section of our Annual Report and other filings with the SEC. Actual results may differ materially, and we do not undertake any duty to update any forward-looking statements. Please note that our conference call today will contain references to financial measures, such as funds from operations, or FFO, net operating income, or NOI, that are non-GAAP measures. Reconciliations of non-GAAP financial measures are contained in yesterday's press release, and definitions of such non-GAAP financial measures can be found in our most recent supplemental operating and financial data, both of which are available in the Investor Relations section on our website at www.iret.com. With me today from management are Tim Mihalick, IRET's Chief Executive Officer; Mark Decker Jr., President and Chief Investment Officer; and Ted Holmes, Executive Vice President and Chief Financial Officer. I will now turn the call over to Tim.

Thank you, Steve, and good morning, everyone. Welcome to our Fiscal First Quarter 2017 Conference Call. I will begin with a quick update and overview of our recent accomplishments. I'll then introduce Mark Decker, Jr., our new President and Chief Investment Officer, to discuss his role and some of our goals moving forward, and then Ted will discuss our quarterly results, update you on our balance sheet and review our guidance for 2017. We will then open the call for questions from our analysts. Let me begin by reminding everyone that IRET is in the midst of a large strategic transition that is challenging to accomplish smoothly as a public company. Results may be lumpy for the foreseeable future. We appreciate your support, and I want to thank the entire IRET team for the continued hard work and dedication. I have never been more excited about our company, our team and our future. The strategic changes we are executing began almost 2 years ago, and we have made significant progress in focusing and improving the quality and long-term earnings power for our portfolio while enhancing our operating platform. Earlier this year, we announced the next step in our evolution to transform IRET into a best-in-class multifamily REIT. We believe we can extend our presence as a leading owner operator in our Midwest markets and provide an attractive investment alternative, as we focused on 1 line of business and rigorously apply 3 principles in every decision we make. Number one, this is to advance our goal of operating excellence; number two, this is to improve our overall asset quality and drive long-term cash flow growth and number three, this is to improve our balance sheet flexibility and strength. These tenets will drive IRET as we move ahead. Now let me address the Williston impairment head on. We are recognizing a $54 million impairment. This is significant, and something that we take very seriously. We are subject to GAAP accounting rules and have incorporated this impairment as required. We believe the Williston apartment market is bottoming, and this impairment reflects a clear-eyed assessment at this time. However, while this impairment is not a positive, we are a different company today, and we have implemented several changes which will drive capital allocation decisions going forward. First, we have essentially completed our development pipeline, and moving forward, we will focus primarily on acquisitions. Also, as part of our transition to multifamily, we are targeting investments in larger assets within select markets that have multiple demand drivers. We have also further strengthened controls and procedures around our capital allocation decisions. Second, we have strengthened our board with recent additions who bring deep REIT management and REIT capital markets knowledge. Their input and guidance has already proved invaluable. Third, we have added Mark Decker, Jr. as our new President and CIO. Mark brings significant transactional and capital markets experience, which we believe will significantly enhance our strategic transformation efforts. As an organization, we have worked with Mark for over a decade. And I'm already enjoying work with him as a partner as he focuses on our operations, capital allocation strategy and balance sheet enhancement. Mark will lead our capital allocation efforts, focusing on larger investments and larger markets with a concentration on high-quality multifamily assets, which will provide a path for consistent earnings growth. Moving on, we had a great summer. We continued to complete our remaining developments, and lease-up continues as our portfolio grows for the future. During the first quarter, we delivered 71 France, a 241-unit Class A multifamily community located in affluent Edina, Minnesota, just outside of Minneapolis. In the past 27 months, we have completed more than 336 million of multifamily developments, and we will benefit as these properties are added to our same-store pool in the coming years. Subsequent to quarter end, we executed contracts to sell 1 multifamily property and 26 of our senior housing properties for a total expected proceeds of approximately $236 million. These sales are in addition to our previously announced pending disposition of our 8 Idaho senior housing properties. Once these transactions close, we will have completed our exit from the senior housing sector. And on a pro forma basis, approximately 70% of our portfolio's NOI will be from multifamily properties. The balance is comprised primarily of a Class A on-campus MLV portfolio. We will continue to execute on our plan to sell non-core properties to further our strategic objective to build a best-in-class multifamily company. I will close by stating that we believe IRET presents a unique investment opportunity for investors today. IRET is the only publicly traded multifamily focused REIT in the vibrant Midwest markets. We have the size, portfolio, operating platform and balance sheet to achieve a durable competitive advantage within our markets. We are building a best-in-class company, and we believe we have made significant progress down this path. As we move forward and demonstrate stronger and more stable performance, we expect to achieve better valuation and drive performance for all shareholders. I would now like to turn the call over to Mark Decker, Jr., IRET's President and Chief Investment Officer.

