Q1 2020 Earnings Call
Good day and welcome to the Essex Property Trust first quarter 2020 earnings Conference call.
As a reminder, today's conference calls being recorded statements made on this conference call regarding expected operating results and other future events are forward looking statements that involve risks and uncertainties.
Forward looking statements are made based on current expectations assumptions and beliefs as well as information available to the company at this time.
A number of factors could cause could cause actual results to differ materially from those anticipated further information about these risks can be found on the company's filings with the FCC.
It is now my pleasure to introduce your host Mr., Michael Schall, President and Chief Executive Officer for Essex Property Trust. Thank you you may begin.
Thank you for joining our call today.
John Burkart, Angela Kleiman will follow me with comments and Adam Barry is here for Q1 day.
These are challenging times as we manage through unprecedented events at our nation's history.
We'd like to offer our best wishes to all those impacted by Cobot 19, their caregivers had those participating on the call today.
We reported a strong first quarter results last night exceeding the midpoint of our AFFO per share guidance by seven cents with the results for the quarter, mostly are affected by the curve in 19 pandemic.
As noted in the press release, we withdrew our 20 20-F AFFO guidance ranges generally we believe providing FFO guidance and related assumptions is an important aspect of investor Communications.
However.
In the current environment, we believe that the range or probable outcomes for Essex is too wide to be useful to investors since the initial shelter in place order in the Bay area was announced on March 17th the nation has experienced over 30 million unemployment claims and economic uncertainty.
He is as great as I've ever seen.
Key variables in the governments policy response are impossible to model.
Such as the duration of the shut down the possibility that a second wave of infection could occur and the effectiveness of social distance seen during a phased reopening of the economy.
After a prolonged debate we made the difficult decision to withdraw our core AFFO guidance.
In my prepared remarks today I will cover three topics a recap of actions taken in the past two months in response to the pandemic a review of our updated estimates for rent growth in our markets as can be found on page 16 of the supplemental and insights into what we're seeing.
In the West Coast property transaction markets.
Turning to our response to the pandemic, we had been very impressed with how the Essex team has responded at adapted to the dynamic an unprecedented conditions created by cobot 19.
That's the scope of the pandemic became more clear in early March we created a co. Good response team comprised of senior leadership to gather information and act decisively.
To maintain essential property operations, we implemented a variety of social distancing practices at each property provided incentives and tools to push nearly all transactions online over the phone or through the mail.
We acquired and distributed P. P to our onsite staff and expanded training for safety protocols.
We transition five corporate offices to work from home and implemented a virtual management process with daily contact via teleconference. In addition, we conducted weekly live video conferences that were available to all Essex employees to ensure a consistent messaging and unity.
He had a chaotic time.
Communication is important during periods of uncertainty and on March 20, Threerd, We issued a press release to outline for investors employees at residents. How the company is going to assist those that are financially impacted by cobot 19, including protection from eviction and late fees.
Creation, a payment plans and dissemination of information about governmental and community resources.
The past two months have required urgent responses to many complex issues.
Including many no unknowables related to the pandemic itself, a plethora of well intentioned, but imprecise government regulations and properly balancing our obligations to stakeholders in the spirit of corporate responsibility without backdrop, it's a central to recognize the tireless efforts of the.
Essex team I made great concern for their health and safety of their families to rapidly and thoughtfully react to the crisis well done team ethics.
Turning to the West coast rental markets, we have prepared a scenario for our 2020 rent growth expectations on slide F 16 of the supplemental that incorporate macro U.S. forecast for GDP and job growth better prepare by a broad spectrum of industry and wall.
The street economists, while the span a forecasted outcomes is why to an unprecedented extent there is a common expectation that the U.S. will experience a double digit declines and second quarter GDP growth and an overall contraction in the economy in 2020 with job.
Losses for the year are estimated at around 7%.
In summary, we expect approximately 900000 job losses, or 6.6% and our west coast Metro's in 2020 compared to the net addition of 207000 jobs from our estimate last quarter.
Approximate 14% reduction in estimated total housing deliveries from last quarter is not sufficient to offset the impact of negative job growth leading to our belief that market rents over all will decline and average of 2.8% in 2020.
Versus last quarter's estimated 3% increase in market rents.
The extraordinary fiscal and monetary stimulus programs that have been implemented by the federal government have already help stabilize capital markets and should limit the risk of financial contagion.
If you consider by contrast, a major stimulus programs from the great recession. They occurred roughly a year after the recession started.
But in today's case, they were just days and weeks into the crisis and have been much larger and scope.
On page S 16.1 of our supplemental we highlight the impact of the 600 dollar per week federal supplement to unemployment insurance that was part of the cares Act while the effectiveness of the program has been muted by processing delays at state unemployment offices the weekly.
Next it started to arrive at will substantially offset the income loss for a large segment of the population that has suffered from the job losses and furloughs.
We highlight this program because it hasn't received much attention.
Given these benefits the income shortfalls for lower to middle income workers are much less severe than they would have been otherwise and in some cases again at lower middle income levels. Some workers will receive more in unemployment benefit as compared to their compensation.
[noise] finally, I'll turn to the apartment transaction market.
Yields or cap rates per apartment transaction generally exceed interest rates on related debt and the resulting in positive leverage is a powerful force in the market.
Unlike the great financial crisis large banks have maintained relatively conservative lending standards and strong liquidity and capital positions and interest rates have declined further since the crisis began.
As an example, we recently received a quote for a seven year Fannie Mae loan audit joint venture property with a fixed interest rate of 2.75%.
We believe these factors will be sufficient to avoid widespread distress in the apartment space.
Unlike rootstock private market values in terms of cap rates are generally sticky, meaning that they don't change immediately in reaction to events, but rather seek to reflect the longer term financial performance of a property.
Generally speaking many potential buyers are seeking a higher cap rate as a result of the pandemic.
However apartment owners generally have no distress and exceptionally low interest rates provides the opportunity to improve cash flow through refinance to take advantage of record low positive leverage.
As a result of these factors the spread between buyer and seller expectations has widened and the gap separating them is probably around 30 to 60 basis points likely resulting in fewer apartment transactions in the near term.
If our stock price was higher we would be an aggressive buyer in this environment.
Historically periods of disruption have resulted in great opportunity for Essex I'm confident that we have the team resources and strategy to Thoughtfully Act on these opportunities consistent with our long term track record of outperformance and now I'll turn the call over to John.
Apart.
Thank you Mike.
I would like to start by echoing likes sentiment and recognize our associates, who are working hard to provide our customers. The best service in its essential business of providing housing.
Over the past few weeks, we've seen countless demonstrations of the ethic spirit throughout our community.
Our teams have shown grit and determination in the face of rapidly changing working conditions, but even more they've shown can pass and to each other and to our residents from proactively reached out to those in need buying residents groceries, and even obtaining and distributing personal protective equipment.
In addition, we have published resources on our website to assist residents and finding the financial assistance. They may need during this time.
As well as created a library of resources for residents, whose children or home from school or who are simply looking for productive ways to use their time during this crisis.
Most residence and prospects had been understanding of the changes we've needed to make at our communities and appreciative of the great effort of our team continue to provide exceptional service during this time.
A big thank you to our eating our residents and the community we are truly all in this together.
Turning to our first quarter 2020 results, we achieved 3.2% revenue growth over the prior years quarter. The results were inline with our expectations.
Although this is the Q1 call I believe everyone is more interested in recent events host co that shelter in place orders. Therefore, I will be focusing on specific April metrics and recent market activity I'll begin with general comments and move onto the market.
The situation is unprecedented with numerous key variables impacting both supply and demand my commentary on the future market expectations and conditions relies on numerous generally positive assumptions such as the relaxation of the shelter in place orders in the near future a reduction of new supply entering the market and it.
Restart of the economy in an orderly way.
Currently the rental market is disrupted there's a gap between the bid ask price for rental transaction that certain properties in the market.
Rental transactions are disproportionately occurring it stabilized properties offering two to four weeks free rent well other properties are losing occupancy.
April 2020 year over year same store economic rents were up approximately 1.5% well financial occupancy declined 1.3% compared to the prior years period.
We are currently offering various leasing incentives, which includes two to four weeks free rent.
I expect the market will move back to equilibrium in June as a shelter in place requirements are relaxed and we entered this summer leasing season.
Historically during periods of reduce demand our portfolio has benefited from people taking advantage of lower pricing and moving from the outlying areas to the core areas, where our portfolio is located I.
I expect the same market dynamics to play out in the coming month.
Looking at operations post shelter in place leasing applications in our portfolio bottomed the first week of April.
Kind of increased each week since that time.
Our same store financial occupancy decreased 1.3% in April from March.
Roughly half of the decline in occupancy was due to cobot 19 related lease breaks.
The remainder was related to reduce leasing velocity.
This last week, we have seen activity increased dramatically our tours increased 47% at our applications increased 62% over the prior four week period average.
The initial shock.
Appears to be over and now the market is moving to equilibrium.
Now I will turn to April delinquencies.
Delinquencies in our total portfolio on a cash basis was 5% in April compared to 33 basis points for the for full first quarter of 2020.
As the magnitude of this crisis became more apparent in March we acted immediately to form a resident response team to engage with our residents and understanding there are situations identify and resources for them and partnering with them to get them back onto from financial ground.
As noted in S 15, approximately 4600 tenants representing 7.4% of our total portfolio completed our online requests form in April confirming that they had been financially impacted by covert 19 and requesting assistance.
36% of those residents paid their April rent in full.
Another 36% made a partial payment averaging about 50% of their red.
28%, we're unable to pay their April red.
Residence, representing 60 basis points of our portfolio requested to move out immediately which we allowed enabling the residents to move forward with their life and the company to potentially avoid future delinquency.
Of the residents who stated there were financially impacted by Covidien 19.
16%, we're in the food and beverage industry.
9%, each in retail and personal services, which relates to fitness massage or beautician services.
And 7% each in health care transportation, construction and professional and business services.
2.2% of our residents are delinquent and we've been unable to contact them. However, some of them have made partial payments.
Interestingly the delinquency at the property level within the selected market had fairly large variations certain properties were substantially more impacted than others. I believe this disproportionate impact is the root cause of the market dislocation.
Would compare it to randomly located new lease ups aggressively attempting to increase occupancy.
Owners at the highly impacted buildings with respect to occupancy and or delinquency as well as those who are struggling to compete in this new virtual sales world are likely to be the ones aggressively offering concessions.
Onto expenses.
As Mike has mentioned we have withdrawn our financial guidance. However, I want to note some expense considerations utility usage and related expenses will be higher due to the shelter is in place mandates.
In addition, we expect a significant ongoing increase in expenses related to personal protective equipment and cleaning supplies as well as related increased labor cost due to new cleaning protocols.
Finally to protect our employees and residents we have stopped performing non emergency work orders in occupied units.
We have provided residents with self-help videos and other resources to help them thick many of their own issues. However, we expect that there will be some level of pent up work orders as conditions change.
Moving onto our operating strategy in this new environment.
Technology vision and related operating strategy that we had been executing positioned us well going into this rapid change our cloud first strategy enabled a relatively smooth transition as the stay at home orders were implemented we remained fully operational while rapidly transit transitioning to working from home.
The new operating environment of social distancing requires a solid digital presence, including video tumors digital maps self-help information and related videos as well as smartphones for face time tours and other similar tours.
We made the decision early on to rapidly rapidly accelerate our technology enabled transformation.
Completing the implementation of our mobile maintenance at 2.0, our sales lead management system 2.0, and several other initiatives shaving for 12 months off the original rollout plans.
As a restrictions or relaxed we're positioned well for this new environment.
Our operating strategy going forward, we'll balance occupancy in market rents maximizing revenue.
We will likely operate at a lower occupancy than we have over the past several years, we will continue to leverage our technology platform and operate consistent with the social distancing protocols.
Using a combination of virtual tours and live video tours, where sales associate is either onsite to read a prospect via phone or the resident is on site and the sales associate is life answering questions and explaining various features and benefits of the particular unit and amenity.
Our smart locks digital entry systems enable us to provide access to vacant units for self tours, thus eliminating the need for agents to be on site to provide access.
These were very challenging weeks for certain but we are emerging from this challenge stronger and we are well prepared for the future.
Turning to our markets in the Seattle market April 2020 year over year same store economic rents were up 6.1% well financial occupancy declined 80 basis points compared to the prior years period.
Delinquency in the northern technology, driven markets were lower.
In April delinquency in our Seattle same store portfolio was 1.8% the lowest in our same store portfolio.
Moving to northern California in the Bay area April 2020 year over year same store economic rents were up 17 basis points, well financial occupancy declined 1.2% delinquencies for the same period the Bay area were 3.9%.
Santa Clara County, Submarket had the lowest delinquency at 2%.
Well Alameda Cemetery, and Contra Costa County were 4.1%, 6.3% and 7.9% respectively.
Consistent with the rest of the market are for Bay area lease ups 500, Folsom station part Green, Milo and patina and Midtown had very little activity since late March which was the result of both the construction challenges as well as reduced demand in the marketplace.
Continuing south.
Southern California same store economic rents were up 1.1% you every year in April 2020, well financial occupancy declined 1.6%.
In the same period, our southern California region had higher delinquency overall.
Same store portfolio at 7.5%.