Thank you, Tim, and good morning, everyone. Though I joined IRET just 1 month ago, this is a company and a team I know well and have worked with for many years. I'm honored to join such a high-caliber, high-integrity group, and we're excited about where IRET is today and where we're going. I joined this team because we have a unique opportunity to build something substantial and relevant to our 4-key constituencies: our residents, our associates, our investors and the markets where we operate today and expect to operate in the future. A lot of people have asked how I plan to spend my time initially at IRET, and in brief, I will be leading our team in the pursuit of high-quality investments in multifamily and my capacity as Chief Investment Officer. And as President, I'll be working with Tim and the team on broader strategy and capital management as well as leading our outreach to investors with Ted's help. As Tim mentioned, IRET had a great summer, and we continue to take steps toward simplifying our company and honing our focus. Over the coming months, we have a few critical items that will occupy our time. We've announced the pending sale of our senior housing portfolio, and we will work hard to close the transactions on time as agreed. We will continue to refine our portfolio with an eye towards efficiency, quality and balance sheet strength. This means continuing to evaluate legacy multifamily assets as well as our medical office properties. Potential dispositions may result in near-term variability and results quarter-to-quarter, but we believe our strategic transformation will drive better growth and a better business. Turning to our balance sheet, we're working to simplify our capital structure, increase our financial flexibility and lower our weighted average cost of capital. To that end, earlier this month, we announced our intention to redeem our 8 1/4% Series A cumulative redeemable preferred shares. Additionally, our goal is to obtain a larger and more flexible credit facility, and we are in discussions on that effort as we speak. Our goal is to have something in place in early 2017, and we will keep you up to speed on our progress. Finally, I would like to take a moment to discuss our dividend. Our asset sales have improved the quality of our cash flows, but at the cost of near-term reduction and NOI. Though the board has, thus far, elected to maintain the $0.13 per share quarterly dividend, we recognize that, going forward, our dividend may not be covered by operating income. Our longer-term objective is to operate with a dividend that is covered out of cash flow from operations. While there may be gains to consider in the current tax and fiscal year, the board will continue to evaluate our dividend rate relative to operating cash flow as we move forward. And as with all of our efforts, we will update you as and when these events occur. I'd now like to turn it over to Ted, who will discuss our quarterly results and balance sheet.