Ventura in San Diego delinquency was at 4.4% and 4.5% respectively.
Orange County delinquency was 7.5%.
And Lake County, delinquency was 9.4%.
Our L.A. CBD and woodland Hills, Submarkets, where the hardest hit at 12.1% and 13.8% respectively.
As of April Thirtyth, our same store portfolio is physical occupancy was 94.4 at our availability 30 days out is 6.5%. Thank you and they will now turn the call over to our CFO Angela Kleiman.
Thank you John.
Briefly comment on our first quarter results and provide an update on our funding plans and the balance sheet.
We had a strong start to the year with first quarter same property NOI growth of 3.9% in core AFFO per share exceeding the midpoint guidance by seven cents and achieving a 7.7% growth compared to the same period last year.
As noted in our earnings release.
We have withdrawn our 2020 guidance as a result of the unprecedented uncertainty caused by the covert pandemic.
Subsequently, we have enhanced our disclosure by providing additional data on April operations and more liquidity detailed on page S 15.
Turning to our funding plan for investment stock buybacks and dividends.
During the first quarter, we committed 106 million of capital towards structure Finance investment.
At an average yield of 11.2%.
The funding for these investments it's expect is expected to start around September.
[noise] and occur over a period of six to 12 months thereafter, which means our funding needs for 2020 is only about 40 million.
Similarly, I development funding needs for 2020 is also de Minimis.
At about 75 million. This represents 50% of our total development commitment shown on page 11.
In fact, approximately 90% of the current development pipeline is expected to complete lease up within the next year.
We have begun reducing our exposure to drug development several years ago, because the rate of construction costs increased at a greater pace then rent growth ultimately compressing yield has this is consistent with a plan we have discussed on previous calls.
Moving on to funding sources, we expect to receive a total of 215 million from structure finance repayment.
Which 115 million can be allocated to our investment needs noted earlier.
100 million can be allocated to fund our stock buyback.
Since we have repurchased 176 million of stock the remaining 76 million will be match funded with cash flow from operations.
As far our dividends during the first quarter, we raised the annual dividends by 6.5%, which represents the 26th consecutive dividend increase we are proud of this track record, which few companies have achieved even though cash flow from operations may be lower than original plan for this year to do it.
Remains very secure and covered by free cash flow.
With over a billion in liquidity no debt maturities in 2020, and our funding commitments well covered.
Next remains in a strong financial position. Thank you and I went all trying to call back to the operator.
Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
We ask that you please limit to one question and one follow up.
A confirmation tomo indicate your line is in the question Q you May press star to like to remove your question from the Q4 participants use the speaker equipment and maybe necessary to pick up your handset before pressing the star keys. One moment. Please why we poll for questions.
My first question comes from Nicholas Joseph with Citi. Please proceed with your question.
Thanks, Mike you mentioned the transaction market about your cost of equity for you'd like it feels pretty good external growth opportunities either repurchasing our shares or I'll be happy fish in market.
Would you executed increase near term leverage.
Hi, Nick Thanks for the question appreciate it I.
I think at this point in time, given this incredible on certain key we would like to stay more leveraged neutral in terms of how we approach are different investment types not to say that we won't sell property.
In order to.
Pursue other types of opportunities, but at this point in time until we see greater clarity because I would say at this point in time, there are more unknowns unknowns out there given the unprecedent unprecedented nature of the pandemic itself and so we're going to remain fairly conservative when it comes to leverage for the foreseeable future.
Thanks, So just maybe on operations you mentioned that concessions that you're seeing on some stabilized properties.
Concessions are you seeing on lease properties.
Today in different markets.
Sure. This is John the Lisa properties, the going back to the stabilize just for a second what we're seeing is we're seeing two to four week pretty common is where we're seeing rental transactions that I mentioned, the can comment as far as dislocation because simply looking at asking rents and assuming that asking reflects the actual rate.
But that's what I'm getting at it doesn't necessarily reflect that where the transactions are occurring is where there are some level of concessions that are going on out there on as we moved from the stabilize market and that again back to step that really relates to what I see as its dislocation that's caused by the.
Impact of some of the delinquencies hitting certain properties and not others kinda, creating many lease ups out there I think that will abate in the in the near future as we moved to the lease ups. The lease up concessions are closer to two months.
Theres some other specials that are going on again, they the whole market just kind of expanded out from shorter concessions on lease ups and no concessions on on stabilized to two to four weeks stabilized and basically eight weeks on a on a new products across the board.
Does that answer your question.
That's very helpful. Thank you.
Our next question comes from Austin, Wurschmidt with Keybanc capital markets. Please proceed with your question.
Hi, good morning out there I'm curious what your thoughts are on the collections across your markets married with the comment you have you said regarding the slow rollout of unemployment benefits and then also balancing that with with some of the tenant activism.
That's made headlines flights.
Yeah, I'll take that you know what we're seeing that.
I'm going to start with.
The amazing event, and we're really seeing some good people that were impacted by situations outside your control really all trying to figure it out and do the right thing.
I don't want to focus on the potential of a few bad actors. The reality is we have a lot of great people that are working harder resident response team has engaged with them and we're seeing good behavior by really the majority of those people like knowledge. There's some people we haven't connected with but even those people some of them have actually paid some levels of red they might just.
To be a little bit shellshocked from this whole situation.
My expectation is that as the government.
Assistance rolls out that people will probably make as much rent payments as they can and then again as I mentioned, we do expect the relaxation of some of these shelter in place requirements and that's somewhat orderly challenged but orderly economic improvement.
And so we said we expect to see people starting to go back to work being able to pay rent and for those that can't pay rat. They may end up moving out but again our markets that we're in a benefit from this chronic under supply and so what we've always seen in the past is whenever there is some level of a shock it takes.
You know some time one to three four months and we start to have people from the outside area is moving into our markets and supporting occupancy and therefore rents. So I see have somewhat optimistic view as to how this goes but again wanted to be very candid that where we are today, there's a little bit of dislocation going on right now.
That's helpful. What do you think the likelihood that you collect some of that unpack unpaid or delinquent Brent is a overtime as some of those benefits Roland.
Hi, This is my cost and.
We don't know honestly that falls in the bucket of you know we.
Actually have more and knows the knowns, which is why we didn't give guidance I think this is one of the key issues out there.
And.
You know historically as John said, we have somewhere around 30 to 40 basis points of delinquency and it does not presented accounting issue. We just assume effectively we treated on a cash basis and so it's a little bit different now and Fortunately because of the timing of when all this happened we have pretty much three months to work through.
Through those issues and have better information, we know historically about the further you get away from the move out date, the more difficult. It is to collect and yeah. That's just our experience over time and so we are motivated.
To move pretty quickly and ER, which of course many of these eviction prohibitions another.