Thank you, Mark, and good morning, everyone. Yesterday, we reported net loss available to shareholders of $24.5 million for the first quarter ended July 31, 2016, as compared to net income of $1.7 million for the same period of the prior year. The decrease was primarily due to an impairment expense of $54 million related to our Williston assets recognized in the first quarter of fiscal 2017. We reported funds from operations, or FFO, of $15.9 million or $0.12 per share and unit for the first quarter ended July 31, 2016, as compared to $22 million or $0.16 per share and unit for the prior year. The decrease in FFO per share was primarily due to a decrease in property NOI due to the dispositions completed in the last 18 months, partially offset by NOI from the acquisitions made and developments completed. Total revenue increased by $4.6 million or 10.1% for the 3 months ended July 31, 2016, compared to the same period of the prior year. This can be attributed to development deliveries and acquisitions in our portfolio and offset by revenues related to dispositions completed during the prior year. Turning to our multifamily same-store performance. Excluding the results of our energy-impacted markets of Minot and Williston, our first quarter same-store multifamily revenue increased by 1.1% year-over-year, driven by a 3.1% increase in average rental rates, which was offset by a 2% decrease in occupancy. Occupancy was off in several of our markets as we are experiencing the effects of additional supply in certain areas. We continue to focus on controlling costs where we can, and operating expenses were up just 1.1% resulting in a 1.1% increase in same-store multifamily NOI in the first quarter. While our same-store performance is important, much of our growth going forward will be driven by our non-same-store investments and our strategic efforts to continue to grow the company. We continue to make progress with our value-add program. And during the first quarter of 2017, we spent approximately $4.6 million on this program, bringing our total for fiscal year 2016 and year-to-date fiscal '17 to $7.7 million with 724 units being completed and leased with an average return on investment of 13.4%. During fiscal 2017, we are committed to spending approximately $3.5 million per quarter completing 300 to 400 units per quarter. Turning to our development activity. We continue to strengthen our portfolio as we near completion of our development pipeline. During the first quarter, we delivered 1 multifamily property, 71 France in Edina, Minnesota, for a total cost of $72.2 million. Please remember that as we deliver development properties, we will experience near-term earnings drag as capitalized interest is replaced with interest expense. Looking ahead, we have 1 property remaining in our development pipeline, Monticello Crossings in the Minneapolis-Saint Paul MSA, which is 54% pre-leased as of today and which we expect to deliver in stages this fall in our second and third quarters of fiscal 2017. Also, as previously mentioned, in accordance with GAAP accounting requirements, we recognized a $54 million impairment related to our investments and developments in Williston, North Dakota. With regards to our balance sheet, as of July 31, 2016, our leverage as reflected by net debt to trailing 12 months EBITDA was 7.25x and our upcoming maturity schedule is manageable with $120 million and $43 million of debt maturing in the remainder of fiscal 2017 and 2018, respectively. Over the long term, we have committed to increasing our percentage of unencumbered assets with the goal of eventually obtaining an unsecured line of credit. Moving on. On September 1, our Board of Trustees declared a regular quarterly distribution of $0.13 per share and unit payable on October 3, 2016, to common shareholders and unitholders of record at the close of business on September 15, 2016. This will be IRET's 182nd consecutive quarterly distribution. Before we move to questions, I would like to briefly touch on our guidance. Last quarter, we introduced FFO guidance for the fiscal year ending April 30, 2017, in the range of $0.48 to $0.54 per share and unit, and we are reaffirming that guidance at this time. Please note that this guidance reflects our view of current market conditions and does not incorporate the impact of any acquisition, development, disposition or capital markets activity, including potential transactions discussed as part of the company's strategic initiatives. With that, I will turn the call back to Tim.

Thanks, Ted. As an organization, we continue to focus on the acceleration of our strategic transformation into a multifamily REIT, focused in vibrant and growing Midwest markets. By doing so, we hope to drive consistent and growing cash flow. While this process will not come without some near-term earnings impact over the long term, we believe we will be able to create value through our decades of deep experience and knowledge and relationships in the Midwest. With that, I would now like to open the call for questions. Operator?

[Operator Instructions] The first question comes from Rob Stevenson with Janney.

Can you talk a little bit in more detail on the senior housing sale in terms of what the expected cap rate is on that and sort of how you see the redeployment of that proceeds going? I mean, is the delay until '17 largely to give yourself room to find 10/31 [ph] assets? Or are the gains there not sizable enough in some cases where you need to do that? Can you sort of -- can you help us understand that sort of whole process?

Rob, I have Mark speak to that for you.

The cap rate you should think of is kind of plus or minus 8. And from a redeployment perspective, capital is capital. And we're going to try to allocate our capital as best as possible, but our focus is certainly replaced -- to replace that NOI with high-quality multifamily assets. The timing is driven by a couple of factors. Some tax -- I mean, we would like to have more taxes in the next year. We've had some gains already this year. So it's not all of that, but it's partially that. It's also the time line that we could get to with the buyer. The buyer is a long-term partner, customer and the operator of these asset. So we're pleased to see him buy these assets. It's someone we know well. We have confidence he'll close on time and as agreed. So that's really what's driving the timing.

Is there a hard money up on that now?

Rob, this is Ted. There is earnest money up right now, and they are in due diligence currently, which will expire roughly 45 days out. And it will begin to go hard after that on earnest money.

Okay. And then Mark, how should I be thinking about the value of the remaining non-core assets? You guys talked about on-campus medical office, and then there's some residuals in the industrial office, retail portfolio that's sort of sitting around. I mean, 280 for senior housing, ballpark -- I mean, I know you probably don't want to get into ratchet down the exact specifics. But help me understand what we should be thinking about in terms of -- and how you're thinking about it is just coming in of the value, the remaining non-core assets.