Governmental actions prevent us from doing that and so as John said in his prepared remarks, which I think as important here that if someone comes to us and says Hey, I'll move out we're going to likely let them out of their their lease which means that we're going to have a little bit more turnover, but we're going to control the unit at a time when again because of these eviction prohibitions.
We don't have a lot of choices. So we're working through all that is so I think one of the more complicated issues. So we have to deal with with respect to this whole challenging scenario.
That's helpful and I know, there's still a lot of uncertainty, but you guys kind of leading into the preferred.
Preferred equity over over ground up development.
Im curious as you think about coming out of this and how you want to be opportunistic.
How are you weighing those those types of investments.
Oh, Yeah. This is Mike and Adam is here to so he may want to add something but.
Yeah, we still like the preferred equity investment we're not in the first loss piece.
Again, we come in to those transactions at the point in time that they're beginning construction. So costs are known financing some place et cetera.
So we're not taking a great deal of risk upfront and.
Typically those deals underwrite to somewhere in the high four to low five cap rate and the workforce at the around the 85% loan to value ratio, which means our effective cap rate somewhere in the mid fives. So the chances of having distress at that level I think is incredibly.
Unlikely and in terms of.
Investment policy going over going forward, you know direct versus a preferred equity I'll, let adam handle that.
We got to Echo what what Michael said.
We continue to aggressively pursue on the private equity side throughout this this crisis we've we've.
Underwritten deals a little more conservatively increased interest rates going up commensurately with our additional cost of capital that's happened over the last month or so.
And we've continued to identify deals and and we're in the process of due diligence on a number of preferred equity deals.
Going forward.
There are there are definitely development deals out there and we'll continue to track and monitor we there are some expectation the costs will come come back toward us.
So with decreased construction, we haven't seen any of it so far and we have Oh, we have our finger on the Paulson west side with a number of private equity deals out there right now so haven't seen a decrease in pricing and and sellers are very very hesitant to decrease their pricing expectations. So I think the development worldwide.
Hi Tech I want to pause, but but we continue to like I said aggressively pursue on the upside.
Thank you all very helpful.
Our next question comes from Nick Yulico with Scotia Bank. Please proceed with your question.
Hi, everyone I just want to first ask on the market rent forecast, you gave which is for market rents being down about 3%. This year, just give us a feel for how fast that could you know manifesting your portfolio in terms of a decline in new lease.
Rates and I guess Im also wondering you know.
If if the impact could be bigger than that on a short run basis in your you assume some sort of recovery and rates.
Yeah on the back half of the year any perspective, there would be helpful.
Oh, Yeah, Nick this is Mike and I'm sure. Mr. Burkart has an opinion on this one as well. So I think when you have here is a shock to the system. So.
And anecdotally lots of people that cant afford their apartment potentially moving to different places and other things so that'll be the shock to the system and there's a recovery. The recovery is almost always people backfilling from further out locations into areas that are closer to the jobs and and that we benefit from.
And that overtime, but just takes time to play out. So this presumes since we were up 3% in Q1.
On F 16, you know last quarter and now we're at minus 2.8%. It assumes a pretty dramatic drop off in market rents of course, we don't turn units. We turned units you to ratably throughout the year, you know I think part of that because we enter is traditionally a more seasonal period. So the.
Fourth quarter is a little bit more challenging for us on the demand side anyway, we still have the deliveries of of apartments into the markets and so we think it will be pretty choppy going into the fourth quarter and that we think it recovers from that point on so.
The other point I would make is John's comment about a stabilized concessions I think that stabilized concessions are assumed to continue in our economic growth forecast on page 16, and again just to remind everyone. What the says this is a scenario based on macro factors effectively.
You will supply demand factors when you've thrown into our our model for what happens with various supply demand factors what happens to rents. This is what we get theres still a whole bunch of unknowns on top of this you know again.
The policy issues, you know will there be more regulation.
In these markets, which we don't see we think theres been plenty of regulation actually, but we don't know what's going to happen without the cadence of of move ins and move outs, we can't can't predict that and.
Yes, the collection of the delinquency is another challenging subject. So that that's why we decided to give the this data on F 16, without giving guidance because there's a whole another level of assumptions and we think that there's enough very large assumptions embedded in F 16 that it just didn't make sense.
To push it further.
Okay.
Okay. That's all for Mike and then just in terms of.
Yes supply if we look you know Oakland and San Jose or or two markets that are facing some of the biggest supply deliveries in the second quarter third quarter. This year.
Is your sense that any of those projects have now been.
Delayed in terms of timing and then also if you could just maybe tell us on a real time basis, what you're saying for projects that are delivering and lease up I mean is it too you mentioned two months earlier is that that norm in these markets is at worse than that.
Thanks [noise].
Yes, it's it can be worried that but you know I would.
Focus you on the percent of supply total supply to total stock which is.
Good 0.6% for the portfolio and northern California is a little bit higher at <unk>, 0.7%.
But then again northern California also has more momentum I think.
I think we believe the tech markets are the winner.
Here and because their business model served.
Pretty covert 19 resistant for the most part not that venture capital hasn't been affected it has a little bit and jobs haven't been affected they have although when we look at for example, the top 10 technology companies job openings are down a little bit, but they're still very strong. So our view is that.
The tech markets do better here and we'll continue you know on the path of.
Leaving the West coast markets and obviously, that's been a key part of our investment so I guess I'm, what I'm, saying is I'd be less concerned about supply in northern California, given the strength the overall strength of the job markets and the company's here, probably if we have a concern even though it appears to be the least amount of supply of southern.
California, because it doesn't have the job drivers that northern California in Seattle half.
Okay. Thank you.
Thanks next question comes from Neil Malkin with capital One Securities. Please proceed with your question [laughter].
Hi, everyone.
We'll go back to.
Okay, all right I, just wanted to kind of go back to.
Awesome brought up I believe in your supplement you called out 2% of the delinquency or is there are 2% of the total rent if people who are not affected by kogut, but haven't paid so that's basically the moral hazard I guess I'd be interested in and if you can at all.
Right.
You know.
Maybe walk through what markets, you're you're the most concerned about you know obviously people talking about rent strike I'm. It seems like the legislature and and judges have no interest of.
You know pushing through evictions anytime soon I I guess, you know any any more color on how you see that kind of playing out when you see the eviction I guess market normalizing and how much worse could that moral hazard guess.
You know as we continued to have and elevated unemployment.
Environment for a longer period of time.
Yes, that's a good question and I believe you're talking about on F, 15% to 2.2%, which is the percentage of units delinquent in April not requesting assistance. So I guess, a most of that category is people that we havent heard from and yeah.
Think that there are really two components. There is the moral hazard component those that you're just want to take advantage of the situation the.
Various laws and the reluctance of the course to process, a evictions et cetera.
But I think there's another piece of that which is people that are just overwhelmed and or for whatever reason.
Ignored there they're notice so I think it's still a little bit early to tell exactly how that breaks down.
I guess from my perspective.
It's not a huge number and the scheme of things because I.
I know when we were talking to our board, we gave them a much larger range.
Delinquency.
And so I think our actual experience is better than what we thought and I was concerned that.
To your point that if you're going to give people a theres no hammer as it relates to evictions, where maybe late fees for some period of time as part of our overall program to try to help residents through this this difficult period et cetera that there might be more of those people that just say oh, I'm just aren't going to pay.
Hey rent keep in mind bad.
They still have a credit issue and so there is a reason to pay rent they still older money and yeah, we still fully intend to pursue the collection effort and we will have to approach it a bit differently given the magnitude of it.
And so we were going to still push hard to to collect at where where we can so this falls within one of the unknowns and we're not sure exactly what's going to happen with that category. Fortunately, it's only 2.2%, yes like let me. This is just that in my comments I mentioned that those are the people that we haven't.
Spoken with but I also said some of them have actually paid parcel payments so to be clear you can't look at that group in say that they're moral hazard.
Give me an example, one of the things we did it Essex is we early on realizing the.
Challenge that this was for so many people we identified residents that have been challenged with often the path. They may have had you know reviews that they wrote that they were upset with for whatever reason every reached out to them just to check and see how they were doing the feedback we've got was amazing, but what we found as many people were somewhat shellshocked, they really just weren't enough.
Acting with the public and so we had people that were saying Wow call me back next week and so I think how this impacted a lot of people with some people just kind of went back into their units and just.
Yeah disconnected from everything and then others you know, we're just trying to work through it maybe they were working in there you know connecting with other people. So I don't associate that 2.2 as being reflective of moral hazard I recognize it maybe some of that out there, but I think you know people will come along and we're seeing good.
Behavior overall, we're hearing amazing stories, so I wouldn't associate that with moral hazard.
All right appreciate the detail Ah yes.
When I have is in terms of the.
Each one be a visa programs I know I know a lot of that goes to tack and a lot of that goes in here.
Your market and so I'm just wondering if you have any sense as to.
What that looks like going into the summer.
[music].
Is that is that sort of demand or occupancy that you assume now will be bought.
And then the the venture capital side as well I guess sort of like the two no specific to the west coast habit demand drivers just had questions on that.
Yeah, Yeah. This is Mike again.
We haven't spent a lot of time on the H one bees, you know given all the other things are working on anecdotally.
We have not hers.
In terms of what what they're actually doing what we know that they don't qualify generally for unemployment and therefore to the extent their displaced.
Dan maybe there's a possibility that they will they will go home and so that's out there, but it's just it's too hard to tell at this point in time and I'm, sorry, I missed the second part of your question.
Oh, Yes, your sorry, I was just I'm asking about venture capital you had alluded to it.
Yes, yes, yes.
Venture capital so.
Yes, I did I did Ah, yes venture capital I mean, it it's still remains strong in our markets still above the.
Dot com Erad the last.
Funding by quarter.
Last quarter was first quarter 2020 was 12 billion.
Versus about 10 billion in the Dot com period, So still strong again anecdotally were hearing that.
Venture capital valuations are.
Dropping pretty substantially.
By by a big number we also when we go through the war notices are the notices of layoffs. There are a lot of venture capital.
Funded companies that are on that list, so trying to figure out how to.
Now to continue operations at a time when.
Valuations are not really attractive so I would put us in the bucket of still a lot more unknowns and known says the venture capital World is trying to.
Figure out what to do I know in our case, we have our technology fund consortium of that there.
Recent other multifamily owners put together and we're seeing some pretty attractive deal flow as a result of that and get a lower valuations overall and so we think it's actually a very good time to be an investor in.
Technology at this point in time compared to the recent past.
Appreciate the color. Thank you got.
Thank you.
Our next question comes from Jeff Spector with Bank of America. Please proceed with your question.
Good afternoon, and thanks for all of the thought so far if I missed this I apologize can you discuss me collection, so far what you're seeing.
Yes, yes, you Didnt. So this is John there materially consistent with April one thing I would say as.
Because of one of the FIS balls things can move around a little bit, but we're right on path with April.
Okay, great. Thanks, and then I believe Mike in his opening remarks talked about.
An expectation for a decline in market rents in 2020, I believe I heard no negative 2.8% you know just given what's going on it just it doesn't seem so bad to me again, I know, it's down and you were expecting up 3% plus but.
Is that correct in can you put that in perspective, let's see verse.
What you saw during the tech crash are great recession that managed was it minus 2.8%.
Yes, Jeff, yes, but keep in mind.
This is actually published in F 16 of the supplement where we try to give you an idea of what we think market rents are going to do.
On average for 2020, and so we come to 2.8%. However, keep in mind, we have 3% rent growth market rent growth in the first quarter. So it to averaged 2.8% for the year, we expect rents to decline pretty substantially.
Between now and year end and again I go back to John's comments about stabilized concessions, because if you give away a month free.
Yeah, that's actually a pretty significant.
[noise] reduction in market rents and I think it's somewhere in that magnitude, where we expect again as we're working through all the delinquents and some of them are moving out and we created more units that we would ordinarily have to rent and now we have to draw people into those units that we think we're going to have to provide.
More incentive to do that and so that will be probably mostly in the form of a concession I think that's the environment for the rest of year and then.
I think John points is out to then we probably hit equilibrium at some point in time.
We have say toward the end of year, and then I think things can recover from that point.
Does that make sense.
Yeah, and can you compare that to minus 2.8% for the year to let's say happened during the tech Grasher great recession.
Yes, well.
You know overall Mart rents declined in the.
Financial crisis about 15% over a couple of years in terms of but keep in mind, we don't we don't actually realize that or realize that over time, because we have leases in place.
And I'd actually have these numbers so in 2009 to reported.
Revenue drop was 2.8% and 2010 was 3.3 percents, we had 2.8% same property.
Revenue dropped 2.8% in 2009, 3.3% 2010 on a overall about 15% reduction in market rents.
And so as you can tell I mean, the reported numbers are they.
Quickly less than given leases in place.
Compared to.
Compared to the market rent numbers.
[noise] does that help yes, very helpful and I wish everyone well. Thank you.
You too Jeff.
Our next question comes from John Kim with B M. BMO capital markets. Please proceed with your question.
Thanks, Good morning.
I was interested in the commentary about the increased tourism applications in the past four weeks and trying to compare that with the 140 basis points.
Occupancy that was lost during April.
Do you think that's with increased activity that occupancy has basically troughs already.
And how did those metrics compare year over year.
Yeah. So.
The I definitely believe that.