Yes. So at a high-level, the way we're thinking about it is, these are outstanding assets. I mean, it's -- I believe the largest medical office portfolio in the Twin Cities, it's not all in the Twin Cities, but you should think about that as roughly 1.5 million square feet of majority on-campus high-quality medical office buildings, which are very high-quality cash flows to own and very desirable to a number of potential buyers. So the high-level thought, and we have a low basis in those assets with some gains. So our thoughts are simple at a high level, which is, we love those assets, but we are no longer in that business. So we would like to sell those as soon as possible. Having said that, we need to do what's right and we need to find a good use for those dollars on the other side. So those are cash flows we're very happy to own today while we evaluate lots of different alternatives. And it's an opportunity, I think, to sell A and by A -- sell A quality and by A quality, which is easier to do than selling lower quality and trying to reinvest in higher quality. So we like where we sit there. We are committed to being a multifamily company, and that means not having a large portion of NOI for medical office. The balance -- a couple of industrial, a little bit of retail, I mean, those are small in the grand scheme of things. I'd say roughly $60 million to $120 million of value to put a huge range on it, but those are smaller items.

Okay. And then how wide do you guys expect to cast your net on the apartment acquisition front in order to redeploy a lot of these proceeds? I mean, is it -- is the markets that you're in today and that you want to add more exposure to deep enough to redeploy these proceeds? Or is it going to drive you into peripheral markets to your existing footprint, à la Denver, more into KC, maybe suburban Chicago and Milwaukee and things of that nature? Can you talk a little bit about that?

Sure, Rob, this is Tim. I'll start, then I'll defer to Mark for his thoughts. Again, we've talked a lot in the past about the Midwest being our footprint. And I think, I obviously touched on in previous calls about the Milwaukee, as you touched on the Kansas City, the Omahas and broadening our geographic footprints just to enhance our ability to find good investments, and I think we'll continue to stick with that. Mark's got some ideas, which I will let him touch on as we look forward. But there are some opportunity out there, and we will -- and again, Minneapolis is a fantastic place that we'd like to increase our holdings. And with that, I'll let Mark add to that.

Yes. So sort of going back to the tenets that Tim laid out, which I wholeheartedly agree with, which is we're really focused on operating excellence, asset quality improvement and balance sheet strength and flex. And so set against that screen, I would say I'm not prepared to give you our full acquisition criteria, but I can give you pieces of it as we're putting it together, which is you should expect to see us buy larger assets, so we're focused on 200-plus units. We're focused on assets that have pricing power. They're well-constructed. They're in growth markets with good underlying fundamentals and markets, I would say, that are easier for folks like yourselves and the broader investment community to understand with the end goal being -- having us growing NOI. When I look at our multifamily peers, there's a lot of excellence around the room when you look at those companies. And you look at a company like Mid-America, I mean, they're in -- they've been able to demonstrate that you can grow off the coast. And I think it's incumbent on us to endeavor to do that as well, while staying out of their way.

All right. And then just one last from me. You guys have been more active on the revenue management system front lately. Was that one of the things -- I mean, in the quarter, if I look at the non-Minot, Williston assets, you had a rental rate up 310 basis points, but occupancy basically down in 9 of the 10 markets. Was that a conscious move that the revenue management system drove? Or was that just where the maximization of revenue sort of fell in the quarter? Or is it -- just trying to understand your rollout of revenue management and whether or not that's sort of changing anything that you're doing operationally at the property level?

Rob, this is Ted. The rent optimization of software rollout just literally hit the entire portfolio in July. So we're really early in that process for our staff and for people to really harness the full benefits of that. And I think what we saw this quarter was that program, trying to figure out the pulse and the actual balance of where rents should be on the entire rent structure for each market, and by all means, we believe that, that put pressure on occupancy down as we drove revenues up across all of our markets essentially outside of energy. But for a couple that we think there's some supply pressure, that's affecting us in Bismarck and Grand Forks. So we think the -- our program over time will smooth out and really be a benefit to drive earnings power to these properties. But by all means, that was pressure on occupancy. But we're still, overall, feeling comfortable. That 93%, not bad. And we're going to optimize back to 95% as we look ahead in future quarters.

The next question comes from Drew Babin with Robert W. Baird.

Looking at the 2% to 4% NOI guidance for the year, which I believe that includes the energy markets, can you talk a little more about the specific the assumptions underlying that guidance range for the second half of the year? Is it more -- is it just comps getting dramatically easier? Or do you expect some genuine reacceleration in some of your markets?