Activity trough to trough in the first week of April and the commentary that they gave related to the last week versus the the April average and it was up substantially you know our applications were up over 60%. So we saw a lot of market activity and the so very.
Good outlook going forward. We you know what we're seeing is the market is moving toward equilibrium. We're offering some level of concessions people are renting units things are going into right direction. That's a good thing as it relates to year over year activity, we're definitely lower so little harder to.
To compare because when you look at say tours.
We're up an infinite amount on virtual tours right now we had no virtual tours a year ago and you know when you. So when you try to compare those numbers a little challenging that's why I gave away the trough, which was the first week of April and then this last week, where we are in comparison.
We're continuing to see this week good leasing traffic good activity.
But overall definitely the market for April was yeah, you call Shellshocked. It was it was less than what it was a year ago in April, but given exact comparisons it'd be misleading.
Okay, So an activity as a good leading indicator.
I was wondering if you could also clarify the difference between financial in physical occupancy on its a team.
That's a big 100 basis.
One.
Yes financial occupancy it relates to.
Whether or not someone's in our unit for the full month or the period, whatever the period as compared to our scheduled rat, whereas physical occupancy is just simply looking at the units and whether or not there. They are occupied so the.
At one point in time. So are you know we quoted our physical occupancy as of April Thirtyth, which was on that day, whereas our financial occupancy for April would've been the whole month, so little little bit different. The reason we were doing that as we tried to give out people get full transparency give a good understanding where we ended up because we do.
It ended up lower than where we were for the month I will say, though that things have picked up and what you would expect it's consistent with what I'm, saying, we do expect occupancy to continue to pick up I think that was probably are low point. When you think about it with a traffic being the low at the first week, that's typically going to really to Aki.
Since the being the low several weeks later and then all of US then it picks up. So this whole thing is working out as expected consistently and I expect our occupancy will continue to pick up going forward, which it is right now.
So is it fair to say the physical occupancy is leading indicator for the financial.
And then the tours and applications are leading indicator for both.
Yeah.
Okay.
Thank you.
Sure you're welcome.
Our next question comes from Alexander Goldfarb with Piper Sandler. Please proceed with your question [noise].
Hey, good morning out there and apologize for the background noise or.
So a few questions first so I think you guys are pretty bold sublet tenants do their own home repairs I can't wait to see the the photos of the aftermath, but our two questions. So first Mike can you just you talked about the different markets and Seattle strongest the northern really suburbs a weakness.
Our as rents collection can you just maybe I missed it but can you just give some color on urban versus suburban and especially that you guys have sold down you know you've been selling down your urban exposure. So just sort of curious how you're seeing how your portfolio at rent collections et cetera play out between that dynamic.
Oh sure Alex.
Good question and Yeah, I don't want to see the.
The drywall patch job that our residents do for sure.
Let's see the.
Hi.
I think.
Yes, I can talk about liquidity I'll talk to do just start the delinquency in first off Alex.
Hi surface up so some of the self-help might literally be replacing a lifestyle, but anyway.
The as to the delinquency you know as I mentioned, we haven't really seen an a.
A high rise versus low rise or rent were not seeing correlations as it relates to that when I look at at the what occurred certain assets were impacted more than others and when I dug deep into that you could see the logic like an asset that perhaps next to a mall or one that's highly impacted by school and you can understand what was going on.
But then when I tried to apply that fact to other assets. It had similar situation next to a mall 10 miles away or highly impacted by school. The results weren't the said it was really interesting and unique and what I did find though is that there was a submarket distinctions.
And that's why brought up the sub markets and so downtown la.
Was highly impacted that's why brought that went up specifically as was the woodland Hills and woodland Hills has exposure to the into entertainment industry. So we did see those types of impacts. We also saw regional impact lessened the Pacific Northwest and of course, there we have no.
A lot of assets on the east side, many of them our garden style and that type of thing really low impact and then in the middle was the bay area and more in the South we had greater impact some of it wasn't disneyland at that.
Hi, Alex Let me, let me pick up on that so so yes, we have sold to some buildings in the downtown.
Maso, what you'll recall was sold in Q4 last year and Ethan hope the year before.
One in downtown San Francisco, one in downtown L.A., and I would say.
Most of that motivated by some of the issues and the grittiness of the downtown and our expectation for some of the.
The areas to be cleaned up more quickly and transition more quickly than they did so I think that that continues to be a pretty significant issue.
Here on the West Coast and.
Our performance.
Has been spent okay and the downtown as it hasn't been great.
Because of some of those factors and so are we become more suburban overtime and.
Again with.
We want to own property in those say b minus a quality area in areas near job, so never far never too far from the major job nodes and.
I'd say the suburban generally has outperformed the urban here on the West coast I realize that as other markets.
Different outcomes.
Okay and then the second question is sort of going to that geographically you. Obviously, New York here, we've been really hit hard, but speaking to folks in the rest of the country, including out even in the Bay area. It seems like hope it has really been much less of an impact and if there's a sense of people want to get back to their jobs much quicker than.
Yeah. The politicians want so in your view do you sense that Theres. This pent up demand where people are ready to get back to their jobs and you guys maven rebound quicker than.
People they just because the level of cobot is less and the people are just are ready for it because they don't have to rely on mass transit or do you think that it will take longer to reopen in your markets.
You know it it is the the million dollar question and I and certainly I don't have an answer to it.
Put this definitely on the unknown category.
I think that we tend to have high income levels out here and.
The people that are earning higher incomes you want to consume services and the services for the most part you know restaurants and a variety of things those services are really not open at this point in time. So I think that there is a motivation to to start opening things up again, having said that.
I'm there.
I think the governmental entities are incredibly.
Let's see conservative in concerned about.
You know surge capacity in some of the other issues that go along with it. So we're going to take it one day at a time and can't exactly predict what's there, but I totally agree with you I think that the the demand for surfaces.
Is building and is pretty intense out there and so hopefully that that motivates us between various different things on the news about this in terms of closing they'll ABTS boy, that's what that's a tough one but because people want to get out and and go do thing so.
Can't exactly tell you, what's going to happen, but I definitely can feel the pressure building.
Thank you.
Our next question comes from Rich Hill with Morgan Stanley. Please proceed with your question.
Guys I'm, just one follow up on the negative 2.8% macro.
Macro forecast by the way. Thank you very much for that I'm sure. It's not easy to put together right now, but I think one of the things that I'm certainly trying to understand I think a lot of people are trying to understand is the is the cadence of of that and I'm not looking for you to give a specific guide, but maybe if you could just walk us through if you think you're going to see.
Deeper to Q 20 trough and then a quick a rebound.
Or or is it going to be more and more stable, but down over the course, the year and and the reason I asked the question as I I think about your I think as a negative 7% job growth forecast for the year, which which is a little bit more severe than Morgan Stanley was projecting which maybe suggest that you're expecting it to be delayed out, but maybe not as.
Deep into Q. So any color you could provide on that that would be really helpful.
Yeah Rich a this is Mike and I think I went through some of this previously but.
The job forecast and the GDP forecast or estimates again, we survey a wide range. We don't do any fundamental research as it relates to the macro economy and as you know there's wide dispersion of what people think is going to happen and as we sort of triangulated all that we got the minus nine.
1006, 0.6% job loss in our West coast markets. So that's where that came from we don't.
Again, we don't add we don't try to add value. We just try to report the facts as it relates to that what what this is intended to do is take those macro.
You know forces and consider what would happen with rents in a normal situation because we don't have a coated 19, a model because we've never been through this before but at a normal situation. If you had minus 6.6%.
Jobs job growth and you had you know about.
9% apartment deliveries, what would happen with rents and so that's where the 2.8% number came from in terms of rent forecast minus 2.8% and again that compares to plus 3% what we achieved in the first quarter. So in order to average minus 2.8 for the year when you start with.
Three months of three yes things get.
Pretty ugly in the second half a year. We view. This is more just part of the the shock to the system. There has been extraordinary shock to the system and I think John's equilibrium comment is the is the right when we need to get back to equilibrium and there will be short term pain in order to.
To get back to equilibrium and best I can tell it's going to be somewhere around one month free on stabilized communities, which is sort of embedded into the minus 2.8.
So that's where it comes from and but this is just our our modeling. This is what happens in our rent forecasting model. When you put these various pieces and.
Again, it doesn't reflect a coated 19 scenario.
And the extraordinary uniqueness of the situation. So it could be different and again. This is why we didnt follow up with this and then pushing the guidance because theres a whole another set of assumptions that would go into that.
Yeah, Yeah, and I I reckon that that's helpful and I recognize I'm asking a tough question.
It sounds like given the one month free concessions right now and hopefully those are burn off towards the end of the year, maybe we connect maybe we could assume something more than severe than the negative 4.75 that that the average for the next three quarters would assume into Q and then gradually getting better because I think you had noted that you.
Getting to inflect and one Q2 <unk> 21, So I was just trying to get my hands around what is what does that average look like and it sounds like it might be a little bit deeper and to Q.
But then start to get better I, Switzerland as the your progress.
Yeah in our model it gets progressively worse because again you have seasonality that comes into the equation. Although he would say you know Q3 is normally our best quarter, let's say and we're not going to get the benefit of the positive seasonality and so maybe the negative that which to which typically comes in the fourth.
Quarter.
We will be more muted, but we just don't know so we've changed the way that our model runs as it gets progressively worse and then we'll have yeah, we'll hit bottom sometime in Q4, and then rebound from there.
Okay. That's helpful and I'll follow up with any questions. Thanks, guys I appreciate the color.
Thank you.
Our next question comes from particle well with Zelman and Associates. Please proceed with your question.
Oh, Hey, guys first of all.
Thank you for all the great color all the work you've done.
Hi, congratulations on buying back stock taking downtime in a row.
That said I really wanted to get your thoughts on.
You guys talk you attract the labor market really well, we've got great comes on the path.
How about you know what job trends or like what is the work that are really tell you about not just startup employment, but in one from the big Tech companies and how that compared to last year, you contextualize that.
We can.
Let's see let me pull out a slide on the big Tech companies, which I have here somewhere.
Again, we.
Theres a piece of it that we don't know and that is to what extent do things open up as we as you know, California, Washington to open up how many those jobs will come back you know will it be half the restaurants, they get that become fills that given social distant same and that's kind of our best guess.
But that of course means that the other half don't come back immediately and what happens with them. So this is part of the unknown with respect to that part of it and again I think the good thing about our markets is that we have high income people, we generally around the better areas and people have be I want to consume services, which.
Our not not there right now, but I think there's going to be a lot of pressure to bring them back. So I guess, that's the first statement in terms of specifically our.
Our process of tracking what's happening with the top 10 tech companies all of which are headquartered in ethics market.
We have.
Let's see total openings at 22900 as of May 1st 2020.
So that compares to.
Last quarter of March 27th it was up about 28 or 29000, so there's been about a 20% reduction there, but if you go back in time you hit about the same level as Q4 18.
In terms of the number of open positions. Some Q3 Q4 18 in terms of the number positions open so I would put that in the still strong category and even though it's it's it's off it's off the all time high that we achieved last quarter. So.
I think still pretty compelling.
Does that help im just underscore the follow up to that.
I think John.
And that is really helpful by the way I mentioned the coupons.
Equilibrium pricing and I was just wondering.
What do you guys see an equilibrium maybe 2021 once were pop this uncertainty.
The economic environment stronger than 14, 19 or is it something where we still have you know.
Employment rate on pricing power inherently is not as strong as the late cycle.
Yeah.
Again I think this is goes within the.
The category of Hey, there's been an extraordinary shock to the system and the markets are trying to find equilibrium, but they're changing as time goes on again. There. There are people that are on unemployment some of them will be brought back and to work and some of them won't have a job given you're probably going to chop the the capacity of restaurant.
For example, and maybe that's made up with you know.
Delivery or pick up type services or whatever but.
It's just going to be different end and I would say, it's beyond our ability to really predict with any degree a certainty when it comes to what that scenario is going to look like which but it will we will have equilibrium historically when you talk about the great financial crisis, or 911, or the dot com period the.
Yes.
These periods go on for.
You know maybe.
18 months, and then kind of turned the corner in this case I think we've had all the negative part of that 18 months in one month and so it's all been compressed and then now we have the second part where you know, we're hopefully hitting bottom and now we're recovering so I would expect that whole process. Therefore.
To compress to maybe nine months or something like that.
Got it Thats really helpful I'm just to be able to block.
One.
Could you give us a range of.
Prices than what you bought back stock idled the average bill to 27.
I may be reaching go but I've been trust.
Hi, This is the Angela I think you're trying to be a troublemaker here.
Now, let's leave it out you know that's that's our average and that's only report.
Thanks, Thanks, Yeah, I'll give you.
Hi, Brian.
Our next question comes from John Polasky with Green Street. Please proceed with your question.
Thanks, just one from me, Mike there's been a flurry of cities to enact their own type of rent freeze measure and I realize most of them wont really impact your portfolio at all said BYD by Costa Hawkins Theres a few examples and.
Cities.
Violating Costa Hawkins right now, but again, it's de Minimis impacts, which Marlins in your portfolio and when you step back and evaluate the legislative landscape is there anything on your radar that would prohibit your renewal pricing power beyond your own proactive in 90 day.
When no sure any any issues with any cities later in the year, whether you won't be able and push for knows.