Rob, this is -- I'm sorry. Drew, this is Ted. Yes, we expect that the comparable periods to smooth out, of course, going forward. We also know that this is annual guidance. We're 1 quarter in. And the earnings strength of the company is really, really being driven by non-same-store properties, which we think will accelerate and continue as our development pipeline continues to lease up and finish. And we went through a tough quarter over a good leasing period, typically during this time of the year in the Midwest in the summer months, but we think that, that will accelerate on the revenue side if LRO is implemented. Our RUBS program is continuing to be implemented across the portfolio, which still hasn't hit all of the properties that we think that can be implemented on. So we're early in this guidance period. So at this time, there weren't events during the quarter that we felt compelled to revise guidance.

Yes. And just to add to that, I think it's worth pointing out that, I mean, our calculation of same-store is evolving. I mean, this is a company that was focused in multiple segments until today. And as we look at how others calculate same-store versus how we do, I'll tell you, I don't think we have it perfectly today. And I don't want to alarm you, but I mean, the fact is it will be a bit of an evolution, and our goal is to get to best practices. But the same-store numbers we're reporting today, I think, will be a little bit different a year from now. I also have to...

[indiscernible]

I also have to point out -- sorry to interrupt you, that the same-store portfolio is not the game here. I mean, the portfolio of the future of this company is what's coming out of the ground today and a decent portion of that same-store portfolio. But there's a number of assets in there that are small, inefficient, et cetera, that are all going to be carefully reviewed as we look at the 3 priorities we've talked about a lot, which is how do we be a great operator, how do we have great asset quality and how do have a great balance sheet.

Okay. So in other words, the same-store pool, as the year goes on, that will include some of the benefit of recent development deliveries and other things that are happening kind of outside of the traditional same-store pool, so to speak, is that correct?

Drew, this is Ted. No, we do -- we add same-store assets at the beginning of a fiscal year because we need 2 fiscal years to have some comparable periods. So there won't be any additional non-same-store assets added during this fiscal year. But I think what Mark's point is, the same-store pool that we have today, the 11,000 units that are same-store. There's a portion of that, going forward, that won't be part of same-store because we're going to look at smaller assets that are inefficient in markets that we don't necessarily think we can grow in and potentially remove those from same-store. I mean...

Removing from the portfolio.

Correct.

Drew, I'm making a higher level point, which is this is not a 20-year curated multifamily portfolio where same-store is the game. As I suspected, it's for a lot of your other coverage list. So I think we're a difficult animal to cover right now, and we're grateful that you're doing it. And it's hard for us to model as well. But the point I was trying to make was just more -- you should measure us on same-store because you should. But I'm just saying, as we look at the future of the company, the 10,000-plus units that comprise our same-store portfolio that we're talking about right now is important, but it is not the focus of the company. So we are focused on getting the best same-store growth possible, but we're focused on these assets that are coming on, and we're focused on having a portfolio that comprises a number of those assets, but not all of those assets.

The last thing I would say on that, Drew, is we believe, in management, we met expectations with respect to the quarter, and that led us to leave our guidance and reaffirm it for the time being. And as events unfold during the year, we will reevaluate that. But from an FFO standpoint, we met expectations consensus in what we thought we would perform at.

Okay, understood. And one more question, just going to Page 13 on the supplemental, which breaks out NOI by property type. The corporate and other column at $1.8 million of expenses, how much of that should be kind of distributed to the property level in terms of the NOI calculation? And how much of that is truly kind of corporate overhead? Does it apply for NAV calculation, et cetera?

Drew, this is Ted. Yes. To answer the question, the reason we carved it out is we don't -- on a property NOI basis, we don't believe that those costs are applicable to really how we look at comparability going forward on our assets on the ground NOI, property level NOI. For what it's worth, roughly $600,000 of that $1.8 million during the quarter was insurance deductible relating to insurance losses, which were very significant in several of our markets due to weather, hailstorms. That $600,000, we hit our max. So that number won't be reoccurring this quarter. And the balance of that is really this overhead offsite expenses that are not related to on-the-ground operations. We wanted to get down and boil down to property NOI, and this is how we did it. And I think this is consistent with how other companies look at their multifamily assets operations.

Okay, that's helpful. And then, I guess, one last one as you talk about redeployment of capital into A assets on, which I assume will obviously will be apartment assets. What is the cap rates you're seeing in the market right now and the types of markets that you're looking at?