Well, John I know, you guys tractors pretty well and and we do too and there have been all kinds of proposals out there.
Fortunately most of them have not move forward and.
In California, obviously, we have a before community to which is statewide rent control imposing a cap of CPR plus five with a cap of 10, so we're managing through that environment. Fortunately.
The more aggressive.
Proposals have not been adopted thank goodness.
I'd say the one that was most concerning really maybe two of them what is L.A. extending the.
The rent payment program out a year and and then there's the judicial council that.
Essentially not going to hear eviction cases.
For some period after the state of emergency as Ray is so.
So we track it but we think that for the most part.
We're working through it as John said the good news is that most of our residents have chosen a higher path of working with us to work through their situation and.
Again, I looked at that that 2% bucket that hasn't communicated with us.
As being.
Probably ultimately good news with respect to those that are trying to take the maximum advantage.
These various laws.
Got it thanks for taking the time it.
Thank you.
Our next question comes from Wes Golladay with RBC capital markets.
Please proceed with your question.
[laughter].
Wes you there.
Oh, sorry, the figure out this whole mute function sorry about that I'm looking at 16, the 2.8% of rent decline have you made any adjustments to the Essex model for the the carriers that neutralizing job loss.
Oh, no I don't know we have not again. This is your take the macro inputs job growth GDP growth supply and.
Straight. This is what comes out of our model if we put those factors in.
And again for the for the marketplace. So I think the.
The cares act will definitely helping you know thats, referring to as 16.1.
And the has a pretty.
Great unemployment benefits that are out there I think that helps with respect to people hopefully being able to stay in our units longer and paying rent for a longer period of time and minimizing the damage.
Even if it had a half a month.
Yes that may be okay at least they don't accrue a balance that become so large that they just can't we just can't finance. It. So I think it will help it'll help more on the delinquency side, probably then it will and the rent side.
Okay, and then or did you comment already but retail exposure.
No I'm glad to it that retails are really small part of our portfolio like one one and half percent.
Our retail delinquency was a basically about half of the retail tenants paid.
What they have so is it was roughly in line with other things as seen in the industry you know that group.
Of retail where they're located at multifamily sides.
Typically a relatively handed out their service providers, so when that business shuts down they struggle, we're working with really all of them and ER are pretty hopeful that they'll be able to reopen back up and we also will work with them on payment plan. So but that group was hit hard and we've seen that it really across the industry and everything I've seen.
Okay. Thank you.
Our next question comes some Honda else Andrew was months to home. Please proceed with your question.
Thank you, so frankly fancy Hello, good morning out there.
Good morning and up.
So Mike I guess I was intrigued by your comments earlier on not being afraid to capitalize on the transaction market should the right opportunities emerge and I had last back to the time around a the great thing that's recession. When you got backed up the truck and acquired a sizable amount of newly completed or near completion construction in lease up type of assets.
Those deals in the merger with the Army were instrumental in lowering your portfolio age broadening out things Submarket and price points elections in their California markets I guess I'm curious if you would be similar only interested in buying up busted condo projects or development lease ups in size and would you be more willing to calls from the bottom good portfolios funded or perhaps the fund structure student starts.
Yes.
Yeah handle those are those are great questions I guess the difference between now and the great financial crisis.
And the Great financial crisis, you had you know mortgages being made to people that couldn't afford to pay them back and the amount of distressed within the housing sector was extraordinary as you'll recall, which created this opportunity to buy vacant.
Brand, new condo buildings at a 50% of replacement there is nothing even close to that out there this time and.
Again my comments in the script about record high positive leverage.
If you take a typical deal that might be a six let's say six and a half unlevered IR.
With positive leverage you're probably in the high nines to low 10 somewhere in that zone in terms of IR Levered IR. So I think that that is going to prevent.
Any kind of significant distressed within the markets of course, there are always some transactions that managed to find very aggressive.
Lenders and they managed to leverage or property up to 90% or or more.
And they're out there for sure but you know there are few and far between I guess at this point in time. So in terms of our basic view of transactions, we view it as okay. What can we do with our portfolio on a leverage neutral basis. So what's the arbitrage ability within our port.
Folio, what can we sell and re and replace at a higher overall yield or growth rate or IR, let's say and and how do we transact. So we're always thinking about it that way and so.
So I would I would say that preferred equity still pretty important to us that still sort of at the top of our list.
And ER and also I would say.
Certainly joint ventures, which.
[noise] take greater advantage, then on our balance sheet were.
In a bit higher leverage in the joint ventures.
When we began and then of course that leverage drops overtime, but utilizes.
The leverage to us a small extent or to some extent beyond that so I'd I'd say those two things or.
Transactions that were looking at and are interested in and.
I didn't mean to exclude Adam from this discussion because he's the expert at Adam what what did I Miss.
You nailed all Mike.
Yeah, [laughter] that help hemoglobin.
Thank you appreciate that I want to go back to an earlier question I guess I'm a different angles. This I'm sure you're hearing.
Anything in terms of rent forgiveness bills being contemplated in California, Washington.
Beyond the patent protection on where the temporary ban on addictions that we've been we've been hearing here as I'm sure you know in New York State as can contemplating such a forgiveness Bill I think its and why when it to five so I'm curious if there's a.
Anything you're hearing and it's just more broadly.
As a concept that even work or how would that work.
Have you ever government stepping into telling landlords to forgive one or two or three months, we record curious on maybe what you're hearing and what's your thinking on on that.
Well clearly this is California, and so you're going to hear some of those things and there have been various proposals out there.
And we don't think that theyre constitutional, but that doesn't necessarily stop them from being circulated.
They are actually is a a bill and in Sacramento Aviate 28 that would give the courts.
The right to force landlords under certain circumstances to reduce rents by 25%, we think it's unlikely but.
It's out there we think is very unlikely, we don't think it'll happen and again.
From what we understand and all these discussions throughout the west coast, which are mainly cities.
There have been a lot of proposals, but the city attorneys have been pretty good at pointing out the legal peril with respect to that position. So.
They have those bills have not been passed and I think you know at this point in time. It appears that were beyond that period, where we're getting what seems to be a new.
A new legal mandate a day, we're kind of beyond that period now and I think were more in the period up let's figure out how to get back to work and open up so I think that.
From a timing perspective.
The time for those bills has come and gone.
Got it.
These are the thoughts you say people.
Thank you.
We have reached end of the question answer session and now I'd like to turn the call back over to Michael Schall for closing comments.
Yes, Thank you operator, and thanks, everyone for joining the call today, please call our email us with any questions or comments and our best wishes to you and your family. During this challenging time. Thank you good day.
This concludes todays conference you may disconnect your lines at this time that by petition thing.
The conference call has ended please disconnect your lines at this time. Thank you.