Drew, my quick response before I turn it over to Mark is, truly, we are focused on multifamily, as you just referenced. That's where we're headed. We'll give you an update on what we're seeing out there.

Yes, the -- it's a very competitive market, driven by a very vibrant capital markets and a low rate environment with people looking for yields. So I don't think anything would surprise you of the 4 to 6 would be sort of I think where high-quality assets trade and in the larger markets. So I don't think there's a 6 in front of it.

The next question comes from Jim Lykins with D.A. Davidson.

So could you talk a little bit more about the Bakken shale? I'm wondering if there's more pain to come or maybe if you think you've seen that bottom out, how thing's been trending since quarter end and what kinds of rent concessions you may be making right now in the Bakken.

Jim, this is Ted. We believe that we've generally hit bottom in that market. And as we looked at this market this spring a quarter ago, we were very optimistic at the time, given traffic at the properties, given getting into the spring, summer leasing season. We were firm believers that we could get some momentum on leasing in this marketplace. That didn't happen, and that was disappointing, but we're going to move on and we're going to do what we can to lease these properties up over time. But moving from the end of fiscal year to now, there was quite a retrench in rents, occupancies didn't move, corporate tenants moved out, which was a sign that the fracking activity just is not going to occur anytime soon. That was a tell to us. We're doing 1 month free literally out there at each property on a 12-month lease. That's the concession right now. If that increases or goes down, we'll update you over time. But now we're in a point where we're moving into the fall/winter where you're not going to see a lot of traffic. It's going to be very quiet up there. But we think we've hit bottom.

Jim, I'll follow up a little bit on that, just -- a couple of things that need to happen. Obviously, the price of oil, I think I touched on in the last call. Everything that we hear and the people that I talked to in North Dakota, if we can get oil at $60 a barrel for 90 days, that will accelerate again. They did decide to close the man camps from Williston, I don't if that has a huge impact on us. But you also have to remember that western North Dakota has almost 1,200 idle wells that are sitting there, and another 1,000 that are uncompleted and drilled and then you have 25 to 30 active wells drilling in any given month. And under normal production, there's no well sitting idle. And so when you think about that, you think about the size and the ability of western North Dakota as talked about and potentially the second-largest producer of domestic oil in the world or in the U.S. I mean that production can come back and ramp up rather quickly. And so that $60 oil for 90 days really could have an impact if we see some recovery there.

Okay. So when you guys say you think you've hit bottom, would it be fair then to say that rents have stabilized? Or are you concerned that rents could still potentially trend downward?

I think in our eyes, we've done a pretty clear assessment, and then we feel that we have hit bottom. Without additional lease up, we'd feel like that's where we're at in the Bakken.

Okay. Switching gears a little bit. You talked about being near the completion of your development program. Could you just talk a little bit about your appetite for additional development projects, especially how your potential asset sales may impact that?

Yes, I think -- Jim, this is Mark. I think you'll see us, wherever possible, seek to find ways to acquire new assets at wholesale or development-type returns as opposed to buying stabilized assets, but in a different way. So rather than have money out for 24 months earning nothing, we try to find ways to partner with structure or with operating partners who can better meet our needs of producing cash flows. I mean, we have a couple of things we're focused on: getting high-quality assets at good prices, getting assets that can provide us with growth and being smart with how we use our capital and then try not to take full balance sheet development risk. And I think if you look at where the banks are pulling back, I mean who knows where we are in the world, but there could be opportunities there for us. We think having the capital base we have is a real weapon.

The next question comes from Carol Kemple with Hilliard Lyons.

Can you give any updates or progress on the medical office buildings? Are those being actively marketed at this point?

Carol, this is Mark. No, they are not being actively marketed at this point. We are, as I said earlier, looking to sell those as thoughtfully and opportunistically as we can.

Would it make sense to say you likely wouldn't market those until the senior housing properties sell and you all redeploy that capital so you're not sitting on a huge pile of capital? Or would you look to deploy them before that -- I mean, sell those before that?

Well, I think you're asking a modeling question. If you're asking a modeling question, I would say yes. If you're asking a theoretical question, I'd still probably say yes. I know we need to find the other side of the trade for us, which is high-quality multifamily assets that fit the criteria, some of the criteria I've talked about and some that we'll unveil as soon as possible.

This concludes our question-and-answer session, and the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.